2. Know How Individual Efforts Tie-in with Company Goals
Even when employees have goals set, frequent reviews gain effectiveness if both managers and contributors understand how their work propels the company forward. According to McKinsey, at companies that link employee goals to business priorities, 46% of respondents report effective performance management, compared to a mere 16% of respondents at companies that don’t. For their part, McKinsey links employees’ goals to business priorities. 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 oneself or one’s manager. Employees are more motivated when they understand how their efforts impact the organization as a whole.
3. Coach More, Manage Less
Having effectively-written goals guiding frequent performance discussions changes the manager’s role to that of a coach. Of course, the coach of a sports team wouldn’t wait till after the season is over to review performance with their team. Rather, 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 during 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 suggests that 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, annual reviews won’t be a surprise. 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 to be 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 results in 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 probably should 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. Coget 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”. Furthermore, the performance improvements observed when goals are frequently discussed hopefully place your organization in a better place to give raises to those deserving of them. At the very 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 for Performance Reviews
The biggest obstacle to replacing the traditional annual performance review with frequent discussion of goals is how long it takes managers to shift. 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 assess themselves (Theory X being a carrot-and-stick approach). He noted the drawback that doing this correctly 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 assess 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 every business decision. The transparency of data enables frequent performance check-ins and requires 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 rolled out training for managers adjusting to their new coaching roles.
‘People manager’ is a job,” says Microsoft executive Jean Philipe Courtois. “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 inaugurates a new age of frequent goal discussion and coaching. When done properly, the workplace will be better off for it.