Five Christmas Gifts for Talent Management

The festive season is upon us, and the first semester of this blog is drawing to an end.Quite a journey if you ask me!As Christmas draws near, I thought we would finish off the year with a little wish list for talent management, based on research and companies’ realities. See it as five really nice gifts to put under the tree for your organization’s talent management.

1. A well-reasoned definition of talent. Very often, ”talent” and ”talents” become terms that are just thrown around without much consideration. When you say that your organization needs talent, what exactly are you referring to? A clear common theme for organizations with a mature and successful talent management is that they have spent considerable time answering this question. This is especially important considering that ”talent” is such an enigmatic term. Does talent primarily imply innate abilities, or a certain mindset and attitude? Is ”talent” always versatile, or can you be a talent in just one specific function or role? Are everyone talents, or should the term apply to a small organizational elite? Research can only get you so far in answering these questions – to some extent, it always comes down to the organization’s values, culture, and strategy.
2. An honest consideration of whether and why you need a talent program. It is safe to say that the trend of talent programs has become somewhat of a bandwagon in the last five-or-so years. And for some companies, they certainly fulfill important purposes, such as increasing attraction of candidates and speeding up employees’ development. However, there are indications from research that talent programs may also have adverse consequences if not thought through beforehand. Not least, questions and frustration may arise when it is not clear to other employees why some have been selected for this precious initiative. In other words; talent programs need to be handled with care. HR teams and management teams should ask themselves prudently: Do we really need this program? For what exact purposes? How do we avoid negative reactions? If these questions cannot be answered properly, it is usually better to put the idea on hold.
3. More focus on how talent decisions are communicated. There are few hard truths within research on HRM and Organizational Behavior, but one of them could be summed up as follows: It is not the thing in itself, it is how that thing is communicated. We know this from literature on performance ratings, developmental talks, promotion decisions, and more. How managers and HR professionals formulate these things has an enormous impact on how employees react, and what the longer-term effects are. Talent decisions are no exception in this regard. Be sure to spend enough time discussing how managers should notify selected talents of their appointment, and how these decisions should be communicated to other employees. Consider, for instance, the difference between describing the program as a reward for being outstanding, versus a forward-looking encouragement to keep on challenging yourself.
4. A switch from identifying to developing. It is clear that many organizations today have very elaborate processes for identifying talents: Calibrations, assessment centers, rating matrices, etc. Quite often, however, you end up with a very well-founded talent pool – but fewer ideas on how to develop them. Opportunities for vertical promotions are often scarce, and formal trainings are expensive. Still, development must be seen as a real core process of talent management – otherwise, what is the point of identifying them? One avenue is to start looking at the possibilities for horizontal movements, e.g. rotations. Most importantly, however, is usually to ramp up on on-the-job training.
5. A clear management of expectations. If it is one side effect of talent management that must be attended to, it is the raised expectations of those appointed as talents. Tell someone ”we consider you one of our talents” – and that second, you have re-negotiated the psychological contract with that employee. He or she will start expecting more development and career opportunities, and often within a rather limited time. If nothing then happens, chances are you will lose this person instead. Managing expectations from day one is thus key. Some organizations address this by working intensely with gap analysis: Clearly identifying and communicating where the talent’s development areas lie, and what will need to happen before the person can take the next step.

There we are – five nice Christmas gifts for basically all organizations’ talent management. With this list, I would like to wish you all a very Merry Christmas and a Happy New Year! I am very much looking forward to seeing you again in 2017, continuing our journey into the fascinating landscape of the psychology of work.

 

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Why a Talent May Not Always Be a Talent: The Importance of Context

“Talents, they just come in and shine from day one.” “I can spot a talent the minute they walk through the door.” As a researcher, I hear these kinds of statements quite often when I’m out talking to HR specialists and line managers about talent management. The idea of talent as a generic, stable, and portable characteristic is rather widely spread, not least in companies of North American origin. This is also the view that underpins the whole notion of “the war for talent”: There is a scarcity of talented individuals, and all organizations are fighting for the same people. A talent, according to this view, is a talent no matter where you place them. This has lead companies to focus their talent management efforts on attracting “the A players”, often not worrying too much about how to make the best use of them within the company. Just get the talents in here, and they will excel no matter where we put them.

