5 Ways Effective Goal Setting Improves Your Performance Management
The performance review is a hallmark of modern management. Yet what should be a time for honest evaluation, constructive feedback, and encouraging recognition often creates anxiety for managers and employees alike.
A McKinsey survey of managers found more than half of respondents did not believe performance management had a positive effect on employee or organizational performance. With the need for a serious revision very apparent, companies are reconsidering the structure and frequency of the performance review.
To provide more actionable insights many companies are moving to more frequent reviews. Adobe, consistently a top-rated workplace, replaced performance reviews with bi-monthly (or more frequent) check-ins to review performance on a more regular basis. The positive results of the change, since emulated by other high-performing organizations, demonstrates that the length of the feedback cycle has long been a main shortcoming of the performance review. How can employees adjust their course when off-track if feedback is rarely given.
The second downfall of performance reviews is a lack of transparency regarding the content of the evaluation. A survey by Wakefield Research found 62% of Millenials have felt “blindsided” by a performance review and 74% said they feel “in the dark” about how their managers and peers view their performance. As the cartoon above shows, lacking clear expectations for performance evaluation leads to confusion, distrust, and dissatisfaction (PSA: Do wash hands frequently to prevent the spread of disease!).
With all this in mind, its time to find a better way. Evaluating performance continually throughout the year with a set of specific, effectively written goals solves the performance review’s biggest issues. When employees know where they stand, regularly discuss and share progress, and understand how they’re being evaluated, the performance review can inspire rather than terrify.
Let’s break down 5 ways transparent goal setting and frequent feedback improves performance and performance review:
1. Always Know Where You Stand
As previously mentioned, waiting a year to give detailed feedback can let months of underperformance go unchanged. When goals are tracked transparently, employees always know where they stand and can adjust course if they fall behind. Frequently discussing these goals means managers and employees can evaluate potential improvements or recognize what’s working well before its too late. If targets need to be adjusted or new opportunities arise, consistent review will address that. By not discussing performance consistently, managers lose out on potential areas to increase productivity and address concerns before its too late.
Annual performance reviews often leave employees confused and disgruntled, wondering why the company bothers doing them in the first place. Given the average manager spends 210 hours on related procedure, performance reviews could cost a company of 10,000 employees some $35 million annually. The alternative, frequently discussed, specific goals, has been shown to improve employee learning and task performance. Employees know where they stand, based on progress towards task-driven or quantitative goals, and are able to consistently have conversations with their managers on how to improve performance.
2. Know How Individual Efforts Tie-in with Company Goals
Even when employees have goals set, frequent reviews gain effectiveness if managers and contributors understand how their work propels the company forward. According to McKinsey, where employees’ goals are linked to business priorities, 46 percent of respondents in organizations that link employee goals to business priorities report effective performance management, compared to 16 percent for companies that don’t follow this practice. Yet Robert Kaplan and David Norton found “a mere 7% of employees today fully understand their company’s business strategies and what’s expected of them in order to help achieve company goals.
Aligning employee goals with company goals encourages accountability to team members and not just to one’s self or one’s manager. Employees are more motivated when they understand the impact their efforts have on the organization as a whole.
3. Coach More, Manage Less
Having effectively-written goals guiding frequent performance discussions changes the role of a manager to more of a coach. The coach of a sports team wouldn’t wait till after the season is over to review performance with their team. They actively look for improvements both during and after games. They review statistics and film to spot areas for improvement, discuss them with their team, and work on weaknesses in practice. In effect, frequently discussed goals do the same thing.
Coaching means thinking about how to align your organization’s short term goals and long-term vision with your employee’s goals. If performance is not linked to concrete metrics or frequently discussed, the annual performance review can feel like punishment. Coaching, on the other hand, means actively helping employees identify where they may be falling behind on goals and working together to advance both their goals and careers. Instead of grilling employees on performance, managers can ask coaching questions while reviewing goals like “What is/is not working? And How can I help?”. As Sir John Whitmore, pioneer of executive coaching, said, skilled coaching means “unlocking people’s potential to maximize their own performance.” London Business School professor Herminia Ibarra posits the manager-as-coach “asks questions instead of providing answers, supports employees instead of judging them, and facilitates their development instead of dictating what has to be done.” Frequent discussion of goals is far more conducive to this type of effective management than the traditional performance review.
