As we near the end of the decade, what changes can we expect to see in performance management practices?

At Clear Review we are talking to HR professionals day-in day-out about performance management and each year we write our hugely popular annual summary of the latest performance management trends.

We covered the performance management trends of 2017 12 months ago, and we have watched as organisations have become increasingly employee-focused and less process-driven. In this exciting climate, we’re witnessing change and seeing that companies are having the courage to shake up their performance management systems and try new things.

As the year draws to a close, we’re excited to announce our predictions for 2018.

1. Attention will move from quantity to quality of conversations and feedback

2017 was the year that Continuous Performance Management moved from being a disruptive HR trend to being widely recognised as the most effective approach to managing performance. Companies of all sizes are shifting away from annual appraisals to more regular ‘check-ins’ and frequent real-time feedback and the redesign of performance management is now a high priority for 79% of executives according to Deloitte.

As organisations embrace this new approach, attention is now being turned to how to make performance dialogue more meaningful. To achieve this, in 2018 companies will need to:

  • Provide employees and managers with a framework for having high-quality discussions and giving effective feedback. Performance management frameworks or systems should encourage future-focused, developmental dialogue supported by in-the-moment, qualitative feedback.
  • Minimise form filling and bureaucracy (see Trend 2 – Simplicity – below)
  • Provide training for managers in everyday coaching skills
  • Decouple performance measurement from performance improvement conversations and feedback

Addressing these issues is vital considering that employee experience has been a top trend in 2017 and that managers and employers are having to come to terms with the fact that we’re living in an employee-driven market. If we don’t focus on employee development and growth, we’ll fail to keep hold of our top performers.

2. Performance management systems will strive toward ‘simple’

If we are increasingly concerned with employee experience and how to improve performance at work, we need to start with the simplicity of our workplace processes. Michael Armstrong said in his Handbook of Performance Management that a performance management system should be ‘ridiculously easy to understand’, and this is something businesses are now waking up to.

Over the last decade, performance management became increasingly complicated as organisations focused on measuring performance and linking it to pay. However, we’ve now come to realise through research that these processes do not actually result in reliable data and actually damage employee performance and engagement.

So as we enter 2018, companies will follow the example of global giants such as General Electric and Microsoft who have stripped out complexity such as annual appraisals, ratings, calibration meetings and competency assessments, focusing instead on regular, quality performance conversations and feedback. Deloitte’s 2017 Global Human Capital trends found that 96% of companies who have done this say their processes are now simpler and 83% say the quality of conversations between employees and managers has gone up.

Simplicity will also be a huge consideration in terms of software. As a company that prides itself on having the simplest performance management software system on the market, organisations are approaching us every day saying that their current performance management software is no longer fit for purpose in the new world of agile performance management. They are now looking for software that is simpler, lighter touch, flexible and which supports meaningful discussions and feedback, rather than a system which captures data and automates outdated appraisal processes.

Companies no longer need feature-rich technology as it is more expensive, less reliable and acts as a barrier to good performance management. Simpler software, on the other hand, requires little to no training, and encourages purposeful dialogue rather than preventing it.

3. Companies will change the way they manage performance-related pay and bonuses

As we predicted in our previous year’s performance management trends blog, companies are continuing to discard annual appraisals and employee ratings. This is a great step forward and leaves employees feeling more valued. On top of this, it results in a more productive workforce.

That said, some companies are struggling to understand how to handle performance-related pay and bonuses under a continuous performance management model.  Because of the inadequacies of performance ratings and the fact that there is little correlation between ratings and actual performance, we predict that some companies will abandon performance related pay entirely in 2018, and instead, base pay decisions on market rate and responsibility and bonuses on team or company performance. This removes the subjectivity inherent in performance-related pay and saves everyone significant time and effort.

For many organisations though, this is a step too far. Therefore, these companies may adopt the approach recommended by McKinsey whereby efforts are focused on identifying and adjusting reward for only the top performers and the under-performers, rather than everyone. As McKinsey puts it, “it’s a fool’s errand to identify and quantify shades of differential performance among the majority of employees, who do a good job but are not among the few stars.”

Performance related pay is a big topic and we don’t have time to cover all the options in this article, so we have written a dedicated eBook on How to manage pay with Continuous Performance Management which you can download for free here.

4. The focus of performance management data will shift from completion rates to manager impact

Traditionally, performance management data has focused on performance ratings and appraisal completion rates. However, as organisations make the transition from performance measurement to performance improvement, the data they need will change. In 2018, companies will increasingly be evaluating the quality and impact of performance management dialogue between managers and employees.

Given that managers account for up to 70% of variance in employee engagement and that only 22% of employees agree their performance is managed in a way that motivates them, HR professionals will need to be monitoring how often performance check-ins are taking place and how frequently feedback is being given. HR will also need to understand the impact these interventions are having on employee morale and performance. This will provide them with the insight they need to understand who their best managers are and which managers need coaching and support to better develop their teams.

5. Businesses will opt for continuous performance management software over appraisal software

As we mentioned earlier, annual performance appraisals are falling out of favour and regular one-to-one performance discussions and feedback are becoming the de-facto way of managing performance. What we’ve noticed during 2017 though is an increasing number of organisations approaching us who have tried to move informally to a continuous performance management approach, without using dedicated software, and have failed to get traction.

The principles of continuous feedback and regular check-ins are simple and managers like this approach, but new habits take time to develop. So having software that actively encourages these ways of managing performance, reminds people of what they need to do and when and provides visibility to HR of who is and isn’t doing it is essential for success.

We’ve also spoken to many companies who have tried to customise their existing appraisal software to support a more agile, continuous performance management approach and it hasn’t worked. When software is changed to do something that it wasn’t originally designed to do, it ends up feeling ‘clunky’ for users and becomes a barrier to good performance management.

For these reasons, we predict that in 2018 there will be an acceleration of companies procuring purpose-built continuous performance management software rather than annual appraisal software.

Start your New Year off with a bang and invest in a quality performance management system that will transform your staff performance. Our performance management software is used by companies around the world and our team of performance management experts will work with you to ensure it is adopted successfully in your organisation. Book a demo now.