The last 20 years have seen organizations fast transitioning and adapting to the latest technology, business ideas, and coming up with innovative solutions aided by technology. The pace of change is extremely fast with a high churn of ideas, plans, and strategies, almost daily.
However, the ramifications of these changes on talent management run very deep and organizations need to be cognizant of them, to be able to manage. As per Mercer’s 2019 Global Performance Management Study, little has changed in how performance management is designed and executed in companies since its previous report in 2013. The study reveals that only 2% of companies interviewed consider their performance management approach to deliver exceptional value.
70% of companies feel the need to improve the link between performance management and other talent decisions.
Talent decisions refer to the acquisition, development, retaining, and succession of an employee within the organization. Depending on performance evaluations, the company decides on bonuses, pay hike, promotion, etc. As per Mercer’s report, 70% of companies feel that there is a need to improve the link between performance management and the talent decision making process. And yet there are seldom any efforts by organizations to do the same.
Employees now expect a bespoke experience that is based on their individual performance and expectations. The workforce today is capable, confident, and not hesitant to switch companies if not satisfied with an organization. The changing size, shape, and skills of the workforce demand for a complex system of continuous interactions, processes, and technology to create harmony in the workplace.
Most companies feel their efforts are wasted on creating a performance management system due to a lack of interest or motivation in employees. Yet there is little to no change in the performance management indicators over the last six years.
The above trends present an opportunity for HR to evaluate the employee talent pool. The data accumulated will help to measure the Return on Investment of talent programs and help to influence the management’s business decisions on how and where to spend.
To create a better performance management system, there arises the need to establish a digital and 360-degree feedback and review system that aligns with an organization’s business goals. The need to keep employees engaged with the organization is imminent and requires constant interactions between employees and their managers.
Mercer’s Study has come up with four key elements (Four Truths as Mercer calls them) that really make a difference in Performance Management. These are:
Across industries and companies, driving company performance goals was the #1 reason to have a performance management system in place. Setting performance expectations is the foremost reason to receive the greatest business value for companies.
Despite 45% of responding companies stressing on how the goals are cascaded from top-level down the hierarchy, more than half of individual goals are created in vain. This unawareness of how their individual goals contribute towards a business’s objectives can result in a feeling of isolation and decreased performance and engagement.
An employee should be aware of how his work or performance aligns with business goals. Clarity in business objectives and individual goals can be established through techniques like OKR i.e. Objectives & Key Results. The technique enables companies to define business objectives and align individual goals with them.
In any organization, employees interact directly with their managers rather than going up the hierarchy or management. Mercer’s study found that 65% of companies feel the need to improve feedback between managers and employees.
To get the greatest value out of a performance management system, performance management should be tailored specifically to a particular employee. Providing feedback that will contribute to accelerating their performance, learning experience and new skills acquisition is the key to drive maximum value out of performance management in an organization.
Mercer’s Study shows that employees want to work for companies that get to know them personally and help them navigate their professional development journeys. While every company understands the importance of human resources for their business, there are only a handful that invest in or reward their people mangers on their skills and abilities. Employees are looking for continuous feedback on “how” to improve. Companies can invest their efforts in defining goals & expectations, establishing 360-degree continuous feedback, re-evaluating their reviews and rewards system, and provide coaching to fill skill gaps.
Year-end performance ratings and ranking are still a part of performance management in the majority of companies. While the number of companies that eliminated this system has doubled over the past six years, globally, only 15% of companies have eliminated the overall rating system.
Ranks and ratings show a one-time snapshot of an individual’s performance rather than laying the foundation of continuous feedback and assessment system. The study shows a weak relation between the elimination of ratings and having a feedback-rich culture. This has some unintended consequences.
Dropping the rating system but not having a good feedback system may adversely impact the overall employee performance as the employees are unaware of their current position and have no understanding of how to proceed due to lack of feedback. The three elements to create a feedback-rich culture are – define clear goals, gather meaningful data, and ensure fair and equitable evaluations.
Only 22% of employees rate their company as an “A” grade for ensuring pay equity and promotion decisions. The main reason for this is the lack of transparency in the organization. A continuous and digital feedback system and fair performance evaluations can increase employee engagement.
