From rigid rules in the form of forced distributions and fixed deadlines to the abolition of all processes and obligations - the only characteristic performance management systems currently have in common seems to be their high degree of individuality and suitability to the respective organization. hkp.com in an interview with hkp/// group experts Karoline Schaper and Frank Gierschmann.
Ms. Schaper, Mr. Gierschmann, we are currently looking at a very heterogeneous performance management landscape in companies. What is the background for this?
Frank Gierschmann: Let me jump in with an anecdote. A few years ago, an HR manager told me that developing a performance management process was actually quite simple: Buy an HR IT suite and follow the configuration steps until the system is fully designed and implemented, including follow-up in development and compensation. In fact, such approaches have been widely pursued and pushed through organizations with reference to the limitations of the IT system. Today, I no longer hear such statements.
Frank Gierschmann: Currently, HR managers often try to reconcile quite different stakeholder perspectives. In this context, the claim from managers for more flexibility in less rigid processes and better embedding in their daily management routine is raised - after all, performance management is supposed to provide support in the leadership role. In addition, the dialog about performance and contributions should not become a strain on the relationship between employees and their supervisors.
Employees shouldn’t be displeased?
Karolin Schaper: That would be an overly one-sided view. Employees ask for feedback that is as comprehensive as possible and action-oriented, and at the same time, they often ask for appreciation during the process . Following, the expectations of the “employee experience” do not necessarily have to be congruent when looking at these two groups. Finally, from management, the importance of a performance culture as well as collaboration in teams is highlighted. The top performers should be known, specifically retained by the organization and also receive special promotion.
Frank Gierschmann: More and more managers are recognizing how much a purposefully designed performance management system provides incentives for talent and thus has a positive impact on employer attractiveness. And in the meantime, it has become clear to everyone that the current HR IT systems are only configurable to a limited extent ... and unfortunately have too much process mapping in their DNA.
Karolin Schaper: In fact, there is not much evidence of employee experience in the conventional systems. It is therefore not surprising that a large number of solutions are currently entering the market, putting pressure on the current HR IT providers and forcing them to create more flexible configuration options than could have been imagined in the past.
Overall, it is an enormous balancing act of demands that are placed on performance management. The expectations could not be more different. How are companies responding?
Frank Gierschmann: The heterogeneity of demands and also opportunities requires clear positioning. This can only be done on the basis of the respective starting position of an organization, the corporate culture and the understanding of leadership. It always starts with the question of what difference future performance management should make for the organization; what should be the contribution of the instrument? And these questions are increasingly being answered differently, making the solutions much more individualized rather than more similar, and less and less comparable.
What spectrum of performance management solutions are we talking about?
Frank Gierschmann: It depends on what you want to achieve with performance management. In fact, there is currently a small renaissance of the concept of performance culture. There are still performance management systems with strict specifications for differentiating performance and identifying potential, partly also with targets for distribution. In these cases, the process is often very disciplined and guided by clear rules. We are all familiar with these systems and their side effects, especially from Anglo-Saxon countries. However, there are now only a few companies that maintain forced distribution over a longer period of time. Temporarily, however, these are deliberately used from time to time, and sometimes even in companies where actually a strong cooperation culture predominates.
And how does the approach look like at the other end of your continuum?
Karolin Schaper: The counterpart is characterized by the elimination of all requirements that relate to process elements, deadlines or other obligations in the context of performance management. The main focus lays on a common understanding of leadership in relation to performance management. At the same time, the opportunity for genuine employee ownership is highlighted and actually enabled. In other organizations, there is a shift from the individual to the team level. Hence, teams agree on goals with each other, give each other feedback to improve their performance as a group, and show appreciation for special contributions made by individuals to collectively achieved results.
Both sound very different indeed. What would a “normal” performance management landscape look like in a company?
Frank Gierschmann: First of all, in principle: Performance management translates the organization’s strategy into requirements - i.e., goals or contributions and behaviors - for individual employees, thus contributing to strategy implementation. At the same time, a modern, feedback-oriented performance management can lead to more and better dialogs in the organization through regular, structured exchange and evaluation opportunities and ultimately to more innovation and learning.
Karolin Schaper: Performance management assesses individual and team performance and, in many cases, individual potential, calibrates different views of employees, and therefore defines the consequences in terms of compensation and development. Accordingly, it provides the basic “currency” for a large number of HR processes such as remuneration, talent management and placement processes.
That doesn't sound like it deserves much criticism. Why were there critical debates about the sense or nonsense of conventional systems?
