​It’s annual review time.  As a manager, you know the drill: you prepare an evaluation for each employee you manage, calculate a series of numerical scores for each area of job responsibility, and then formulate an overall rating that correlates with a salary increase. All the while, you’re racking your brain to remember your employee’s performance record from 11 months ago. 

If this is still a familiar exercise, with no signs of change on the horizon, your organization may soon be stuck in the past. A performance management revolution is upon us, and the traditional “one-and-done” annual review is slowly being swept away. In its place comes a more forward-looking system that aims to replace backward-looking evaluations with real-time continuous coaching, built around the central purposes of improving employee engagement and driving better business results.

“The days of traditional appraisals and forced rankings are coming to an end,” says a recent study on annual review practices by Quantum Workplace, a consultancy specializing in employment engagement solutions.

But such a large-scale transformation cannot happen overnight, and Quantum’s Phil Haussler describes the performance management changes as an evolution, not a revolution, with different organizations evolving at different speeds and making use of different tools. “As with…any evolution, you don’t go from fish to upright walking biped automatically,” Haussler tells Security Management. “You have a lot of stops along the way.”

Some companies, such as Adobe, are scrapping the traditional annual performance review entirely. Other firms are keeping a review, but changing the evaluation methods and process. Still others are implementing more frequent but smaller reviews, from casual check-in meetings to career progression discussions. 

Not every organization is evolving; some are more wedded to traditional annual reviews and the comfort of basing salary decisions on the hard numbers of a scorecard. Nonetheless, the general trend line is clear—toward a more agile system of feedback and coaching—and it is being pulled by broader management and business trends that are moving in the same direction.  ​

Cracks in the System

Among human resource experts, there is widespread agreement that the traditional annual review process has significant flaws, in both process and content.

Experts say numerical ratings can lack consistency across an organization, because managers have different ideas of what constitutes a “very good” versus an “excellent” designation, for instance. “Some people are harder graders than others,” explains management expert Tony Marzulli, a vice president of product management for talent solutions for ADP. A normalization discussion with all managers aimed at making scoring values consistent can help alleviate this problem, but a lot of organizations do not do this, he adds. 

The once-a-year timeframe is also problematic, Marzulli says. Trying to evaluate 12 months of work in one session is difficult, and a lot can get lost in the discussion. Sometimes performance over the previous 90 days dominates the review, but that period may not be reflective of performance over the entire period. 

In addition, the evaluation of skills and accomplishments in an average annual review is often divorced from business outcomes. For example, an officer in a security department may receive a high rating for customer service skills, but the evaluation does not connect the dots and detail the end business result, such as a growing customer base due to great service and a resulting increase in revenue.

The formal structure of the review itself can be inimical to relaxed, honest discussion. “There is little room for an open dialogue, thus creating an uncomfortable environment for employees. Too much formality can in turn cause employees to be less open to criticism,” according to a Quantum report, Five Reasons Why Annual Performance Reviews Don’t Work. And in the review setting, communication can turn out to be exceedingly one-way. “Most of the time, performance evaluations feel like a sit-down grilling of employees based on what mistakes they’ve been making throughout the year. The problem is that they don’t offer enough room for the employee to comment on your performance as a manager, or bring up any other general issues,” the report says. 

Moreover, the tight link between the evaluation and a potential pay increase can lead to an intense, anxiety-ridden focus on how large a raise is justified, which may overshadow the opportunity for useful feedback and make the evaluation seem threatening and disruptive. “Managers may feel bad about giving an employee a negative review, while employees sometimes find themselves fretting weeks or even months in advance,” the Quantum report says. ​

Change Afoot

Besides these flaws, general business trends are also driving change to the traditional review process, according to Performance Management: The Secret Ingredient, a study conducted earlier this year by Deloitte University Press. The study surveyed companies and found that 89 percent of respondents recently changed their performance management process, or planned to change it within 18 months.            