There is some truth to this claim, of course. We know from decades of research that some stable inner traits – most notably, general mental ability and the personality trait conscientiousness – tend to predict work performance in a very broad range of roles and lines of business. In other words, there are some foundational parts of talent that you could consider portable. However, there are other chapters to the story as well.  Over the last decade, there have been increasing indications that talent is also very much a matter of context.

This line of research has been championed by Boris Groysberg at Harvard Business School. For over a decade, he and his colleagues followed a total of 1,000 financial analysts at Wall Street. One of the things they looked at was what happened when star analysts switched firms. What they found was that after changing employer (still doing the exact same kind of work), top analysts’ performance decreased significantly in about half of the cases. The drop was by an average of 20 percent, and not just in the short run. In fact, it took around five years to get back to where they were before switching jobs (Groysberg, Eling Lee, & Nanda, 2008; Groysberg, Nanda, & Nohria, 2004).

Why would this happen? Groysberg argues that portable, individual skills and abilities really only constitute one part of what you might call talent. The rest is firm capabilities, such as leadership, training, systems, teams, and reputation. Since the star performers cannot bring those capabilities with them when they move, performance is likely to drop.

However, there are also some very interesting qualifications to this conclusion. For one, moving to an investment bank with similar capabilities and culture as the old one tended to decrease the performance drop. This was supported by another study, where Groysberg and colleagues showed that similarity in structures and culture between the old and the new company had a very significant effect on the performance of a new CEO, regardless of the person’s performance in the previous role (Groysberg, McLean, & Nohria, 2006). Furthermore, the study of star analysts showed that when the stars took members of their original team with them to the new firm, the drop in performance was eased significantly. In other words, top performance is not only a matter of individuals, but also group structures.

The important role of context is not limited to the finance industry or to managerial roles. In a study that received a lot of attention, Huckman and Pisano (2006) looked at the performance of star surgeons performing surgical operations in several different hospitals. Using risk-adjusted mortality as the outcome, the researchers saw that the same surgeon’s performance differed significantly depending on the hospital he/she was operating in. Notably, the surgeons performed better in hospitals where they had performed many surgeries. Furthermore, there was no general improvement in performance the more procedures the surgeon completed in total: Performance improvement in one hospital was only related to doing a larger number of surgeries within that specific hospital. In other words, performance was closely tied to context. The authors concluded that the surgeon’s familiarity with the specific setting – key staff, team structures, and routines – was vastly important for their performance.

To conclude, these studies convincingly show that the “once a talent, always a talent” philosophy is only partly true. The individual surely brings his or her knowledge, skills, and abilities, but the context enables, enhances, hinders, or blocks. Talent development is enabled by teams, cultural fit, and deep understanding of the specific setting. This is a crucial fact to keep in mind for talent management officials in any industry.

 

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Think Potential, Think Male?

Already when we set out on our exploration of the concept of potential, I mentioned that danger lurks in ill-defined concepts. The reason is simply the way humans work: give us a fluffy term, and we will fill it with our own interpretations, experiences, and values. Further, it is seldom coincidental what particular interpretations and values that go into those concepts. The usual suspect is ingroup favoritism, i.e., that we tend to like (and judge more favorably) those that are a lot like ourselves.

Potential, no doubt, often represents a fluffy term. As mentioned previously, organizations seldom employ a solid definition of what they mean by “high potential”. There has been relatively little direct research on how this affects diversity and inclusion in e.g. talent pools and companies’ leadership pipelines – but drawing on what we know from prior HRM literature, chances are that it opens up for bias and stereotypes influencing the decisions. The studies that do exist certainly point in a worrisome direction, particularly regarding gender.

Warren (2009) conducted a study of talent management documents and systems, and found that they to a large extent represented male stereotypes of assertiveness and competitiveness. And in a very interesting Swedish doctoral dissertation from 2009, Linghag looked directly at judgments of potential in companies’  internal leadership programs. One of her main findings was that men were viewed as having unlimited potential, and women as having what she called delimited potential: While male participants were perceived as able to take on basically any future management role with the right training, female candidates were viewed as having potential only for specific roles and positions. This, Linghag argued, in the long run amounts to women being held back in their careers compared to their male colleagues.

