ANNOUNCER: The following is a presentation of the ILR School at Cornell University. ILR-- advancing the world of work.
CHRISTOPHER J. COLLINS: Good morning, good afternoon, and good evening. Welcome to our ongoing CAHRS webcast series. Today, we're going to take on the topic of performance management, which has been the focus of our CAHRS research assistants, here with me today-- Alex, Jenny, and Corey.
And I just want to make sure to remind you that, as with all of our webcasts, we try to make this as interactive as possible. So we'll be taking your questions throughout the session. With that, I'm going to turn it over to Alex.
ALEX AVERY: Thank you, Chris. And a big thank-you to those who have chosen to share your time with us today, whether you're tuning in now or viewing later through the CAHRS website.
Before we begin, we do want to extend a special thank-you to those HR leaders who have shared their time with us as interviewees over the last several months. Without your time and your input, we wouldn't have been able to put together our content, so thank you.
As Chris mentioned, and in case you haven't opened a newspaper or a website, an email, or your ears, over the last year or so, performance management has become one of the hottest topics, not only to HR professionals but to the business world at large. As you're seeing on your screen, dozens of news outlets, trade publications, and blogs have shared these kinds of catchy headlines, with startling facts and overall an almost doomsday approach to performance management.
And, frankly, that's nothing new. We all hate performance management. We've hated it for years. Managers don't like having to go through the whole process, employees don't like being put through the wringer, and HR doesn't like having to make everybody do it every year.
So what's the big buzz right now? That was the big focus of our project. We wanted to understand what was happening out there in the realm of performance management.
We began our project with some background research, to understand setting the stage for performance management, or PM. And then we were able to have conversations with 51 HR leaders, across 41 CAHRS partner companies, for 45 minutes each, across 10 different industries. As you can see, there's quite a bit of interest in the topic. And with that, there's quite a bit of experience on the topic, as well. Only a handful of those 41 CAHRS partner companies have not made or considered changes to performance management in recent years.
So, with that, we were able to get a lot of great insight into performance-management change and transformation. We didn't want to apply existing models to what we found, so, through our interviews, we extracted meaningful data and conclusions that would help us offer a strategic framework for having a better perspective on transforming performance management, with one issue being that companies seem to be unhappy with performance management, make a change, still be unhappy with it, and then change another year or two later.
So, in today's webcast we'll introduce to you our strategic framework for transforming performance management. We'll share with you five strategic lenses through which you can evaluate your performance management, deciding whether to change and how much to change. We'll then offer you five change levers that you can pull and push to know how to execute these kind of transformative changes to performance management. And finally we'll share with you some key learnings and best practices that we discovered through interviews. As a reminder, there will be opportunities for Q&A, so please send those in as you have them.
To begin with, a walk-through of our strategic framework, understanding that this is a view to give a more transformative perspective on performance management. The model has two parts-- the first to evaluate, and the second to execute. They're held together in the middle, there, by the change strategy that drives your performance-management decisions. [INAUDIBLE] move left to right, so we'll start on the left with Evaluate.
This portion gives you five strategic lenses through which you can view performance management, deciding what its purpose needs to be and what changes need to happen with your performance-management system. It's meant to be ongoing and holistic, as to avoid only looking through one lens as you make decisions regarding transformation. After doing so, that change strategy in the middle will become more clear as you're able to set a clear direction for what performance management, or PM, is meant to accomplish. It will allow you to create a tactical plan in the second portion of the model, which is to execute. By pushing or pulling any or all of these five change levers, you'll be able to make impactful changes so that your performance-management system will be effective.
So, having gone through our model and walked through that for you, we'll continue with the Evaluate portion.
JENNY LEE: So the first part of our strategic framework is to evaluate your performance management based on five strategic lenses. In our interviews, we asked companies to identify what indicators led them to look at performance management again. And we tended to hear snapshots or single events that motivated them to revamp the system.
However, as we did our research, we uncovered that companies that tended to rely on a single indicator tend to lead to a patchwork PM which required modification every few years. What if a company went from a five-point scale to a three-point, just to revert back to five-point in less than two years? The opportunity cost of an ineffective transformation is huge.