One of these large-scale business trends is the growing emphasis on engagement at U.S. companies. Employee engagement is a complicated, and sometimes difficult, issue because high engagement usually depends on a multitude of factors, Marzulli explains. These include a good relationship with the boss, a sense that the job is important, opportunities to have one’s work showcased and highlighted, an enjoyable workplace, and fair pay. “There’s no one silver bullet to high levels of engagement,” he explains. 

But recent research shows that the process of awarding numeric ratings in annual reviews sometimes works against these factors, as it undermines employee self-confidence, fosters disengagement, and damages an organization’s culture, according to the Deloitte report. For example, when employees are ranked, any interactions between team members can be viewed as a competition, rather than a collaboration.  

Thus, more organizations are “going away from heavy-handed processes that were dreamed up by HR departments,” Haussler says. Some are using reviews with a much lighter feel, such as reviews that contain strictly narrative feedback rather than numeric rankings. These new reviews are also tailored to the individual, who is not ranked against coworkers. “A fair number have moved away from condensing the review into a single number,” he explains.  

And without that single number, some of these organizations are discovering other methods for determining compensation changes. Some companies are moving toward basing salary decisions on the estimated competitive value of an employee, using real-world market conditions and benchmarking data, the Deloitte report found. Other firms call on managers to make the call based on the employee’s body of work and accomplishments, without a review scorecard. ​

Theory into Practice

The performance management revolutions take different forms at different organizations. At ADP, the company’s performance management program calls on managers to perform continuous coaching in real time, instead of “waiting around for something to go wrong, or doing a scorecard at the end of the year,” Marzulli says.  

A key component of this emphasis on coaching is the principle of managing to people’s strengths. Traditionally, there has been a natural tendency among some managers to focus on an employee’s weaknesses, in hopes of eliminating them by keeping “on them.” “We try to fix people’s DNA, either at home or at work. And that never works,” Marzulli says.

In contrast, research shows that when employees are given meaningful work that leverages their strengths, superior performance often results, according to the Deloitte report. ADP concurs, and tries to follow the managerial philosophy of “I want to make you greater than great,” Marzulli explains. ADP encourages managers to follow an 80-20 rule: when coaching, focus on an employee’s strength 80 percent of the time, and assist in shoring up their weaknesses during the remaining 20 percent. 

ADP’s coaching covers career-related issues too, Marzulli adds. ADP works with managers to give them tools and training so that they are adept at having career conversations with their staff, discussing such topics as how the employee feels about his or her progress with the organization, and where they would like to be over time.

Other companies use similar career components in their coaching. Sam Curry, a longtime manager in the security industry who is now CTO/CSO of Arbor Networks, holds a monthly one-on-one career-related meeting with each of his direct reports. The meetings are productive—employees arrive with many topics to discuss—and the practice is appreciated, he says.  

“I have found that the loyalty you get for doing these meetings for legitimate and authentic reasons is second to none,” Curry says. The company still conducts annual performance reviews, but those tend to contain few surprises given that both parties have discussed professional growth opportunities and career progress on a regular basis. “We know where we stand,” Curry says. 

Although ADP has been pleased with the results of its coaching emphasis, Marzulli concedes that the hardest aspect of the program for managers is coaching an employee who is a poor performer and who does not seem to improve with coaching. In such cases, the manager tries to ascertain if the employee would be better suited in another role in the company—or outside the company. “If you can’t coach them up, you coach them out of the business,” Marzulli says. ​

Check Out the Check-ins

Adobe, the digital media company, has been in the vanguard of the performance management revolution since it took the plunge and abolished scored performance reviews in 2012. Adobe replaced the reviews with “check-ins,” or ongoing discussions between managers and employees to set expectations, offer performance feedback, and recognize strong work. As a result, the firm’s voluntary turnover was reduced by 30 percent, according to the Deloitte report, which used Adobe as a case study.

The change at Adobe was driven by frustration with the annual performance review website, the company explains in an essay on its corporate website. Performance reviews were supposed to be a source of valuable feedback, but voluntary attrition always spiked in the months after review time, according to Donna Morris, senior vice president of global people resources for Adobe.

