Is performance management dead?
It’s normal for small companies not to have an employee performance management process, but at Pomello we’ve increasingly seen companies that have foregone implementing any process or tool even when they’ve grown to be hundreds even thousands of employees. In fact, Accenture recently decided to get rid of it’s annual performance review across all 330,000 employees.
The traditional performance management system seeks to rank employees performance across peer groups using a bell curve distribution with the goal of improving employee performance. The problem is that it tends to do just the opposite, even for employees that receive positive reviews. Research has shown that performance reviews reinforce ‘fixed mindsets’ where people believe they have a predetermined set of characteristics and abilities. This type of mindset is damaging to employee performance where you want individuals to have a ‘growth mindset’ in which they believe the can acquire new skills. Fixed mindsets create a fear of failure, and an unwillingness to exert the effort to learn. The psychological impact of an annual performance review results in lower employee engagement, lower productivity, and higher attrition.
To add insult to injury, the costs of performance management systems are astronomical. According to management research firm CEB, the average manager spends 200 hours per year on performance reviews. Combining the cost of these hours and the software itself, CEB estimates a 10,000 person company spends a staggering $35 million per year on performance management (source).
So how do we encourage a growth mindset? At Pomello, we believe that rather than focusing on employee output, managers should focus on fostering the values and beliefs that will drive successful outcomes for the individual. Rather than trying to impact employee performance, managers should be trying to influence the factors to motivate their employees. The role of leadership means creating a strong culture where annual performance reviews are actually open conversations about company values and priorities.