As Alex pointed out, a successful PM transformation requires an ongoing and holistic evaluation. So we devised five strategic lenses that impact the business from multiple perspectives, in order to enable you to do so. And they're business climate, changing nature of work, talent mix, people and culture philosophy, and actual and perceptual cost of performance management.
Our first lens is business climate. And these are nuances in organizations that impact the structure, the strategy, and the operational environment. As your business focus changes, the PM must be realigned to support the strategy. And here we have a couple of examples.
We've heard from a company that went through a senior leadership change that the new CEO brought about a new strategy that was more growth-focused. This then changed what performance meant in the organization, allowing for an opportunity to reexamine their PM system. Another example might be a firm that operates in a highly regulatory environment. They are more cautious and careful in making drastic changes to their PM structure, due to its potential impact to adhering to regulations. These are examples of business climate.
Our second lens is changing nature of work. And these are disruptions on what work is done as well as how it's done, in terms of processes and norms. An example might be an organization that decided to operate in more of a rapidly changing market, thus putting more emphasis on organizational agility and flexibility. As a result, their key competencies now included the idea of cross-functionality and collaboration, and performance-management system had to be realigned to support this shift.
Our third lens is talent mix, which is workforce composition changes that might require a need to relook at employees' desires and needs. From nine out of 41 partner companies that we interviewed, we explicitly heard millennials as one of the major disruptions that led them to look at PM again. As you know and understand, millennials demand more feedback and are more prone to career mobility, both vertically and horizontally.
Another example of a talent-mix change might be the idea of remote work. For instance, as a company becomes more global and become a larger geographical footprint, employees might demand more remote-work environment, which increases the physical distance between employees and managers. You must consider how these changes in demographic differences make impact to your performance management's transformation.
COREY VAN PATTEN: Now, before making changes to performance management, being such a crucial and critical component of the talent-management arena, you need to take some time to revisit and to review your talent strategy. Is your company a meritocracy, emphasizing pay for performance? What is your culture philosophy? And how may this impact your strategy?
Understanding your people and culture philosophy will be critical in identifying how the current system is supportive of or inhibitive of these overarching goals and strategies and better understanding whether or not a transformation should take place. To help exemplify how your people and culture philosophy may act as a lens for transformation, consider the following examples from our research.
One employer mentioned that their senior leadership team has had a specific goal of driving a learning culture in their organization. Determined to instill this new mindset within their culture, they began to study about how they might be able to impact this change within their transformation. A second employer expressed how a shift in their talent strategy, from focusing on and exclusively emphasizing top talent to now developing their entire population, acted as an indicator for change.
When evaluating the appropriateness of, and the magnitude of, a transformation, you must also consider the impact of the system itself. The costs, both actual and perceptual, may often be the most top of mind and/or glaring need for change. As numerous employers discussed, during our interviews, neither employees nor managers enjoy the PM process. And it's without question that you'll hear such disapproval from all parts of the organization.
Analyzing the actual and perceptual of your costs therefore present a key way in better understanding the internal impact of PM and whether or not transforming is appropriate and feasible. To better clarify this concept, consider the following examples. One global company estimated that they spend approximately $11 million annually on the PM process. Determined to ensure that such costs were justifiable, this company considered modifying their PM system in order to reduce inefficiencies that were leading to excess cost. This is an actual cost.
On the other hand another employer outlined how the practice of forced ranking that they used implicitly created a culture where success meant getting a high rating. As a byproduct, this company noticed an environment where employees would trample over one another in order to achieve their own goals and in order to achieve a high rating. This byproduct didn't necessarily occur due to a systematic issue, for the system worked. It served its purpose, and it ranked employees. But rather this was a byproduct of the system. This is a perceptual cost.
As you consider all five strategic lenses, understand that information relevant to these lenses and these criteria will flow from a variety of directions and sources. Although you may at first feel as though you have most of the information necessary to change right at your fingertips, it's important to source information from an external, a top-down, an HR, and a bottom-up perspective. These four sources, which can be heard both reactively and proactively, will provide tremendous value as you look to understand the state of transformation at your company.
After completing a holistic assessment of the five strategic lenses, you now have the capability to better understand the necessity for and the magnitude of a transformation at your company. Depending on the conclusion of this analysis, it'll be important to set a high-level change strategy that will help you to more clearly understand what levers may need to be pushed or pulled and how you'll go about doing so. The strategy will act as the glue between the five lenses on the left side of our framework and the five levers on the right side, which we'll discuss shortly.