4. Improved Fairness
Having well-written, predetermined goals takes the guesswork and bias out of performance reviews. If metrics tied to performance are discussed consistently, there will be no surprises come annual reviews. Lack of perceived fairness leaves employees dissatisfied with performance reviews and unlikely to implement improvements afterward. Dubbed “the idiosyncratic rater effect,” reviewer bias influences how managers think about—and describe—their employees.
Studies suggest that on average, 61% of a given performance rating has to do with the traits of the person conducting the evaluation, not of the person being rated. Having concrete, measurable goals to guide performance discussions removes this issue and increases employee satisfaction with the review. It is far easier to adjust performance based on actual performance metrics and goals than biased feedback more reflective of the manager than the employee.
Fairness in performance reviews can have a significant impact on your bottom line. McKinsey found that employees who considered their performance reviews as fair were twice as likely (52% vs 27%) to say their company was outperforming competitors. With fairness and frequency of feedback tied to goals, employees are more likely to feel judged on current performance and not held responsible for past behavior. This means higher morale, lower turnover, and better relationships between managers and employees.
5. Transparent Decisions on Raises and Promotions
A lack of transparency and fairness in the performance review process amplifies employee dissatisfaction when it affects decisions around raises and promotions. While performance reviews need not be linked directly to compensation decisions (in fact, they should probably be kept separate), employees who frequently discuss their performance on goals with their manager will be less surprised when decisions around pay and promotion are made.
Additionally, this transparency allows employees to focus on feedback and improving performance instead of stressing about how reviews will determine their pay. Dr. Jean Francois Coget of Cal Tech, San Luis Obisbo studied 17 firms who ditched traditional performance reviews and found that when feedback is “not going to be used to judge you or your fate in the company, you are more likely to be open about where you need to grow and it’s going to be far more effective”. The performance improvements seen when goals are frequently discussed hopefully places your organization in a better place to give raises to those deserving of them. At the least, employees will have measurable results from the entire year to bring to conversations about pay and promotion. This improves fairness and may increase employee morale.
A New Frontier
The biggest obstacle to replacing the traditional annual performance review with frequent discussion of goals is the time that it takes managers. In a now-famous HBR article in 1957, social psychologist Douglas McGregor advocated for a “Theory Y” of management, which argued employees should set their own performance goals, with help from managers, and asses themselves (Theory X being a carrot-and-stick approach). He noted the drawback that to do this right would take each manager several days per year. Yet traditional reviews already take managers several days.
Technology has changed significantly in the last 60 years, however, and software tools exist to help managers and employees easily asses where they stand on goals. Reviewing performance can be as easy as taking 5 minutes to look at a mobile app interface together during regular check-ins. McKinsey found that 65% of employees at companies using mobile technologies to enhance performance management thought it had a positive effect.
While we firmly believe tracking goals with technology is a valuable part of improving the performance management process, we also know the biggest change to performance management needs to be a mindset shift. Building a competitive business means placing the satisfaction of your customers and employees at the center of business decisions. The transparency of data makes it easier to check-in on performance and means less hands-on time for managers.
These shifts mean the role of the manager as a coach will be more important than ever. Following a shift towards customer-centric, data-driven decision making at Microsoft under CEO Satya Nadella, his number two, Jean-Philippe Courtois, rolled out training for managers adjusting to their new coaching roles. ‘People manager’ is a job.” he says. “You’re not just a sales manager, where you have a quota, a territory, customers, partners, and goals to achieve. You’re actually someone whose mission it is to pick, grow, and motivate the best capabilities to build customer success.”
The decline of controlling management and traditional reviews innagurates a new age of frequent goal discussion and coaching. When done properly, the workplace will be better off for it.