In other words, there are indications that potential can easily become a gendered term. If we look at research on other HRM practices, such as recruitment and performance management, there is plenty of evidence showing that the less structure and clear definitions are adopted, the more these practices become scenes for bias and stereotypes. Thus, there is good reason to try to counter bias in assessments of potential. Below are some ways of doing this – methods that actually also tend to counter the fallacy we talked about last time; confusing performance for potential.

• Define the concept clearly – and make sure the definition is used. Even when a company has adopted a definition of potential centrally, there is usually little monitoring of whether this definition is actually used in managers’ assessments  (Silzer & Church, 2009). It goes without saying that compliance to the definition is key to counter discrimination.
• … and scrutinize the definition for gendered assumptions. Festing, Kornau, and Schäfer (2015) advised companies to go over their talent frameworks and make sure that the wordings are not reflecting a mental prototype of a male person.
• Make the process as open as possible. van den Brink, Benschop, and Jansen (2010) showed that gender-biased decisions in recruitment were more prominent when the assessment process was not made public within the company. There is no reason why this should not apply to assessments of potential too.
• Increase the use of methods with less adverse impact. We know, not least from research on recruitment and selection, that less structured selection methods tend to have a stronger adverse impact. Instead, consider methods such as personality and GMA tests, structured case exercises, and well-thought out assessment centers.
• Train HRBPs to counter bias in calibrations. In most organizations, the sessions where potential is discussed are facilitated by HR representatives, usually HR business partners. In other words, these are key actors in countering both bias and the muddling of performance and potential. Thus, they should receive training in helping managers distinguish between the present and the future, and between relevant and irrelevant factors.
• Hold managers accountable. According to Henson (2009), one key ingredient in more rigid potential assessments is that managers are given a clear responsibility – ideally, tied to a measure – to “deliver” a diverse enough pool of high-potentials.

As we have seen throughout this series, much of the challenge regarding potential lies in defining the concept and basing judgments on information that actually has a predictive power – rather than on hunches and intuition. By taking on those challenges, companies will be able to make much better use of potential assessments in their strategic talent management.

 

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Why Performance Does Not Equal Potential

Welcome to the third stop on our journey in the cloudy country of Potential. As pointed out in previous posts, this has become a real key concept in HR in general and talent management in particular. With disruptive change being the new constant for organizations, HR has shifted a significant part of its focus from assessing what employees have accomplished in the past, to what they could accomplish in the future.

Or, so it is said. Reality is somewhat less flattering, which is not so strange if we take a step back to look at the concept of potential. In a nutshell, potential denotes something that has yet to realize. This something is, by definition, not observable in the here and now. Instead, you have to use some kind of indicator to assess its probability. In short, you have to make a prediction. Now, if you were a manager charged with assessing the potential of your subordinates, which would be your most readily available indicator of how someone will perform in the future? Probably, their past performance.

This amounts to one of the most common fallacies in talent management. Research has shown that managers, when assessing employees’ future potential, keep sliding back into past performance (Hewitt, 2008; Rogers & Smith, 2007). There are, however, several important reasons for why current or past performance does not equal potential. Here are some of the core ones.

Potential is about doing something new. Anyone who has taken Psychology 101 is familiar with the motto “the best predictor of future behavior is past behavior”. That can very well be true, but only if situations remain relatively constant. When you are assessing potential, you are assessing the person’s ability to take on different tasks and roles than today – usually more complex and demanding ones. Walter Mischel, nowadays more famous for The Marshmallow Test, showed several decades ago that past behavior is a pretty lousy predictor of future behavior if that future involves significantly different situations (Mischel & Shoda, 1995). Of course, past performance is not unrelated to potential, but it is far from sufficient.

Not everyone has equal opportunities to perform. As pointed out in a vast literature, performance is not only about ability and motivation – it is also about opportunity. A person could have immense potential, but be held back by e.g. the wrong manager, a non-supportive environment, or a bad-fitting role. A sharp and fair assessment of potential must be able to take this into account. For instance, if a certain employee has many of the foundational factors for potential in place – such as personality and general mental ability – consider moving that person to another unit, role, or team, that you think would be a better fit (see e.g. Silzer & Church, 2009).

