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Why Do Performance Management Systems Fail?


Wed Jan 27 2016

Why Do Performance Management Systems Fail?

Performance management, and particularly the performance review, is one of the most debated topics in organizations. Why are so many employees unhappy after their reviews? Why do managers often dread conducting them? You’d think this problem would have been solved by now, judging from the hundreds of papers and articles addressing the importance and efficacy of performance management. And yet:

  • Only 14 percent of organizations are happy with their performance management system.

  • Of the 104 organizations we’ve studied at Metrus, 76 percent of employees agreed that their performance goals are clear. But in many organizations, less than 50 percent of employees say they have goals linked to the department or company goals

  • Metrus research shows that 64 percent of employees in 69 organizations say they received feedback that helped them improve performance, but in some organizations it’s as low as 38 percent.

  • Despite the enormous amount of time and effort invested, only 23 percent of HR executives think that their performance management process accurately reflects employee contributions.

  • According to research in Performance Management Is Broken, only 8 percent of companies report that their performance management process drives high levels of value, while 58 percent said it is not an effective use of time. So, why are we in this quandary?

Clarify the Purpose of Performance Management

Try this: Ask the major stakeholders in your organization why they conduct performance reviews and what they hope the performance management system will deliver to them. You’ll likely be surprised by the variety of answers, such as:

  • quantifying performance—identifying high, medium, and low performers

  • identifying developmental needs to increase capabilities and performance for the future

  • ensuring that people are being rewarded on the right comparative basis

  • assessing turnover risks and encouraging the “right” people to stay.

This thinking reflects a confusion of thought, which is a problem. Clarifying the purpose of performance management is the key to a healthy performance culture. The primary purpose of performance management is to align individual contributors with organization strategy. If your organization has different purposes, it should communicate those intentions clearly to all stakeholders and ensure that the process supports the intent. If everyone understands performance management’s primary purpose, it’s far easier to debug and clarify your current performance management process.

Other Reasons for Failure

Based on our research, the biggest factors that drive failure beyond clarity of purpose are:

  • focusing too narrowly on the performance appraisal itself, and not on the entire performance management system

  • great performance management designs that aren’t executed well

  • little accountability for effectively using the performance management system, including a paucity of performance management success measures.

Execution is strongly connected to what individual managers do, while the overall success of the performance management system and accountability lies primarily with senior leaders and HR designers. I will address each of these factors and how organizations can overcome them in my upcoming blog posts.

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