Now, at this point in our transformation, you may be thinking, geez-- based on our evaluation, I don't think that we need to change. Or maybe that, based on the evaluation, now just isn't the right time to change. And if that's the case, that's perfectly OK. The decision to transform PM, and/or how you do, should be made only after a thorough assessment of the five lenses and then understanding if this analysis signals a need to change that outweighs the need for PM to remain as is.
Now, before we begin to look at this next piece of our framework, we'd like to take a few minutes to answer any questions that you might have on the content that we've discussed up to this point.
CHRISTOPHER J. COLLINS: All right. So there's a whole handful of questions coming in already. And I'd like to remind you, as the audience, that-- you know, continue to send in your questions, and we'll get to them as soon as we can.
The first one was around the presentation. And we'll be making both the slides themselves, notes, and this presentation video available later today. Big questions, though.
So one set of questions that seemed to be coming in from folks is, this notion of, if they're seeing something happen in one of those five lenses, is that enough to start down the change process?
ALEX AVERY: I don't think there's a requirement that it has to be more than just the one lens. And really there can be a lot of significant changes in just one of those lenses that doesn't merit change. But I think that one of the biggest cautions that we'd say is to don't just jump right ahead without looking at the other lenses. And so if, perhaps, the talent mix has changed so significantly over the last few years, where you no longer have the same kind of generations represented, then perhaps it's a great time to consider making significant changes.
But don't do that without losing sight of what your overall people philosophy is. And even with respect to whatever your business climate is, there could be certain business cycles that haven't change and that don't merit the significant changes. But definitely, if there's something big that comes through one of those lenses, then absolutely that would merit making some certain pushes or pulls to the levers that we'll describe here in a minute.
CHRISTOPHER J. COLLINS: All right. Second set of questions that have been coming in are-- toward the end, you said you could look at this full set of lenses that you described. And then you mentioned about this change strategy, and people are just wondering if you could provide an example of a change strategy, or what should that change strategy focus on?
JENNY LEE: So we'd put caution in sharing an example of a change strategy-- though we will-- is that it really depends on your company and your evaluation on these lenses. So, because the change strategy should elaborate the purpose of what this PM transformation might entail, as well as the end goal, or the objective of performance management, of how you want it to look like at your organization, you should really let these five strategic lenses, as well as your evaluation, guide you through that.
With that being said, an example might be, as an organization, based on the lenses, have concluded that they needed the PM to do its job to differentiate talent more effectively. Then, based on that strategy, you might consider pulling or pushing the levers in a certain way-- in a very holistic fashion, once again.
CHRISTOPHER J. COLLINS: So another couple folks have written in about this question-- or some questions on this perceptual versus actual cost and, you know, were just wondering if you could provide some more examples of perceptual. And maybe if you have any sense of how companies are determining the actual cost of performance management.
COREY VAN PATTEN: Yeah, sure. So, just to chime in on that, another example of a perceptual cost may be an organization that's using a certain number in their scale, such as a five-point scale or a seven-point scale. But the organization is realizing that managers are not fully utilizing the scale all the way throughout. So maybe managers aren't using the 1 or they aren't using the 5, and they're therefore really only defining performance of employees based on a certain set of numbers.
This isn't a problem with the scale itself, you know. There's nothing to say that the system is broken or that a five-point scale is wrong or that a seven-point scale is wrong. But, because of how this system is actually used, how it's being utilized by the managers and by the employees, there are some perceptual costs that are associated with that.
ALEX AVERY: And [INAUDIBLE] about the actual cost, that the things we were hearing from the companies really shared that a lot of that came up with the amount of time that's put into it, when you consider the time for every manager to go through this process, and every employee to go through this process, and all of the support that needs to happen on the back end, as well. A significant example we heard is that many companies, for their performance management, 75% of it is administrative. And so there's a lot of actual, numerical costs associated with that.
And [INAUDIBLE] a great example, through seeing this lens, of trying to find ways to flip that. So only 25% of the time is spent on the administrative side. Which really reduces the amount of cost that isn't as beneficial and you don't see the benefit from those.