Development needs reveal themselves when the bar goes up. This is a classical case when it comes to the group usually referred to as “junior top talent”. In their first one or two jobs, they often live well off their intelligence, drive, and general social skills. This usually also earns them a reputation as “stars”, that managers are swift to promote. Potential weaknesses, e.g. perfectionism, sensitivity to criticism, or narcissism, are often overlooked because they are not critical at this level. However, things may change once these individuals get into a role that is in some way qualitatively different – for instance, moving into a people leader position, or moving from the operational to the strategic level. This has been identified as one of the main reasons for why so many promotions decisions fail (some estimates say over 50 percent; e.g. Burke, 2006; Hogan & Hogan, 2001).

As the above argument shows, confusing performance for potential is as risky as it is common. This of course begs the question: If not past performance, then what? Next week, we will delve deeper into that question.

 

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Potential for What?

Welcome back to the series on potential, this enigmatic concept that is nowadays so central to organizations’ talent management. As promised, we will spend today’s post on the logical follow-up question “potential for what?” When we say someone has potential, do we mean to become the next CEO? Or to take a little more responsibility in his or her department?

Let us first state one thing loud and clear: In the broadest sense, of course everyone has some kind of potential. All of us can develop, learn new things, and stretch ourselves to master something we did not master yesterday.

The question is, then, why should it be important for organizations to highlight some people as having “more” potential than others? One answer might be that companies should talk less about high and (particularly) low potential, and more about different kinds of potential. It is certainly useful for organizations to try to forecast who is likely to develop into what, but that also calls for a well thought out answer to the question “potential for what?”. Most organizations that have a mature talent management have realized this, and employ a multifaceted definition of potential.

To begin with, potential can be more or less generic. Decades of research have shown that there are indeed some stable inner characteristics that tend to predispose a person to a very broad range of tasks and roles. The most important ones are general mental ability and some personality factors, such as conscientiousness from the Big Five. Silzer and Church (2009) called them “foundational dimensions” of potential, and argued that it is they that should be at the center when evaluating potential among junior employees. Since the specific roles that will be available ten years down the line are extremely hard to predict, it makes more sense to keep the evaluation of junior’s potential as broad as possible.

As employees progress through their careers, it becomes motivated to narrow the scope. Quite often, however, that tends to translate into a one-eyed focus on vertical climbing. According to a recent report from Corporate Leadership Council, about half of all companies define high potential as the ability to advance one to four levels within the organization. Research is now starting to criticize this “advancement only” conceptualization for being too narrow. The old pyramidal organizational structure is becoming increasingly more rare. With flatter, more team- and project-based organizations, “potential” might just as well entail the ability to take on a wider scope in one’s work, or to bridge different domains. It is far from obvious that a fulfilling career today and in the future necessarily goes upwards (Yost & Chang, 2009). Thus, as pointed out by Henson (2009), organizations should utilize the potential concept to address their various strategic needs. In many organizations, this might take the form of having multiple “potential pools”, for instance:

• Executive potential; entailing those that are judged to have the capacity and motivation to take on a role in the c-suite or just below.
• Management/leadership potential; comprising of employees that are viewed as having the capacity and motivation to take on leadership- and managerial roles.
• Functional potential; for those employees that have spent most of their career deepening their knowledge of a certain domain and are predicted to be able to take on more complex tasks and/or roles within that function.
• Highly valued; for those employees that are deemed to have a good fit with their role in terms of skill level but are viewed as highly motivated to learn and dedicate themselves to the job and organization – and should thus be afforded development opportunities within their specific setting.

These are of course only examples, but provide an illustration of how a more diversified view can often provide a better answer to the question “potential for what”? Junior talent might be best seen as more generic, but further along in people’s careers, a more “high-resolution image” is usually more useful.

As evident from this list, potential entails a motivational aspect as well as a skills-and-ability aspect. We will discuss this aspect more in the next blog post.

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Feeling High-Potential?

Would you say that you have high potential? If so, is that potential general, or related to a specific job role? Would you further say that you have “untapped” potential? How do you know?

