Recently I had the amazing opportunity to host a roundtable on the future of performance management with HR leaders of leading Malaysian organizations such as CIMB, PETRONAS and Sime Darby.
Accenture had also just revamped our performance management model. We join the likes of Microsoft, Dell, IBM and Deloitte by ditching performance ratings and forced distribution. Instead, we now focus on individual achievement and future potential.
While most Malaysian organizations still adopt the "traditional" model, I know that a small number of prominent organizations recognize that digital technology is changing the workplace and the model we’ve used in the last 30 years isn’t agile to keep up.
So they’re experimenting with new ways to drive better employee performance. I won’t steal their thunder here.
The merits of revamping performance management have been discussed extensively here, here and here. All of us at the roundtable agreed on the importance and benefits of moving performance management into the 21st century to match the expectations of the new-generation workforce.
However, there was one big thing that stood in the way: determining total rewards without the annual performance review.
“How does Accenture determine rewards now that you no longer have ratings?”
The answer to that very valid question is, we now consider holistically the individual’s past performance, future potential, skills and competencies, as well as market value of the role when deciding appropriate rewards.
The answer though leaves many baffled: “But how? There’s no rating…”
The more I think about it, the more I believe that this is a mental block than a deficiency in the process itself.
In majority of Malaysian organizations, line managers put employees in pre-determined rating buckets, while HR holds the proverbial lever to the seemingly "black box" total rewards machine that dishes out increments and bonuses based on those buckets.
Employees simply accept this arrangement as being the way things are. And we have become reliant and comfortable with the safety of mechanical processes and oodles of documentation.
Yet, the idea of summarizing each employee into a one-word category to justify reward decisions is simply bizarre.
Before the advent of "traditional" performance management, employers were fully accountable for deciding on total rewards for each employee. We moved to the present-day system as organizations grew bigger and needed an objective way of measuring and rewarding employees at scale.
But times have changed because performance is an on-going activity, and nobody is going to wait for an annual cycle to get feedback. There’s also more emphasis on individual development and growth.
And that’s why Accenture did away with year-end appraisals. It makes more sense now for leaders and line managers to be much more involved, and much more vested in the people that work for them, whether it is growing the person or determining their total rewards.
“But my line managers aren’t capable of making that decision!”
Ah, now we’re getting somewhere!
And this is where HR needs to play a very important role in developing managers’ skills in coaching and creating career conversations. HR needs to foster in managers a sense of accountability over the careers of their people, and arm them with the right information and insights to make good decisions.
There are, of course, other challenges to overcome when revamping performance management, such as realigning legacy employee terms and conditions, mitigating the risk of litigation from disgruntled employees who feel that the new system is more arbitrary and less fair, and getting powerful labour unions on board.
But by far the most critical success factor still lies in the hands of leadership and line managers. Malaysian organizations need to start thinking about the future of performance management because the status quo doesn’t work in many ways.
And because the workforce of the future demands it.