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November 5, 2015

Reinventing Performance Management to Drive Business Performance

As the end of the year approaches, HR professionals begin to feel the year end crunch: benefit open enrollment, holiday party planning, and the dreaded performance review season.

Does this sound familiar? If it does, you are not alone. In a recent Gallup survey, more than 58 percent of HR executives said their current performance management system was weak in driving high performance; 58 percent also said their current evaluation process was not an effective use of time.

These are disturbing numbers. They beg the question, “How how can we improve and innovate on our current performance systems?”

Traditionally we have evaluated staff members based on output. But as the economy is shifting and more than 70 percent of all jobs are knowledge or service based, it is no longer enough to evaluate employees strictly by their output; we must also evaluate them on non-tangibles such as adaptability and innovation.

The impact of the Idiosyncratic Rater Effect
The challenge that managers face is, “How do we measure these skills without succumbing to the Idiosyncratic Rater Effect?” That’s the idea that a manager’s rating of an employee is a better reflection of his or her own idiosyncrasies than of the employee’s actual skill set.

This means that when a manager conducts the year-end performance appraisal, the rating actually says more about the rater than about the ratee! There have been several published studies in both Personnel Psychology and the Journal of Applied Psychology documenting this effect in employee performance evaluation.

Managers are disturbingly unreliable raters of other people’s performance, says Founder and Chairman Marcus Buckingham of the Marcus Buckingham Company, a leading performance management and employee engagement consulting firm. If we can’t trust this data to help make good business decisions such as who to promote, where to put training resources and how to compensate staff, what do we use?

A new type of evaluation that works
Consulting firm Bersin by Deloitte attempts to answer the question by posing a new form of evaluation that allows the rater to provide his or her opinion on the things that will matter most in making compensation and promotion decisions.

The system requires the manager not to rate the employee’s skill set, but instead answer questions about the manager’s own future action with respect to the employee. The questions summarize the manager’s intent to provide the highest possible compensation increase, the manager’s willingness to work with the employee on another team, the manager’s perception of the employee’s risk for low performance and the manager’s perception of the employee’s potential for promotion. This type of rating system requires the rater to think through the action he or she will take with an employee, rather than giving an unsupported numerical rating.

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