Seeking Perfection in Performance Management

By Michael Welsh
April 04, 2022
Illustration of a man and woman discussing an employee profile.

Over the last five to seven years, it seems like you aren’t doing your job as an HR professional if you aren’t overhauling your performance management system. This pursuit of a “perfect” system often comes at the expense of an effective system, one that dynamically flexes and works well with your organization. 

Of course, there is no such thing as the perfect performance management system. No organizational system is perfect, nor should the pursuit of perfection even be the goal. Organizations are dynamic and we should build the internal systems that support them so they adjust to an organization’s ever-evolving needs -- that, perhaps, is a concept we will explore more deeply in a future article. 

So why then is the corporate world at large dissatisfied with their performance management systems? And why are so many organizations seemingly caught in a cycle of overhauling these systems every few years? 

In effect, the performance assessment process is a renegotiation of the employer-employee relationship where much is at stake. For the individual, their career, livelihood, and even their sense of wellbeing will be implicated. For the organization, their ability to retain their employees in service of the organization’s mission, controlling for bias, complying with labor laws, and balancing compensation expenses with profitability are a few of the issues at hand. 

With so much at stake, performance management systems tend to be designed around “best practices” rather than factoring in the dynamic realities unique to the organization. Performance management systems are copied from one organization to the next without assessing the “why” behind the design. Over time, this practice converges to the mean, and the mean is confused for the “perfect” system. Inevitably the performance assessment systems begin to break and the cycle of overhaul repeats. 

A well designed performance management system is designed specifically for how the leaders of that organization intentionally want it to evolve. It has an adaptable framework which features both assessment and development, and follows through with on-going development support throughout the year. 

A Personal Experience

Over two decades of employment, I have experienced a wide variety of performance assessment systems. One in particular stands out. It was my second “career” job at a boutique professional services firm where I was a financial consultant reporting to the head of the consulting division. The head of HR had built out a “textbook” performance assessment process we were trialing that year, complete with self, peer, and supervisor review forms to create a file that would be discussed in a calibration session involving all the firm’s partners and head of HR -- a process I have experienced at 4 of my 6 “career” jobs and observed at countless clients. 

Something about this one was different, though. When I sat down with my boss to have our performance review meeting, he took his written assessment of me, looked me in the eye, crumpled it into a ball and tossed it into the trash. Still holding my eye, he said, “I don’t care about what is on that piece of paper. All I care about is seeing you grow and supporting you in that. Let’s have that conversation.” 

That experience occurred 12 years ago, yet it remains as one of the most visceral and poignant moments of my career. It was the first time I felt truly seen as an individual at work and knew someone cared about my development. Throwing away my performance review was a powerful way of communicating that message -- I experience strong emotion recalling it now. 

I should point out that the performance review still was used to evaluate my performance, which was used to justify a meaningful raise for me at 25 years of age; it was only figuratively “thrown out.” In reality, that piece of paper was a vital piece of that process, as was my manager’s choice not to reduce our conversation to just what was written on it.

My boss frequently revisited our development conversation. Every Friday morning we had a check-in in which I gave a status update and asked for input from my boss. Inevitably my boss turned question upon question back onto me, grooming my thinking and building my confidence as I became the person leading the firm’s process of generating business valuation reports, a big chunk of our consulting business. Then my boss would invite me to a coffee walk or lunch, shifting the conversation fully toward my development. These conversations felt safe and rewarding, something I always looked forward to. In retrospect, my boss was a skillful pioneer in coaching and a gifted believer in developing people -- this is the same person who had hired an accounting professor to educate the employees at the fabrication shop he owned after implementing an employee stock ownership plan to empower these “new owners” to identify cost savings opportunities on the shop floor. 

Several years after this experience, I shifted from a career in accounting and finance to one in leadership development and human resources. Since then I have been on Learning & Development and HR teams as well as supporting these teams as the consultant looking to build the “perfect” performance assessment system. 