My guess is that you find the above questions rather difficult to answer. Potential for what? Potential as in motivation and drive, or as in skills and ability? It might seem odd that such an unclear term plays a central role in organizations, but nowadays it does: Potential is a key concept in talent management and succession planning. The most common way in which organizations define talent today is “high performance combined with high potential”. If you are in the HR business, or if you are a line manager for that matter, you are already well familiar with the matrix often used when identifying talents: One axis consists of performance and the other one of potential, and only employees plotted in the upper-right corner are considered to be talents. But with or without such an explicit rating, the view that organizations and managers hold about different employees’ potential will affect these employees’ career development and working life.

So what is potential, really? In a basic sense, potential refers to “the possibility that individuals can become something more than what they currently are” (Silzer & Church, 2009). It does not equal current performance, but rather implies that a person’s traits, drives, skills, and abilities can be honed in such a way that he or she might take on a different – usually more complex – role in the future. In other words, it is a forward-looking term. When used in organizations, it usually refers to a time horizon of somewhere between three and ten years. However, that is more or less where the clarity ends. Karaevli and Hall (2003) found that among 13 companies known for their advanced people management, there were 13 different definitions of potential.

For those of you who followed the series on performance management, you already know my mantra when it comes to evaluating performance: It is notoriously difficult. However, when evaluating something that happened in the past, at least we have quite a lot of data. But imagine judging something that has yet to realize in the future. It should come as no surprise, then, that companies usually have very elaborate criteria for evaluating performance – and very few and rudimentary ones for evaluating potential. Actually, the most frequently used method seems to be managers’ intuitive impression.

As always, danger lurks in ill-defined terms. Those concepts often tend to become scenes for taken-for-granted assumptions, stereotypes, and ill-founded decisions. Still, in organizations, we cannot settle for the truism that potential is complex and difficult to define. Real, concrete decisions still have to be made about who to promote, who to send to that expensive training, and who to prepare for a senior leadership role. Thus, we have to draw on the knowledge that we have about potential to at least try and make these decisions as fair and accurate as possible. Therefore, we will spend the next few blog posts diving into three important questions about how to assess potential:

1. Potential for what? Is potential best seen as a generic or specific term? Should it be defined in relation to specific roles, or more as a general characteristic?
2. Disentangling performance and potential. A number of studies have shown that managers, when assessing employees’  potential, have a strong tendency to slide back into considering performance. We will consider how to separate the two.
3. Counteracting bias. Research shows that potential easily gets reserved for people who are similar to ourselves. But there are ways of countering this adverse impact.

Hopefully, we will walk out of this series somewhat wiser concerning the mysterious concept of potential.

 

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Performance Ratings, pt 4: New Ways Forward

Welcome back to our fourth and final episode of a long and rocky odyssey in the world of performance management. The short version of what we have established so far goes something like: Scrapping the annual performance review is quite uncontroversial in the face of research. We know that is not how to motivate and enable improved performance – that is rather done through close contact with the supervisor, useful feedback, challenging tasks, etc. However, we are still stuck with the question of how to evaluate performance. This happens to be an incredibly difficult task – but if we want to work systematically with quality improvement, and aim for fair and unbiased decisions in e.g. pay and promotions, we need to take it on. So today, after this long journey, I will finally try to get to the natural follow-up question: How are we supposed to do it?

I dare say that the utopia of completely objective performance judgments is out, or at least it should be out. It is simply vain, and even dangerous, to believe that we can ever find a way to rate other people’s performance that is completely ”accurate” in some universal meaning. Let us draw on Waters et al. (2016) and call that a fantasy of the industrial era. Still, if we are to make these judgements and let people’s careers and salaries depend on them, we absolutely cannot settle for completely subjective statements either. So where do we go from here? A number of developments have arisen in recent years, and many of them seem promising. I base them both on current research in management and organizational psychology, and on accounts from foresighted practitioners that I meet as part of my research.

Multiple raters. What you usually call 360 ratings; using ratings not only from your supervisor but also from colleagues, subordinates,  clients, etc. The logic is; it is unlikely that all of the stakeholders you interact with hold the same biases or political interests about you (Pulakos et al., 2015). E.g., if your supervisor is constantly underrating your performance, it is likely that your colleagues, subordinates, and customers will at least give you a higher rating, and that will equal out the adverse impact.  Evidence is scattered, however. It is not certain that they substantially improve rating accuracy – sometimes, more raters seem to add marginal effects at best (e.g. Howard, 2016). Still it is being used increasingly to try to get a broader picture but also decrease the risk of bias. We should keep in mind, however, that stereotypes based on e.g. gender, background, or age could very well break through in 360 ratings as well.

