The demise of annual performance rankings

The paradigm shift in performance management
February 20, 2018
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February 20, 2018
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The demise of annual performance rankings

First published on LinkedIn, 29 July 2015

Top marks Accenture for getting rid of annual performance rankings.

Accenture CEO Pierre Namterme recently announced that the annual charade where managers force-ranked performance of employees, around a fixed distribution curve, was a thing of the past. Accenture joins a growing band of Fortune 500 companies that are reviewing their performance appraisal systems. They follow Microsoft, Deloitte, Adobe and Gap.

What these companies discovered is the ranking system did not drive better performance. All it brought was countless hours of frustrating paperwork, awkward conversations and employees who felt devalued and disengaged.

Why would they expect different outcomes from ranking people? The practice is counterintuitive. All it does is create fear and anxiety for many, and warm hearts among narcissistic self-promoters.

Jack Welch popularised ranking systems, after he took the reins at General Electric in 1981. He declared that the bottom 10% of executives would be fired every year. And they were. They say he drove productivity to new heights.

Sometimes it is dangerous to imitate the actions of others. After Jack Welch, many organisations introduced a ranking system, but tried to do too much. It was used with employees right down the line, not just the top level. The numbers governed salary increments, promotions and a range of other benefits and perks. While done under a veneer of impartiality, most people thought that rankings were biased and unfair.

That is why getting rid of the ranking system is a real step forward. But what is replacing it? Accenture wants its managers to give more timely feedback to employees and discuss performance after every assignment. They want to focus on the future and support people to perform at their best. Deloitte has a new system, where evaluations are made incrementally during the year. They have simplified the paperwork using just four simple questions about the person in the role.

Looking back, the experiment with rankings was a sorry deviation from a path in the right direction.

Way back in time I was asked to design a new performance appraisal system for the Joint Services Staff College in Canberra. Their system was outmoded. It used lists of personal attributes like ‘grooming’, ‘punctuality’ and ‘work habits’. There were also job-related factors like ‘job knowledge’ and ‘productivity’. It was time to move on.

I recommended a new system based on observable behaviours that related to actual performance in the job. Depending on the role, these included things like ‘reviews all relevant policies and procedures before boarding craft under surveillance’, and ‘explains procedures clearly and concisely to junior officers.’

The Joint Services Staff College exemplifies the revolution in thinking that was happening at the time. In the ‘before’ state, employees were treated as costly inputs. Conformity and consistency were important. They were like children who needed to be controlled and regulated. In the ‘after’ state employees were viewed as valuable assets whose contributions made a difference to the bottom line.

Performance appraisal was no longer an annual tick-a-box exercise. It was an opportunity for managers to communicate with employees over performance issues. But these conversations were hard for managers unused to talking openly with others. I have designed or helped to introduce performance appraisal in a number of places, including Sydney Water and the Samoan National Health Service. We were always clear that support and training for managers was at least as important as the paperwork.

Admittedly, organisations did not always get it right. But the underlying values were sound. They wanted their managers to have those conversations with staff, and for people to get the message that working productively would be recognised and rewarded.

Enter Jack Welsh. He saw people as valuable assets too. He rewarded the top 20% but went too far by purging those in the bottom group. It was a carrot and stick strategy, pure and simple. But many senior managers in other organisations were feeling the heat of increased global competition and thought that his approach was worth a try. That was the fork in the road.

Fortunately we are entering a new phase with the actions of Accenture and other forward looking Fortune 500 companies. Their new strategy reflects a more mature and considered approach to managing people. Employees are valued associates. Productivity depends on the quality of relationships and the capacity of managers to support and mentor their staff.

We have come a long way. In the early days staff were expensive inputs who needed to be regulated and controlled. Then the focus shifted to their contributions over the previous year. Now a handful of companies are asking what they can do to support people to perform better in the future.

Have you reviewed your own performance management system recently? Are you concerned that management and staff may view the process as unfair or a waste of time? Would you prefer a system that reflects the messages Accenture is intent on embedding? Contact me if you would like a realistic assessment of your current process and some practical options for moving forward.