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What Most Companies Get Wrong About Performance Management
Michael Timms teaches executives practical leadership strategies that build high-performing teams. His TEDx Talk is "How to Claim Your Leadership Power," and his latest book is How Leaders Can Inspire Accountability (2022)
The following Q&A with Timms on his experience with performance management has been lightly edited for clarity and flow.
SHRM: What’s wrong with the structure most companies use in their annual performance reviews?
Timms: I can’t imagine a worse way to ostensibly improve employee performance than having employees come into their manager’s office once a year to hear the manager’s judgment of their performance.
From an employee’s perspective, it’s extremely nerve-wracking. I think it takes their focus away from doing good work to pleasing their boss. It’s great if those two things align, but oftentimes, there are things that your boss will want you to do that are actually counterproductive to doing good work. One of the main problems is that it reduces psychological safety, which we know is one of the key ingredients to high performance. I wrote an article about a pretty well-known meta-analysis that shows that these reviews actually hurt employee performance about a third of the time.
Another challenge is that I don’t think most organizations have asked themselves: “Why do we do this?” They know — and HR professionals will tell you — this process is a far less than ideal way of providing employees feedback and improving their performance. We all know that the main reason is to provide some sort of rationale for compensation. That is the primary reason for doing this this way, and I don’t think most organizations are honest with themselves. I think they keep lying to themselves and saying, “Oh, employees need to have some feedback. This is a good way to improve performance.” But we all know that it’s not.
SHRM: How should companies make decisions around salary increases?
Timms: There are much better ways to improve performance and get some employees’ feedback. The problem with a performance review is it comes down to one data point, which is my manager’s opinion of me. And I think a manager’s perspective is an important data point, but it’s certainly not the most important or the only data point that we should consider in determining employee compensation.
How about objective measures, like the quantity and quality of their work? Now, these vary depending on the type of work that you do, but can we come up with some objective measures of how much work you do and the quality of the work?
If you interface with customers, how about customer satisfaction surveys? How about my teammates’ opinions of me? Am I a good teammate? Do people come to me for advice, and am I willing to help them out? These are important factors that can be considered and are far more objective, especially when you’re quantifying employees’ team members’ perspective, if you’re coming up with an average and you’re saying, “Michael is probably in the third quartile against these factors.” That’s a pretty objective measure.
SHRM: What is the ideal role of a people manager in the performance management process?
Timms: The ideal role is to support employees and say, “What can I do to help you achieve your goals?” Part of that is helping people stay accountable to their commitments, to their goals, and ensuring follow-up and follow-through.
We all need help. I need help to stay accountable to my goals and to ensure that I am not dropping the ball in any of my responsibilities. I think you’d be a very rare individual if you don’t need any help from anybody else to help make sure that you don’t drop any balls.
SHRM: Where do you see the flaws in the performance management process, impacting organizational performance?
Timms: It goes back to employees’ focus on psychological safety. Am I more concerned about what my boss thinks so that I get a good performance review and I get a high salary increase? Or am I more concerned about being a good team player within my own immediate team, putting out the best work that I can, collaborating with people across departments? Where’s my focus? What am I most concerned about?
We know that when people are intimidated by the manager, when they know that the manager is the sole arbiter of their compensation increase, they’re going to treat them differently, which actually provides inaccurate feedback to the managers.
Most managers think they’re awesome managers, because most of the people they interact with are highly motivated to pump their ego and tell them they’re amazing. That’s detrimental to the organization, where leaders don’t get enough feedback about how they can improve. Whereas if there was psychological safety, employees would help managers know where they can improve.
We know that when your psychological safety is lacking, people are less creative. They’re less willing to take risks. They’re less willing to tell their boss bad news. When you’re not comfortable telling your managers bad news, that is absolutely going to show up in organizational results and organizational performance.
The Gallup organization has published a ton of analysis on the manager’s impact on employee performance and engagement. They figure that at least 70% of an employee’s engagement is a direct facet of the quality of their direct supervisor. Obviously, having a strong purpose and working for an organization with a strong purpose, that’s important stuff, but who is the person who really affects how much I love my job and how much I enjoy my work? It’s my direct manager. And we know how much engagement affects performance.
The irony is that managers are rating employees on their performance, when in fact, it’s the quality of their leadership that affects their performance the most. They’re saying, “You’re not doing a good job. You’re not meeting my expectations.” Well, wait a minute, have you ever clarified your expectations? Have you actually given the person effective feedback? Have you provided this employee with the tools and resources and standard operating procedures on how to make sure to do their work without making mistakes? A lot of employee performance is tied up in how good a leader the manager is. I hope that motivates people to say, “We need to have other factors to evaluate employee performance than just the opinion of the person who unconsciously dramatically affects this person’s performance.”
SHRM: How can organizations better find alignment between organizational goals and individual performance goals?
Timms: The traditional way of creating alignment is to wait for the executive team to come up with this year’s priorities. Then it goes down to the next level of management, and they need to do it, and you can’t do your goals until the layers above you have done theirs.
The idea makes sense, but it just takes too much time. Organizations are now saying, “We need to be super clear about what our ‘North Star’ is, our key priorities for the organization. What do we need to be awesome at? What are our values?” Once the organization is crystal clear on their priorities and values, then they can say, “As you work with your manager in developing your individual goals, you have to create a straight line from your goals to our organizational priorities and values.”
The onus is on leadership to be crystal clear about what the priorities are and why. But once they have done that, don’t waste time going through layers. Say, “We trust that you and your manager are smart enough to align your personal goals to these North Star priorities.”
SHRM: Can you share some examples of things you’ve seen best-in-class organizations do to elevate their performance management?
Timms: Deloitte has really tried to be on the leading edge of performance management. They hired Marcus Buckingham, a very popular business author, a while ago. He was tasked with re-engineering their performance management.
I appreciate their taking leadership on that. One of their ideas was saying, “We are going to diversify the data points that we’re going to assess for people’s compensation.” They said, “Instead of just relying on the manager’s perspective, we’re also going to be tracking, say, billable hours. We’re also going to consider the complexity of work and things like that.”
There’s also a high-tech organization called Buffer. One thing they did is they have radical transparency. They published the compensation formulas for every division. I think that’s super helpful, because everybody knows, “These are the factors that go into a person’s compensation, and this is what I need to focus on. This is what the company believes is super important, and this is the criteria by which my compensation is going to be evaluated.” That’s super helpful on an individual level.
SHRM How can HR professionals make the case for these changes when they’re talking to their bosses?
Timms: I wrote an article on how to end performance reviews. I think it’s a good start. Share that with your manager and say, “Hey, can you talk about this? What do you think about this? What do you like about this article? What do you disagree with?”
As an HR professional, I would ask them, “What’s been your experience? As you have been on the receiving end of performance reviews, how have you enjoyed it? What would you prefer? Throughout your career, has your direct manager had a pretty big impact on your performance?” I mean, how can you not say, “Yes”?
Does it make sense that if somebody’s a crappy leader and they’re beating somebody up for not performing, when it’s their leadership that is actually hurting their employees’ performance? And if they say, “You’re right, that doesn’t make sense,” ask, “What are some other things we should do? Are you willing to look at other ways to experiment with performance management?” Once the executive says, “I’m willing to look at other things,” then start to get creative and start to implement some of the things I’ve talked about.
This article is courtesy of Society for Human Resource Management (SHRM)