Supervisor training. In research, opinions diverge as to the effectiveness of training managers in rating performance. Some state that these initiatives do not reliably improve rating quality (e.g. Adler et al., 2016). However, there is reason to believe that this is an effect of benchmarking against an unattainable goal (i.e., complete “accuracy”). As some scholars are now starting to argue, the goal can never be complete objectivity – instead, it should be the more humble state of intersubjectivity. That is; we should train raters to share a common way of thinking when making the ratings, even if that way of thinking does not reflect an objective “truth” about performance. If we can attain that, there are good hopes that rating accuracy in a more realistic sense can improve (Gorman & Rentsch, 2009; Schleicher & Day, 1998).

Self-rating: An idea increasingly heard in the start-up world and among avant-gard HR people. Why not let people rate their own 1) performance 2) access to the help they needed. Personally, I believe it is a practice we will be seeing more of. However, not the best idea if you are tying it to pay.

Evaluating only on goal fulfillment. Common in the tech world. I.e., you throw out all performance criteria that demand subjective judgment, and only ask the question: Did you deliver on your measurable goals or not? This strategy could be one way of decreasing subjectivity, as long as the goals are pre-determined and clearly measurable. As noted by Hunt (2016), however, the strategy might open up for attaining your goals in ways that do not rhyme with company ethics or values. Further, it is badly suited for positions where the end goals are actually unclear or develop underway.

Rating on behaviors. This is another development, sprung from behavioral psychology and organizational behavior management (OBM): Instead of trying to judge fluffy criteria like ”team player” or ”strategic thinking”, the rater only looks at observable behaviors such as ”takes time to help colleagues with problems” or ”identifies upcoming obstacles in planning meetings”. The advantage of this approach is that observable behaviors are less ambiguous than more general evaluative judgements (Lievens, 2001). The high level of specificity is also their problem, however – it can easily get too specific and rigid, which makes it difficult to account for the fact that different people can demonstrate the same quality in different kinds of behaviors.

Skipping the compensation link. Some companies have come to the conclusion that if you ever want accurate, truthful ratings that can be used for systematic organizational development, you should stop tying them to pay. Some are switching to standard pay levels for different types of positions, usually with reference to the ”startup philosophy” mentioned earlier in this series: We only hire really good people, so there is no reason why not all people in the same type of role would get the same pay. Controversial? To some, absolutely. Probably less so in Sweden than in the US. Regardlessly, research supports the notion that lower stakes lead to more honest performance ratings. In addition, a survey study underway (Ledford et al., 2016) showed that organizations that drop the annual rating do not face increasing reward costs.

Hopefully, this brief review provided some hope for the future: New and promising solutions for better performance evaluations are coming forward quickly. From the ashes of the old annual performance review, chances are we will see a new paradigm arising that holds more humble hopes for completely objective ratings, but still uses research and creativity to find new high-quality ways of evaluating performance.

 

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Performance Ratings, pt 3: Why the Really Daunting Task Is Still Looming

We continue our odyssey through the complex topic of performance management – a practice that is changing forcefully at the moment. The annual performance review, where employees’ performance is rated according to complex criteria and scales once a year, is increasingly being abandoned. To many’s joy, one should add: This practice is disliked by most stakeholders and has been accused of not adding any substantial value. So, that’s it? Ding dong, the witch is dead? Not really.

As noted last time, performance management serves at least three purposes in organizations: Motivating performance improvement; enabling analysis of performance patterns and trends; and serving as a decision basis for e.g. promotions, layoffs, talent nominations, and compensation. We also noted that the first function is actually the one where research can provide the most clear-cut answer with regards to ratings: In order to develop and motivate employees, ratings generally give little added value. When it comes to the second and third purposes of performance management, however, the issue becomes a lot more complicated.