CHRISTOPHER J. COLLINS: All right. So I know you guys want to move forward. I just have one last question that's been coming in, and that's-- you know, you present this five-lens model. Is this a tool that companies can use to actually figure out what kind of change that they need to make?
JENNY LEE: Yes. I think that's a great question. So we highly recommend that any company, to determine the need for change as well as the magnitude for change, should go through this evaluation. And, based on that, the change strategy would really be the guiding direction that leads you to decide which levers to pull or push. Of course we'll go into more detail as we are going over the second part of our presentation. But basing the change strategy on the evaluation and focusing on that should be what's done during this first step of the process.
CHRISTOPHER J. COLLINS: Great. So let's move back to our content.
COREY VAN PATTEN: Great. So, having now utilized the five lenses to understand the appropriateness of, and the magnitude of, a transformation at your company, and having set a change strategy to ensure that this transformation is successful, you can now begin to consider the exact pieces and parts in the system that you'll look to modify or to transform. Now your analysis of the five lenses should help guide and drive your understanding of exactly what levers, if any need, to be pushed or pulled and how you'll go about doing so.
Of course, we'd like to emphasize that there's no perfect guide, and there's certainly no right answer. If we learned one thing during our interviews, it's that every company has their own unique approach to performance management. And we strongly believe that that's how it should be. Although there's no direct match between any one lens and any one lever, as it's dependent on your company and your culture and the outcomes that you're trying to drive, you should be able to uncover certain linkages that stem from a lens that signals a need to change and a lever associated with that change. Through our interviews, we identified five levers that can be pushed or pulled to help you understand where you should invest resources in order to achieve alignment.
Beginning with the PM structure itself, there are numerous ways that we can adapt or transform the system and its components. The structure, which is composed of the rating scale, frequency, and feedback's role in performance management, is often the first and primary focus that companies look to when modifying their system. Time and time again throughout our interviews, companies expressed that their primary motivator for adjusting the structure was to drive improved performance and to drive towards higher-quality conversations or feedback. When pursuing such goals, it's important to consider how these three interdependent characteristics may support or inhibit one another.
Transforming the rating scale is an efficient and an effective way of improving the quality of feedback in an organization. As you evaluate your rating scale, and any potential changes, consider how adjusting its purpose in points or modifying the scale's criteria or distribution, among the many other characteristics highlighted, may support the rest of your structure in driving improved performance or heightened conversations. Having a defined and clear purpose-- now, whether that's to differentiate talent or to pay for performance-- is incredibly valuable when you're pursuing the goals of your system.
This purpose will be essential as you inspect and analyze potential changes to the rest of your structure. For example, maybe by helping you to understand what the right number of points for your scale is-- whether it's three or seven or no points at all. While most organizations that we've interviewed have decreased the size of their scales, in an effort to simplify their system and to drive towards improved conversations, a handful of companies have also felt that it was most effective for them to move to a no-rating system.
Second how might certain characteristics regarding the frequency of conversations support the effectiveness of performance feedback? When adjusting the regularity and the timing of these conversations, be sure that the conversation's focus or objectives, along with accountability in governance for these conversations, are all in alignment and how, together, they all drive greater conversations. Our research uncovered that, while the majority of employers have or are increasing the frequency of informal conversations, there's a trend in companies also moving towards a recommended-focus or a no-required-focus type model, where managers and employees are enabled to discuss anything that might be relevant or prioritized at that specific moment in time.
As you look to increase or decrease the frequency of conversations, it's important to consider how these three characteristics link together. Ask yourself-- if you increase the frequency of conversations, will managers and employees know what to discuss? Or how will we monitor whether or not these conversations are actually happening? Let questions like these help guide you in choosing the characteristics that best fit your company and best drive the outcomes of your desire, whether that's improved conversation quality.
The third and final piece to this first structural lever refers to the role of feedback in performance management. Our interviews uncovered that most companies today are driving towards a strong culture of feedback-- something that can certainly be enhanced by the rating scale and the frequency conversations and characteristics. As you begin your journey towards this improved culture, consider the role that multisource feedback can play and how the focus of feedback can also act as a resource. And, of course, consider how technology can help to enable this transformation.