Surprise, surprise. None of these systems were perfect, and few were built for the unique needs of that organization. As I reflect on what worked and what might have worked even better about these designs, my mind inevitably returns to the experience I had with my boss. My first takeaway is the performance assessment system can be reframed from a risk to be mitigated to an opportunity to be capitalized. My second takeaway is there is a guidepost for designing an effective performance management system: It should support learning how to learn as an organization and for the individuals within it -- in a world in which change is increasingly changing this equips the individuals within the organization with the capability and motivation to strive toward achieving the mission of the organization.

Performance Management Essentials

I would posit that a performance management system cannot be effective (in the long run, at least) if it does not reward learning how to learn. A performance assessment that does this successfully should have 3 parts to its design:

  1. A backward looking conversation assessing performance over the most recent period.
  2. A compensation conversation impacted by this performance.
  3. A future oriented developmental conversation. 

The backward looking conversation provides the space for the reflection to calibrate what has been working and what might need more work for how the individual has been going about their work. It also is the data that feeds into how compensation changes for the individual are derived. The compensation conversation explains those compensation changes, removing any air of mystery so the individual trusts how their compensation is calculated and understands how their performance and efforts to change it will impact their compensation in the future. The developmental conversation is where the individual finds their agency. While a lookback on prior performance is useful here, the majority of this conversation should be forward looking on how the individual wants to grow, what experiences will be important in service of that, the commitments the individual is making, and how the manager can support this.

In pursuit of building the “perfect” performance assessment system, many organizations tinker with these 3 parts. Some organizations insert a delay between the performance and compensation conversations, yet this creates stress for the individual. They cannot “hear” the conversation about their past performance because there is threat in the air impacting their financial wellbeing. 

Most organizations confuse the performance conversation for the developmental conversation, neglect to include this third part, and thus lose intentionality for the individual’s development -- why would you be vulnerable enough to talk about where you could develop during a performance conversation if you know this is the “data” for your compensation change? 

Finally some organizations scrap both the performance and compensation conversations -- this is the current paragon to which many practitioners are flocking. However, this can create a biased and imbalanced compensation structure. Organizations then tend to run a shadow leveling and or 9-box process, which typically deepens pay disparity for members of underserved groups -- the opposite of equity for individuals and an employment relations failure for the organization.

The key is to have all three parts: the “past tense” assessment conversation, which feeds into a compensation conversation, and a “future tense” development conversation that is revisited regularly -- likely the first two conversations happen in the same meeting and there is a little bit of “breathing” space between that and the development conversation. Build structure for them, create accountability and support for the manager and individual, including adequate skill building for both.

Creating the Conditions

These conversations will only happen and be effective in the right environment. Managers, like mine who tossed my performance review into the wastebasket, need to have the skills and support to take a developmental approach. This includes training. Train managers on the why, how, and what of the performance assessment system so they can speak about it with ease. Equip managers to have performance and development conversations by providing feedback and coaching skills training. 

This includes building supporting HR processes such as employee engagement surveys that ask how often and how well development conversations take place between manager and individual. This includes well-documented performance assessment systems that utilize an HRIS that nudges these conversations to happen through email reminders or Slackbot pings.

This includes executives who talk regularly about the mechanics of the performance assessment system and repeatedly and visibly share why development conversations matter (and how they have personally benefited from them!). 

This also means creating safety for individuals to lean into these developmental conversations. This will only happen if they know their managers care about their individual development (training and HR processes foster this). Nothing will undermine a development conversation more than if what an individual shares is “used against them” in a performance evaluation. And the individual needs training to be able to adequately ideate on their career and to prepare for the development conversation.

All of this is predicated on environments in which organizations are intentionally building cultures of development complemented by encouraging a growth mindset, nurturing a feedback rich environment, zooming out to get the “systems perspective,” and committing to continuous learning. 

Why This Matters to You and Me

You never know how you might change your organization and the lives of the individuals working in it by adequately and fairly assessing performance and leaning into the development conversations. Thanks for changing mine, Tom!

About Author
Picture of Michael Welsh
Michael Welsh

Michael serves as the Vice President of Corporate Services at The Hudson Institute of Coaching where he leads a team of experts in coaching, organizational development, and instructional design. Previously, he was instrumental in building the “people operating system” at tech companies in Silicon Valley. His mission is to enable people to maximize their full potential and live their most meaningful lives.