Let’s say you are an executive, and want to identify those managers in your organization that continuously succeed at growing high-performing individuals. Or you want to investigate whether there is a pattern of where in the organization low-performers are located. Or, for that matter, you want to tie some aspect of compensation to performance. How are you going to do this? First thing, you need to be able to compare people to each other. That means you will need some kind of systematization and documentation of performance. And as soon as you start logging people’s performance in any standardized way, be it by a number or a qualitative judgment, you are indeed doing a performance evaluation. Bottom line: Even if you throw out the annual performance review and remove ratings from the coaching sessions with employees, you will arguably still need some kind of method for evaluating people’s performance.

In light of this, it should come as no surprise that the witch is not really dead. As pointed out by several scholars (Hunt, 2016; Ledford et al., 2016), most companies that claim they have gotten rid of performance ratings really only refer to the annual performance review. Most continue to rate their employees as part of e.g. their talent review, their compensation process, or their leadership audits. And then we are actually back at what is really the key issue here: Evaluating someone’s work performance is an incredibly difficult task. As noted by Adler et al. (2016), sports judges spend their entire careers specializing in this – in contrast to managers, who are supposed to handle performance judgments as a ”side task”. And yet, sports judges often disagree with each other…

To no surprise, substantial research has shown that supervisor ratings of employee performance are pretty far from being accurate or consistent (Levy & Williams, 2004; Murphy & Cleveland, 1995). A number of things besides performance tend to go into these ratings: Personal liking, politics, different kinds of cognitive biases, stereotypes, and chance. Unfortunately, there is no real reason to believe that the ratings would be any more accurate just because they are conducted in another format than the annual performance review.

What I am trying to say here is this: In the general excitement about scrapping the annual performance review, there is a risk that organizations speed through the issue of how to actually evaluate employees’ performance. Chances are, then, that we just move this daunting task from one place to another (e.g., from the annual review to the leadership audit), without having improved our methods. Instead, why not take this time of change as a perfect opportunity to actually try to improve performance evaluation in a broader sense? Like so often before, the most forward-thinking practitioners are already ahead of research on this matter. In the next blog post we will look closer at some of the concrete strategies that are now being used to try to make performance evaluations more fair, accurate, and fit to our knowledge-intensive, post-industrial era.

 

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Performance Ratings, pt 2: The Paradox of Dual Purposes

As noted last time, one of the most flagrant trends in HR right now is the change going on in performance management. An increasing number of companies are throwing out their annual performance reviews, and often also their complex criteria and matrices for rating employees’ performance. An old paradigm thus seems to be on its way out. Why is this happening, and what broader underlying challenges are driving this change? Today, I thought we would dwell on one of the inherent difficulties of performance management: Combining development with evaluation.

First of all, we need to acknowledge that performance management serves at least three broad purposes in organizations today. First; to enable and motivate employees to improve their performance. Second; to feed systematic analysis and business intelligence, e.g. finding patterns in performance differences. And third, to inform decisions about promotion, talent nominations, layoffs, and – not least – compensation and benefits. This multi-purpose nature of performance management is absolutely central if we want to understand what is happening now – and what an up-to-date performance management system might look like.

So far, the discussion has mostly focused on the first purpose. And if that was the only one, the issue of throwing out performance ratings would indeed be pretty clear-cut: There is little evidence to suggest that ratings should be a central part of motivating or enabling employees to improve their performance (DeNisi & Smith, 2014). On the contrary, there is quite a lot of research pointing to the demotivating effects of ratings (Aguinis et al., 2011; Culbertson et al., 2013), or at least indicating that ratings only motivate a minority of employees (usually – surprise! – the top-rated ones). This should come as no surprise. We have long known that motivation at work is fueled by frequent feedback, challenging goals combined with the right resources to achieve them, and close contact with a supportive supervisor. A label or number put on your performance once a year has scant chances of affecting your everyday behavior and engagement at work.

Furthermore, we know that evaluation and human growth tend to be like oil and water: They are virtually impossible to combine in the same process (a fact noted already by Meyer, Kay, and French, 1965). Performance management as it has been carried out to date thus carries an inherent paradox: In one and the same process, supervisors are supposed to help the employee develop and grow, while at the same time giving an evaluative judgment of his or her performance over the past year. There is also a lot of research showing that the use of numbers or categories in that process actually works to aggravate this paradox (e.g. Murphy, Cleveland, & Lim, 2007 in Langhan-Fox, Cooper, & Klimoski (eds.)). By introducing a rating scale, you forcefully direct the employee’s attention to the rating itself and not to the qualitative feedback and discussion that go with it. No matter how much you emphasize that the process is forward-looking and developmental, the employee will tend to focus mainly on the rating.