Many companies aspire to have an integrated people strategy. For this, HR should concentrate on developing a strategy that aligns business priorities with the desired employee experience. Rather than focusing on Compensation and Development programs as separate goals, a clear career structure should be defined. Employees must be informed of the impact of their performance on their career graph within the organization.
Technology has come to the rescue for automated compiling and sorting of employee performance information and reducing the administrative burden on HR and managers. As per stats, by 2019, 2/3rd of companies have integrated technology in their performance management strategies. However, only 16% of companies connect their performance management with development, career, and succession plans.
The reality is, with 66% of companies’ not using real-time feedback technology, the focus on continuous feedback to enhance performance goes amiss. Understanding the need for people-oriented strategies in the business process is not enough; companies need to work towards achieving the same by having integrated talent management strategy using technology.
Based on the research, Mercer’s Study also comes up with three predictions for what the future holds for performance management.
The forecast for the future shows AI taking over the existing role of managers. Artificial Intelligence in the future will become a reliable source to analyze employee interactions and curate customized development plans.
The increasingly dynamic work environment will prompt the employees to interact with various internal and external customers. Here, the need to assess an employee’s performance and gather feedback from multiple sources will be required. The manager as a single source of feedback and performance evaluator will cease to exist.
Technological advancements will ensure that depending on the discrepancies, employees are delivered personalized coaching through suitable delivery methods wherever they are. Employee’s individual career development needs could be fulfilled through customized training/coaching using this intelligence.
For companies, customized adaptive coaching methods will become a strategic advantage and AI will be used to identify highly connected or engaged employees for succession planning or promotion. Thus, the focus of the manager’s role will shift from evaluating past performances to paving the way for future success by providing employees with a tailor-made career journey.
Nearly 73% of industry executives are expecting a significant disruption in the coming years. If the anticipated disruption accelerates, work will become increasingly complex and dynamic. Rather than focusing on a one-size-fits-all approach, companies need to have more flexible talent programs.
Depending on the organization (Start-up, IT, MNC, Established Brand), HR needs to devise segmented plans that align with the business cycle. Each business has a different approach to identify, attract, develop, and retain critical talent. The segmented plans will work as templates to approach talent strategies on different levels of organization evolution.
An organization needs to be flexible in its performance management and talent strategies. By using technology-oriented performance management systems, the organization can benefit from a customized approach to defining individual and business goals, creating a 360-degree feedback system, and flexible rewards and recognition program. This follows defining goals for the employees and showing them the career path.
The current system of pay for annual performance will be redefined in the future of work. 3 in 4 companies still use merit pay as a key element for their pay for performance approach. Companies today add to their overall fixed costs by increasing the salary of employees as a way to reward performance and align pay to external factors.
The annual review process is dependent on managers and is heavily influenced by the manager’s bias and un-tamable issues. It’s time to change the performance pay system to other mechanisms rather than those that add to the fixed costs. For example, move to much leaner options like recognition awards, incentive compensation, and career advancement, etc.
As per the study, Work-life balance, recognition for contributions, and opportunity to learn new skills are considered as the top three elements to help employees thrive in an organization. Shifting the focus from annual salary increments to recognition and rewards, incentives, and career advancement opportunities are expected to be the future of compensation options.
Mercer’s Performance Report 2019 in its entirety reveals the need to radically change the way companies do performance management. The current HR talent management practices are still disparate, focused on annual compensation, and fail to provide a unified career development experience to an employee. There is an urgent need to shift focus to create a truly employee-development centric talent model.
For this defining clear goals and objectives using techniques like OKRs, continuous real-time feedback system, analyzing skill gaps, and providing learning and development opportunities will go a long way in managing talent more efficiently. To be able to align the dynamic and complex work culture to organizational growth, a flexible and technology-driven performance management system will be a must.
The need for better people managers and a systematic and customized approach to performance management is the need the hour for companies. Companies can drive the greatest business value from performance management if they can take care of these aspects and integrate those using systems.
* While we have tried to present findings of the study as they are in the original report, in some places our interpretation and inference drawn may differ slightly from the original report. There is no intention to misrepresent the findings of the original report.
* Referred to following Mercer Study : Performance Transformation in the Future of Work