While many employers incorporate elaborate formal surveys as a means of 360 feedback, a small number of companies expressed transitioning to a simplified or a more flexible approach. These agile and often informal practices allow employees to receive and to give feedback conveniently-- whether it's after a project or a presentation or a short meeting, even-- which allows for greater data and real-time information, greatly strengthening the PM process as a whole.
Now, as employers drive towards this improved culture and these new goals, it's also important to mention that they're modifying the focus of their feedback or how feedback's actually delivered. Many of the companies that we spoke with emphasized transitioning towards a feed-forward methodology, in which managers focus on developing individuals continually. We've also heard examples of companies focusing on strengths and also working on providing managers and employees with stronger capabilities in regards to receiving and giving negative or constructive feedback.
Altogether, this first lever-- composed of the rating scale, frequency, and feedback-- is incredibly value as we look to drive certain PM outcomes, whether that's improved conversation quality, as we've discussed today, or maybe something else, such as greater differentiation.
JENNY LEE: Now, many companies stop making adjustments to their performance management at the first lever. However, for the change to be more strategic, there are more levers to push or pull. Our second lever is HR alignment. Here you see top five HR activities that are most aligned with performance management that we heard in our interviews. They're compensation, talent review, succession planning, promotion, and learning and development.
Because performance-management outcomes are so integrated with these HR activities, many companies hesitate moving away from their structure, even if it might be the right decision to do so. However, we'd like to emphasize that the goal is to make alignment that meets your strategy and priorities, regardless of which PM structure you utilize. Now the big question might be, how do we align compensation decisions to PM structure?
We've heard a lot of examples of companies using a structured guideline formula, where the PM rating is directly fed into a formula that's computed with various factors to put out a recommended range or a forced range of compensation allocation. Over 50% of the companies we interviewed use this method. It's straightforward, and it does a job.
However, what are the companies that are doing no rating or taking other approaches doing? We have learned that they empower their managers to use their discretion to decide compensation based on performance. Now they're required to distinguish reasons and examples that stand behind the reason of why they're paid in such way, instead of hiding behind the ratings. Surprisingly or not, companies that went with this method have not seen an overuse of the system and have actually witnessed greater pay differentiation among employees, based on performance. We again strongly encourage that the compensation decision method should be aligned with your strategic lenses, as well as in relation to your other levers.
The other top four HR activities operate under the wing of talent management. The goal we emphasize here is to be able to leverage the ample source of performance feedback in discussions of talent and development, especially from the manager's perspective. As you're considering to pull or push this HR-alignment lever, here are some guiding questions that we can propose to you.
How much influence do the PM outcomes have on our HR activities? How much do our managers know the work of employees? And can we trust our managers to make the right decision for compensation and talent discussions? As you answer this question, you must also consider a third lever at hand, which is manager and employee capability.
ALEX AVERY: For this lever, it's important to recognize that the success of a performance-management system lies largely with the ability that managers have to carry it out, as well as with how employees react to it. So it makes sense, then, to focus on improving both manager and employee capability. We've identified several areas of focus that will help to do so.
For managers, consider developing managers as coaches, also using a blended learning approach and providing an increase in the way that managers are selected for their roles, based on this kind of ability-- this capability. It's important to note here that about half of the companies we interviewed specifically mentioned that a big focus of their manager training is on developing a coaching skill set. And this is particularly helpful in performance management, as it enables managers to have more productive conversations and to give more effective feedback to their employees.
On the employee side, consider ways to help employees be more involved and actually participating in the process by understanding their goals and priorities and how they connect to the business and setting them to be more meaningful, as well as consider how to respond to feedback-- as earlier mentioned, whether that's negative feedback or positive feedback. And then consider finding ways for employees to be better at soliciting peer-to-peer feedback.
With one of these responding to feedback, it's important that performance management becomes more than just giving a rating or a number or an outcome to an employee but to give them ways to integrate this learning and this feedback to their day-to-day work and how they can make improvements to their skill sets. So that calls for a lot more involvement from the managers, as well. So, for both manager and employee capability, consider having a shared accountability, to ensure that both sides are invested in the process, they're committed, and that they're going through these impactful and powerful discussions that they can have as manager and employee.
And lastly, about half of the companies, again, shared how role modeling plays a big role with their top-level managers. And as top level managers are modeling how performance management happens, managers grasp the importance of how performance management is effective and find ways that they can integrate that, as well. And that cascades throughout the entire organization, as that affects the culture of the company altogether. With it, it's important to remember that this is an ongoing process of muscle-building and so it does require ongoing training to ensure that success happens.