Thus, you might say that many of the problems of performance management stem from its apparent janus face: It includes both a developmental and a judgmental focus. One clear practical implication can be drawn out of this: If you want to enable performance improvement among employees, try removing any talk about ratings and formal judgments from that conversation. Coaching or development sessions between supervisor and employee are best held with little focus on evaluation. In other words; the first of the above purposes with performance management is often best fulfilled when separated from the second and third. From that perspective, the scrapping of the performance review is a promising development.

As evident above, we actually know quite a lot about how to motivate employees at work. We definitely know enough to say that performance ratings seldom serve that purpose. But – and this is an important but – when it comes to the second and third purpose of performance management, the issue of ratings becomes a lot more complicated. The reason is, they relate to one of the most difficult issues that organizational psychology has to offer: How do you fairly evaluate another person’s performance? This daunting task does not go away just by getting rid of the annual performance review – and we will dig into it in depth in the next blog post.

 

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Performance Ratings, pt 1: A New Paradigm Under Way?

If there is one trend really exploding in the HR/Management space right now, it is the wave of companies getting rid of their annual performance reviews – i.e., the process where all employees’ performance is rated once a year on a standardized scale, according to standardized criteria, usually by their immediate supervisor. When software giant Adobe declared that they had thrown out their entire annual performance review in 2013, they seemed to open Pandora’s box: Since then, companies like Gap, Accenture, Deloitte, and even the rating pioneer GE have followed. HR representatives, managers, and employees have all testified to their satisfaction with finally being rid of the unpopular, time-consuming performance ratings. The issue is now sparking heated debates at both scientific conferences and industry meetings.

In one way, you could say that the change was long overdue. It is well known that performance ratings in general, and the annual performance review in particular, are highly unpopular among practitioners. 95 percent of American managers think performance ratings are too time-consuming and do not contribute enough value to the organization (CEB Corporate Leadership Council, 2002; 2012). A Deloitte study from 2014 showed that only eight percent of companies agree that their performance management process contributes substantially to their success. This is quite remarkable for a process that the average manager of a large American company spends 210 hours a year working on (Corporate Leadership Council, 2012). In addition, many of the practitioners I meet are emphasizing that traditional performance ratings no longer meet the demands of modern work life. It is a far too rigid process for today’s fast-paced, flexible, and fluid world of work.

To add to this, psychological research has long pointed to a number of problems with performance ratings. For one, there is very little research showing any consistent increases in motivation or work effort following performance ratings (e.g. Aguinis, Joo & Gottfredson, 2011; DeNisi & Smith, 2014). Numerous studies have also shown that the accuracy of the ratings is generally far from good (Levy & Williams, 2004; Murphy & Cleveland, 1995). Furthermore, anyone with rudimentary knowledge of behavioral psychology knows that feedback given once a year has a scant chance of directing or changing employees’ everyday actions.

So, to sum up: We have here a practice that is disliked by most if not all important stakeholders, that is afflicted by various problems in both accuracy and value creation, and that is a bad match with today’s work life. Shouldn’t it be a no-brainer to throw it out, then? Well, I think it is safe to say that the traditional performance management practice, with its annual review and complex rating forms, is a legacy of the industrial era and was bound to be revised sooner or later. However, the story does not end with getting rid of ratings. The real interesting question to ask is: Where do we go from here?  Just because the annual performance review gets the boot, it does not mean that performance management as a whole has become any less important. Rather the opposite, actually. Now we need to ask ourselves: What deeper challenges is our discontent with ratings a symptom of? Well, for one, we are back to the classical issue of how to fairly judge other people’s performance. We are also back to the ever-present issue of managers’  unwillingness to bring up performance problems. These issues will not resolve themselves just because we drop the annual performance review – but it could be a start. So now that things are really moving in the performance management space, it seems like a good time to revisit some of the broader and more fundamental issues that a modern, well-designed performance management system must be able to handle. We will spend the three following posts digging into just those issues.

 

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