The Future of Performance Management

With an emphasis on financial rewards and accountabilities, annual reviews are increasingly regarded as a last century practice that does not allow collaboration or innovation.

The fundamental purpose of performance management is to create a process which promotes and improves employee effectiveness. It has traditionally provided the framework for feedback, acknowledging achievements and awarding recognition with the goal of supporting higher levels of performance. It is a well-established system for planning, goal setting, monitoring and implementing corrective actions as well as a quantitative appraisal of contributions to the business. Ultimately, performance management must be approached from the perspective of building engagement.

Morgan McKinley Hong Kong recently conducted two surveys on the format and effectiveness of performance management practices within Hong Kong businesses—from the perspectives of employees and the managers responsible for reviewing teams. Reina Cheng, Managing Director, Morgan McKinley took us through their findings, published in the white paper—The Future of Performance Management in Hong Kong.

What performance management has become

Performance management is so closely associated with the annual performance review season that discussions on how organisations are approaching it invariably start with grumbles from clients and candidates alike. Few enjoy the review process. Even the best candidates have room for improvement and the huge time investment from managers, who may have multiple team members and teams across regions, can take its toll.  Cheng explained, “Annual reviews, more often than not, have a large emphasis on financial rewards and accountabilities and the majority of employees also report that they feel annual reviews are primarily utilised when there is a lack of performance.” She added, “Many of our own client organisations have reported that rethinking performance management has become a top agenda item for their executive teams. The annual review is failing to serve today’s organisation. The need for agility is increasing; after all, many businesses no longer have clear annual cycles.”

Despite the stigma, annual reviews remain prevalent within Hong Kong organisations—over 60% of employees surveyed are reviewed annually and almost 30% are reviewed continuously. Of managers, 43% conduct annual reviews and almost 50% conduct continuous reviews. Over the last 5-10 years, however, the leading tech, consultancy and forward-thinking retail brands have begun to abandon the annual review structure.

The Annual tradition

Unclear Expectations

Cheng highlighted some of the negative feedback recorded in the findings. She discussed, “The majority of employees feel the annual review is too subjective and focuses too much on their recent performance leading up to the review rather than their overall annual performance. 78% of employees state they are either not reviewed accurately or rarely reviewed accurately and 66% disagree with their manager’s feedback.”

The research has also indicated that many organisations do not set clear goals or include KPIs within the review process to measure performance objectively. Cheng noted, “When goals are unclear it creates a gap between the manager and the employee’s shared expectations.”

Not a motivating tool

65% of those surveyed said the annual review process was not motivating for them. Cheng expressed, “Predominantly the reason given was that staff felt the remuneration offered does not tend to match the results of their performance and most are convinced that there is no link between their performance and promotion.” She added, “Others see the whole process itself as demotivating and feel the targets are arbitrary and do not offer opportunities for career progression or even help them manage their workflow.”

In addition to the above, 55% of employees reviewed annually felt that the process limits collaboration and communication with their manager. Cheng noted, “For many of these employees, the review is a once-a-year conversation about their performance and development, they feel their managers are too occupied to observe them and there is little to no chance for daily communication.”

Positive Aspects

Not all the surveyed feedback was negative as 88% of managers reported that the current annual performance review is effective and around half of the manager respondents revealed that it is not time-consuming and they only have to spend between 1-3 hours on the annual review. On the employee side—21% felt that their reviews were accurate and 13% find the review process motivating.

Cheng highlighted, “At organisations where the annual review is reported as effective, our findings have highlighted some key success factors such as supplementing the process with continuous review, rating performance on pre-determined metrics and enabling open and transparent communication between employees and their managers. When managers work in collaboration with the employees it turns the annual review into a useful development tool and not just an arbitrary process.”

The Continuous trend

Over half of managers using continuous performance review processes have only adopted the process within the last 1-2 years. Another 35% have been following it for more than five years. Cheng opined, “As we move into a more flexible workforce our research indicated that an increasing number of companies will shift to a more collaborative style such as continuous review which favours frequent collaboration with team members.”

The continuous approach was overwhelmingly preferred over annual reviews by the survey participants. 44% of employees said that the continuous review motivated them to perform and 53% said they were also happy with the daily feedback they received. Cheng said, “The majority feel it is more effective as there are no surprises and they receive timely feedback which aids them in their own development and helps them solve problems in a timelier manner. The continuous approach facilitates better working relationships and strengthens communication within teams and most of the participants surveyed believe it enables them to accurately assess team member’s performance.”

In many ways, the continuous review satisfies the goals of performance management but it is not without its issues. In comparison to the traditional annual review, the continuous review is far more time consuming for managers and it is a commitment that grows with large teams often spread geographically. Cheng stated, “Continuous review is a significant improvement but 29% of employees still claimed that they didn’t feel they were reviewed accurately due to subjective manager feedback and undefined assessment metrics.  This really highlighted for us that transparent metrics must be in place for the staff—if there is a lack of quantifiable measures the staff will challenge the measures.”

Relevant Performance Measures

An analysis of both traditional and continuous processes revealed that one of the biggest causes of contention was defining the metrics employee’s performances were measured against.  Cheng said, “If staff have been reviewed based solely on quantifiable measures, such as sales, they tend to feel that it discredits all their other work, such as the relationships they have built or their ways of working. It is equally demotivating only being measured on projects and achievements by their manager’s ratings, which is usually the cause of disruptive disagreements and is almost always dismissed by the employee as being too subjective.”

The research indicates that organisations should start by defining metrics that match their company objectives, followed by the department’s objectives and finally the individual employees’ objectives. Cheng noted, “This practice reinforces that the performance review is about identifying how each employee can perform to meet the organisation’s objectives, not a personal assessment.” She added, “The metrics need to be objective, behavioural based, observable and drawn from multiple sources.”

In addition to the metrics, the goals defined by the organisation must be SMART (Specific, Measurable, Achievable, Relevant and Time-bound). Cheng highlighted, “Most things can be quantified, even what may seem unmeasurable. Things like the creative quality of work can be very subjective to review but metrics can be applied such as the effectiveness of the outcome or the speed of delivery and client feedback.”

HR engaged

Ms Cheng said, “The role of the HR department is vital in achieving the objectives of the performance management process. Their input at every step needs to ensure the right metrics are included, that direct managers receive the training they need and that employees are coached through the process to get the most out of it for their personal and career development. Performance management drives engagement and engagement initiatives drive performance. This is why HR Business Partners are so vital in this process as they bridge the divide between the business and the employees and keep everyone on track. ”

Conclusion

While the adoption of the continuous approach to performance management is trending throughout Hong Kong, most companies are still in the initial stage of its implementation. Cheng noted, “It is an appropriate change and a better approach from the perspective of building engagement. But to reap the benefits of the time invested, managers must be trained in communication and leadership skills and prioritise spending quality time with each team member; the performance review measures must be fair, based on relevant quantitative and qualitative measurements sourced from business results, managers, peers and clients—using technology to streamline the process where appropriate; and finally, the HR team must drive the process and be on hand to guide both managers and employees.”

Drawing on her experience and research, Cheng concluded, “From working with our own clients, we understand that the size and structure of the company has a big impact on the performance management style adopted. Tailoring an organisation’s approach to performance management to suit its unique working practices and the team’s geographic location can have a positive impact on engagement and create a culture focused on driving improvement for success."