The next lever is with respect to your technology. So not only do your HRIS systems need to integrate with each other, but your technology can also really impede the way that performance measure happens, but it can also really enable performance management to happen. I don't believe that we had a single interviewee that didn't mind spending time highlighting the flaws and weaknesses of their HRIS. And so, regardless of that, there may never be a perfect, golden system that does every little thing that we want it to, but that doesn't mean that we can't put the technology to work for us, whatever technology we have.
So, as you look at the technology for your performance-management system, as you consider to possibly build or buy beyond that, consider these four key goals for your technology, with perspective to performance management, the first being ease of use. Again, as mentioned earlier, that many systems have become very burdensome. And a majority of companies have focused some of their change efforts on providing more user-friendliness so that it's used more frequently.
Also consider the flexibility and adaptability that needs to happen with technology. One way to start is with considering mobile capabilities-- the way that people work-- as well as considering this third goal of capturing useful information. First off, is there a way to capture information? And then, is it useful? Is it accessible and available to managers and employees, so that they can input that into their day-to-day work?
And then lastly with technology is, finding ways to be able to pull reports on this information for analysis and legal documentation as necessary, as well as deciding on outcomes that will help to show and demonstrate the usage of the system and the effectiveness of the system. Overall, make the technology work for you and not the other way around.
Our last lever is socialization, which has to do with the way that performance management is communicated across the employee groups. And it begins even with the design process. A majority of companies have shared how that decision is led and given from the top, from senior management, even the CEO or the board-- which is a great way to signal the importance of a change in performance management.
To contrast that, one company we were able to interview shared a unique approach that they had with a design thinking process, where they asked and solicited for feedback from their workforce, whether that's for user input or other surveys, in the design and naming of the system, with another company asking their employees to vote on the naming of their new system. This is often underplayed by some organizations, but it can be a driving factor in the success of performance-management change, as you involve employees in the design process.
The second piece of this to highlight today is with respect to branding the system. And many companies were very particular about the way that they refer to performance management, even going through a rebranding process. This renaming of the system constitutes kind of a paradigm shift away from management to development and achievement and really the impact and forward-thinking.
As well as renaming the system, companies have also taken to renaming performance appraisals to be touch points or check-ins or impactful conversations. Doing so enables employees to approach their managers for development more frequently, making it a more relatable, common, and supported and encouraged activity. Overall, this rethinking of performance management-- this rebranding, redesigning-- enables employees and managers to view this process differently and not think of it as the same old process. This is a very powerful tool as you consider a major transformation of your performance management.
So, with all these five the levers together, it's important to know that they all five work together. That, rather than pulling one lever very hard that makes an obvious or visible change, to consider a balance between all five levers. That, as you pull one, you might need to consider the effect that it has on another one, and then you need to push that one forward, as well. And so, as you consider all five of these together, you'll be able to see a more effective transformation on your performance management.
So far, we've provided you with a strategic transformation model. And this will help you to better understand how to determine the appropriateness and magnitude of change, along with the levers that you can push or pull to make this happen. We will walk through the important characteristics of how change happens, based on the interviews we had. But first we'll break again for some more questions.
CHRISTOPHER J. COLLINS: Great, thanks. So, lots of feedback on the model. But lots of questions. And, maybe not surprisingly to you guys, lots of questions about this ratings, no-ratings. So can you give the audience a sense of trends on both the ratings/ no-ratings, and if you have trends, as well, in things like the frequency or the focus of the topic is the other parts of that structure?
ALEX AVERY: I think we could spend all day talking more about that. And perhaps that's something more that we could share another time, as well. But we will say that, out of the 41 companies that we interviewed, we had five who had gone to no-ratings. And so, you know, not as many, but that's a significant number, to know that that's a trend.
And I think you've been aware of that. You've seen the news stories, and you've probably done your own external benchmarking to see that companies have found it to be a great tool and great trend to use. It doesn't mean that everybody should jump right in. They should use the model that we're proposing here, to consider the different perspectives and to evaluate to whether that's the right choice.