 In early 2012, Morris had this frustration in mind while being interviewed by a newspaper reporter in one of Adobe’s offices in India. When the reporter asked about new innovations at Adobe, Morris surprised herself by uttering, “We plan to abolish the performance review format.” The next day, the off-the-cuff remark was published on the newspaper’s front page.

“I blurted out something that I really wanted to be changed,” Morris says in the essay. “It was an intentional catalyst.” 

The company decided to make Morris’ wish a reality. Implementation was not without its challenges, however. As the program was being phased in, Adobe found that some managers had difficulty with discussions about career growth, as they lacked information and answers when discussing promotion opportunities, according to the Deloitte report. In response, Adobe developed resources focused on coaching and career, so that managers could be better coaches and lead better discussions.

Three years into the process, the company’s engagement surveys show that Adobe employees have higher expectations of performance conversations, and that they believe they receive better feedback. Adobe’s HR leaders say that people find it much easier to start a conversation regarding performance. And turnover levels remain low, with voluntary attrition continuing to decline, the Deloitte report states. ​

Considering Culture

Leaders at Adobe say the decision to change was consistent with the firm’s culture. The company sees itself not as a hidebound firm weighed down by tradition, but as an agile, forward-thinking organization that does what makes sense regardless of trends.

Indeed, experts say that cultural considerations are critical for companies interested in moving away from traditional reviews. In trying to ascertain what kind of new system would work best for them, it behooves leaders to carefully consider what type of culture they have, so they understand what program and tools would fit best. “The culture of companies is everything,” Marzulli says.

Curry agrees. He notes that in the security industry, companies and departments can also benefit from understanding their culture in terms of its maturation level. Curry groups these levels into four distinct categories. Level one, the most basic, is the checklist phase; companies at this level focus on the basics, like making sure they have working security tools such as access control and cameras. “That used to be the majority, and it’s still a large number,” Curry says.   

The second level is the compliance phase. Besides having tools, the company has someone who can ensure that the firm is complying with any relevant security regulations. That compliance executive is valued highly, and “usually gets knighted on the spot.”

The third level is the IT risk level. At these companies, senior management understands the importance of spending money to manage, so security budgets tend to be larger. Security executives are “coming into their own as a C-suite executive,” but still may suffer the fate that CIOs often suffered 15 years ago: “being seen as a geek, and not really understanding the core business,” Curry says. 

Level four, the highest level of maturation, is the business risk phase. Security is understood as a vital part of the company’s core business; the CSO actually meets with the board and is “on the CEO’s speed dial.”

Besides maturity level, another organization-defining characteristic is structural type, Curry says. A control culture is staunchly hierarchical, even military-like. A competence culture is organized around subject matter or technical experts. A cultivation culture has an emphasis on employees achieving growth and potential. And a collaboration culture focuses on group and team work.   

Understanding these structural classifications can help a company design the performance management program that best fits its own culture. Similarly, understanding the level of maturations may help leaders understand which skills are most vital, and what employees should shoot for or be coached on. For example, an organization with a control culture may want to retain structured evaluations given by superiors, where a collaboration culture may move toward more 360-type reviews in which peers and direct reports also evaluate.  ​

Driving Trends

It is important to note that the performance management revolution is not occurring in isolation. It is partly driven by large-scale business trends, as noted above. But it is also driven by a larger trend in executive management: “the core seed of the driving trend that is transforming managers into coaches,” according to Haussler.

If this transformation continues to unfold, “performance management” may one day become an outdated term, as managers move away from a focus on managing performance and toward a focus on motivating performance. Real-time coaching, mentoring, and building on strengths will become the norm. (See the January 2016 issue of Security Management for an in-depth article on the ways managers are evolving.)

If the new philosophy prevails, then looking back and judging the previous 12 months—what Adobe calls “the bane of managers’ and employees’ existence at corporations around the world”—will become an antiquated exercise. The new manager will be looking forward, always forward.