Frank Gierschmann: It is not so much the ‘what’ that is debated, but rather the ‘how’ and, as a result, the benefit reflected in the effort. In practice, performance and success have often been assessed through the achievement of agreed-upon goals and the evaluation of specific performance and/or behavioral observations. In recent decades, there has been a development towards very concrete and detailed agreements and mathematically derived assessments - with the aim of achieving greater objectivity. It was actually known that such definitions could not depict the dynamic and complex reality...
Karolin Schaper: Performance management always means that we are in a social process between manager and employee. The idea of processes designing as factual and rationally comprehensible as possible comes up short. Many managers shy away from, for example, clear judgment; they tend to rate themselves and others to be too good. To some extent, this also happens unconsciously. From a psychological perspective this phenomenon is called self-enhancement bias As a result, these rigid processes do not meet expectations in terms of appropriate differentiation of performance and success, expression of appreciation, and, for that matter, in terms of achieving a performance culture - so all the wishes of the various stakeholders have generally not been satisfactorily achieved.
The diagnosis is clear. In your view, what is the appropriate treatment?
Karolin Schaper: That brings us back to the beginning of the discussion. The first question is always, what difference should performance management make? The design and, incidentally, later the launch must absolutely be oriented towards such a North Star. Otherwise, we could actually follow the rigid guidelines of IT systems and will continue to receive the same complaints from organizations.
Frank Gierschmann: This explains why, for example, some organizations, citing the importance of teamwork and innovativeness, no longer link traditional performance reviews to bonuses, while others are in the process of reversing the decoupling that has already been carried out in order to highlight high performers more in the future. Incidentally, a differentiated view of individual contributions and performance plays a role in both scenarios.
Karolin Schaper: But there are also overarching themes that are easy to observe. In fact, most companies have worked to greatly simplify their systems over the past few years, allowing for much more flexibility and not taking the manager's perspective as the sole source for looking at employees and their performance. Continuous feedback - again, not just from the supervisor - aimed at growth and development is taken for granted, and it is also up to the employee to solicit it.
After efforts to increase objectification, is the pendulum swinging back to more discretionary judgment by supervisors?
Frank Gierschmann: This has already happened in many organization and is often not about the absolute assessment of performance. Cross-comparison helps to highlight strengths and identify high performers. Incidentally, this frequently results in relatively stable pictures and the assessments tend not to change so much in the annual discussions, but rather develop over longer periods of time.
You mentioned the elimination of the individual bonus: Do you see these as useful?
Karolin Schaper: In order to avoid the well-known problems in performance management, numerous companies have integrated individual bonuses fully or partially into basic compensation and/or added them to the collective components. This turns the bonus into pure profit sharing and the painpoint of calculating the financial side of the performance management process seems to be easily eliminated. However, many overlook the fact that the bonus is only one of the financial consequences associated with performance management. Performance differentiation usually also affects other remuneration components, such as the annual salary adjustment, which then comes into focus. Greater use must therefore be made of the leeway within the annually released budgets than in the past, because otherwise there is a risk of frustrating top performers.
Frank Gierschmann: The advantage of this solution, in addition to the reduction in effort, is the decoupling of performance feedback from financial consequences and its possible, stronger connection with development and potential discussions. Performance can be discussed more openly. It may be easier to accept criticism if there is no immediate threat of financial loss. On the other hand, there is a risk that performance appraisals without compensation consequences will not be pursued with the same diligence as before. However, since both elements are considered essential to the success of the company, this is the real challenge.
The bottom line remains: Differentiation is necessary and remains an ongoing task for managers!
Frank Gierschmann: The question of whether performance and success should be financially rewarding can certainly be answered in the affirmative. The implementation of this premise is just very different. For example, we see companies in the market that, after many years, are dissatisfied with the individual performance component in their bonus system and abolish it. Others, whose model has so far consisted only of collective elements, want to introduce it. The result is the current heterogeneity in performance management outlined at the beginning.
Is it still worth taking a look at the market? Is the search for Best Practices a thing of the past?
Karolin Schaper: All roads lead to Rome. Each company must decide for itself which path is the right one in light of its strategy and culture. But one thing is certain: There may be many forms of performance management systems, but ultimately their core task is always to strengthen performance- or success-based differentiation within the company.
Frank Gierschmann: And this differentiation is the basis of corporate success. It thus remains an ongoing task for managers and the HR department that supports them. No one can escape this issue. A leader cannot not differentiate!
Ms. Schaper, Mr. Gierschmann, thank you very much for the interview!