With that, I'll also, then, make a comment on frequency-- that we have a lot of companies who have shared that, in order to give more topics and provide more direction on what those conversations should be like, they've enacted a quarterly conversation. And, with that, they've given an objective for each of those conversations. And, with that, it doesn't mean that every manager needs to have this kind of structure.
There were many of the HR leaders who shared that some of their managers have been doing this already-- that they don't just rely on one performance conversation a year. But they do this on their own, and they do even as frequently as monthly or biweekly. And really that's what some of the most effective managers are doing-- is to find a balance on frequent conversations.
However, that maybe doesn't make sense in every situation, so we've incorporated that as a suggestion to consider. You know, consider quarterly-- consider monthly conversations-- whatever's going to work for you. But I think, on average, we've seen maybe quarterly is kind of something to point to as a little more frequent update than a yearly conversation.
JENNY LEE: Yeah. And, adding on to that, and the piece of feedback, we've heard that more than half of the companies we interviewed spoke about whether it's about having a culture of feedback or specifically driving towards a culture feedback. Of course, utilizing the rating scale, as well as the other levers, as well as the pace of frequency, on top of that.
And another thing I'd like to highlight here is that the reason why we haven't seen very macro trends in things other than companies going to no-ratings or using the idea of culture feedback is because every company is in different ends of the spectrum. And what would our conclusion was is that, because it really depends upon the organization's context, as well as their readiness to go through the changes, the companies really landed on the customized solutions that make the most sense for their particular organization. So, of course, again, keeping in mind these overall trends will be helpful. But we, again, strongly recommend in looking at the framework and customizing the right solution for you.
CHRISTOPHER J. COLLINS: Great. So, again, I don't think you'll be surprised, but there's lots of hesitancy around this no-ratings thing. And I think the prevailing set of comments that I'm seeing, here, about this no-ratings is, is this fear of lack of fairness, or the ability to justify pay decisions, at the end of the day? So can you just walk through a little bit around your thoughts on how companies might make sure that they're not being unfair, that they can justify this, or, in the case one of these folks, saying, how do you make sure this isn't all retrospective bias-- that I come up with a pay decision and then I start thinking through how I'm going to have a conversation with you about that?
COREY VAN PATTEN: Sure. So that's a great question and something that we've contemplated a lot as we've been interviewing these companies, to try and see what people are doing, and how they're reacting to such political or ethical concerns, maybe. One of, I think, the most interesting pieces of feedback that we received, which is something that you should consider as you work though our framework, is the idea of an engaging leader score, or really just holding your managers accountable for the process for applying a rating or for applying no rating at all. Really being able to grab and to gather feedback from their subordinates and from their team, from their employees, to understand how the manager is actually doing in the process.
This, in and of itself, can have a huge impact in uncovering managers who may be less fit for the role, and to understand whether or not they should transition to an individual-contributor role, as well as to evaluate other flaws in the process. Really just to ensure that things are smooth and moving forward in the right direction.
ALEX AVERY: I think, in addition to that, I would add that there's a lot to be done with managers. One of those levers to pull is manager capability. With HR alignment, though, to mention that, even if a company isn't using ratings, there are still outcomes from performance management. That outcome could be just the raise or short-term incentive that's given, or bonus. But, either way, there's something that's happening based on what these performance conversations are like.
And so, with that, it's important to set up the decision criteria of how that's going to happen. So, as that question noted, that somebody doesn't just make up and say, oh, it's because of this and this, after the fact. But there still is an opportunity to set up what the criteria are to receive certain pay increases. And so it's really just performance measurement without rating outcome, but there still are those other outcomes.
With that, then, the manager capability is making sure that managers understand this. If there's a true concern with the way that managers are applying pay increases, then there's a true concern with other things with the manager, as well. So incorporating that into the leadership-development pieces is very important and can be a great way to address that issue, I think.
CHRISTOPHER J. COLLINS: So there's also been a few folks wondering about this transition, as you make the change-- right? Whether it's from ratings to no-ratings, no-ratings to ratings, changing the frequency-- how do you keep employees and managers engaged through this process of change?
JENNY LEE: So this is when we'll go back to one of the levers in our framework. One thing that I'll personally highlight is using the socialization lever. So, being able to engage the employee, as well as the manager population, from the initial phase-- and, by that, we're not talking about the implementation phase, but from the design-- can really bring about that engagement, even more than you can ever imagine. Employees get a sense of ownership during the process. They're automatically feeling like they have their own input in designing the nomenclature of the rating label, or what the system was called. So, by doing that, and also understanding that by--
The true purpose of performance management, to increase their performance. So, by understanding that and clearly communicating, I think, it makes it easier for all the key stakeholders to be brought into this-- you know, potentially a radical change to the system and to see the positive side of this transformation.
CHRISTOPHER J. COLLINS: Great. So I know you need a little bit of time to wrap up. So maybe we'll move to some conclusions and next steps?
JENNY LEE: Sounds great! So, until now, based on the framework we have evaluated, based on strategic lenses, and executed on change levers-- now you might be asking, how do we proceed with the transformation from design to implementation? So here we plan on sharing key learnings and best practices that we have learned for the change strategy to be successful.
Performance-management transformation should not be considered as an HR process change but as an organizational change. Consider a third lever, that we were just talking about-- employee-manager capability. As you can imagine, it requires a behavioral and attitude shift from the key stakeholders. It must be considered, then, as a change-management practice, as with any other major business initiatives.
Which brings me to my second point. You must embody change-management practices throughout. And here we'll highlight a couple of examples. During design, we've also have companies that have utilized pilot testing as a part of their design, where they tested radical approaches, like no-ratings, in parts of their organizations, which gave them the opportunity to hear ongoing feedback and also to forecast the organization's readiness for this change.
During implementation, I would like to go back and highlight our socialization lever, which is also something that we were just talking about. So by communicating and branding the true effort to get the key stakeholder buy-in may enable you and your change strategy to be successful. Performance management is culturally dependent. As we were talking about it during PM structure, the true focus now is on improving the quality of the conversations which require cultural shift. With that being said, you should be mindful with the time line and scope of implementation and also understand that behavioral changes might take time for you to visibly see them.
Last, but certainly not least, be keen and mindful of trends as helpful. However, you should understand what it means based on your organization's context. A no-rating may just not be the right solution for you, based on your particular business climate, your people and culture philosophy, and how your compensation structure is aligned with PM. Instead, you should tailor your solution based on the strategic framework that we have provided you.
Until now, we have walked through this framework to create a change strategy based on the evaluation of strategic lenses, to execute levers through a technical plan, to see the changes in the transformation. 91% of organizations we interviewed have recently rolled out a PM transformation or are currently considering or thinking about a change.
Here we have provided an overarching model that any company thinking about PM transformation can utilize to make the right decision for you to maximize your ROI. The true purpose of performance management is to improve your organization's performance. And here we have served you the right framework to achieve that goal.
Thank you so much for your time and participation in today's webcast. Our slides, as Chris mentioned, will be posted on the CAHRS website briefly after the presentation. And, as well, stay tuned for additional series of content on performance management in the upcoming months.
CHRISTOPHER J. COLLINS: Great. So I wanted to just think the RAs for the great work they've done, again, through the CAHRS Top 10, the newsletter, and on the website. We'll be releasing some new, short videos that the team is pulling together. And there'll be an array of topics. You know, things that you asked about today that we didn't get to, maybe around how to measure the success and impact of changes on-- you know, any examples of companies that have done this pretty well or have actually made this a more engaging process are all things that we'll look to address in these videos.
So we'll be sending them out. And keep your eye out on the website. And, again, thanks to the students, and thanks to all the executives who helped with the research. And thank you all for joining us today.
JENNY LEE: Thank you.
ANNOUNCER: This has been a production of the ILR School at Cornell University.
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In today's competitive and volatile business landscape, organizations must find ways to be more efficient and effective in their management practices. To align with these changing business objectives, many organizations are transforming their performance management systems -- from what has traditionally included a yearly performance appraisal and numbered rating -- into a more flexible and dynamic process. Ensuring that such alterations maximize the value generated by human capital can be challenging as it is often unclear as to what the transformation entails.
Center for Advanced Human Resource Studies (CAHRS) research assistants Alex Avery, Jenny Lee, and Corey Van Patten discuss how performance management has evolved, along with indicators and pressure points for strategic change, key performance management "levers," and capabilities that will enable a successful transformation. Moderated by Chris Collins, associate professor of human resource studies and director of CAHRS.