Throw Out the Annual Performance Appraisal and Move to an Agile System

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1 Throw Out the Annual Performance Appraisal and Move to an Agile System Traditional performance appraisals can be ineffective because they are not adaptable to today s changing world of work. Too often they fail to provide feedback that inspires change, and they tend to be de-motivating to employees. This session will introduce participants to Agile Performance Management (APM), which focuses on ongoing, continuous feedback and goal setting that enhances the performance and development of employees.

2 Throw Out the Annual Performance Appraisal and Move to an Agile System Susanna Hunter Senior Director, Organizational Effectiveness McLean & Company Susanna Hunter helps organizations implement results-driven HR practices. From strategy to project delivery, Susanna looks for opportunities to improve HR practices and deliver results. Susanna has over 20 years experience in HR executive and practitioner roles in a wide variety of industries, including financial services, technology, insurance, and marketing communications. She has led both generalist and specialist HR teams and her expertise includes strategic business partner roles, talent management, talent acquisition, HR metrics & reporting, and organizational development in organizations ranging from 65 to over 70,000 employees.

3 Throw out the Annual Performance Appraisal and Move to an Agile System Get your employees to check-in not check out! McLean & Company is a research and advisory firm that provides practical solutions to human resources challenges with executable research, tools, and advice that will have a clear and measurable impact on your business McLean & Company. McLean & Company is a division of Info-Tech Research Group Inc. McLean & Company 1 McLean & Company 2 McLean & Company 3 1

4 McLean & Company 4 McLean & Company 5 McLean & Company 6 2

5 McLean & Company 7 How effective is your current performance management system? McLean & Company 8 We ve known for at least 50 years that the traditional performance appraisal doesn t work yet we keep doing it! In 1965, the Harvard Business Review reported the results of a landmark study which tested the effectiveness of traditional performance appraisal systems at General Electric and found them to be ineffective. (Gallup) Traditional performance appraisals are ineffective because: They are not adaptable for the world of work. They are a poor driver of performance. They are a huge demotivator. McLean & Company 9 3

6 We ve been doing the traditional performance appraisal for so long because we did not have a replacement until Agile Agile Performance Management is A system of ongoing, continuous feedback and goal setting that enhances the performance and development of employees. Traditional Annual Review Agile Performance Management (APM) McLean & Company 10 APM is full of benefits and will save you $$$ Agile Performance Management can: Decrease management costs and wasted hours Reduce voluntary turnover and increase involuntary turnover Manage changing priorities Increase employee engagement Increase productivity McLean & Company 11 Organizations are turning to agile performance management techniques as a way to improve employee performance By the end of 2015, 41% of HR respondents indicate their organization will have agile performance management implemented. Implemented Unsure 20% 9% 20% In Progress No plans 34% 5% 12% Planning (1 year) Planning (2 years) Source: McLean & Company, 2014; N = 352 McLean & Company 12 4

7 Case Study: Adobe abolished their yearly performance appraisal At the end of the day, performance reviews weren t resulting in improved business goals, they actually were hurting the company. The company was sinking 80,000 hours per year on performance reviews and the intended benefit wasn t there. Donna Morris, SVP of People & Places, Adobe, Rethinking the Review McLean & Company 13 Adobe checked-in to a more agile system that gave them the business results and people results that they needed McLean & Company 14 Results were tracked and improvements seen Results Engagement survey questions saw positive increases: My manager is open to receiving feedback from me I get feedback that s helpful for my performance I have and understand my expectations Voluntary Turnover -20% 2.5% Involuntary Turnover McLean & Company 15 5

8 Adobe followed up on their performance appraisal change by working towards more clarity We went out with a shared accountability, however, some employees still aren t driving it. This year we are breaking down even more to make it clear it s a requirement for you you must draft your expectations. We didn't want to overbuild our materials, support or implement another heavy process. We re at the stage where people are asking for more support - and that's exactly what allows us to be solution providers vs. program pushers. -Ellie Gates, Head of Global Management Excellence & Learning Strategy, Adobe McLean & Company 16 Assess your organizational readiness to help select your agile system Regulatory/Union Environment Leadership Capabilities Culture HR Processes McLean & Company 17 Choose between two models of agile performance management depending on your organization s readiness Hybrid Agile System Keeps the yearly review Possibly includes a performance rating (optional) Incorporates a continuous cycle of ongoing feedback Leads towards a full agile approach. Requires change communications and some training to ensure success. Agile System Throws out the yearly review and the rating system Incorporates a continuous cycle of goal setting and ongoing feedback Requires changes outside of the performance management scope, including base pay recommendations Encompasses a broad range of change communications and training to ensure success Companies that struggle with command and control have more work to do, but agile can still benefit them. -- Pat Reed, Agile Consultant McLean & Company 18 6

9 Case Study: Motorola used a hybrid model to build a culture of real time feedback The company s new approach is built around more of a coaching and learning model. Managers are given a list of questions to guide them in their conversations with employees. We specifically don t say what you did wrong. Instead the conversation is about - what can you do differently going forward? -Shelly Carlin, SVP Motorola Solutions Inc. Rethinking the Review McLean & Company 19 Case Study: Expedia eliminated performance ratings and focused on quality discussions Over time, the rating system had become this huge obstacle The employee would see their rating first and then the whole review evolved into a discussion of why this, why not that? It was no longer driving performance. -- Connie Symes, Executive VP for global human resources Expedia Inc., Rethinking the Review McLean & Company 20 Agile performance management is a continuous, ongoing cycle Set Expectations Check-in and Review Document Business and Development Goals Provide Feedback and Coaching McLean & Company 21 7

10 Use an Agile Goal Template to help employees track progress throughout the framework McLean & Company 22 Set Expectations Check-in and Review Document Business and Development Goals Provide Feedback and Coaching McLean & Company 23 Every employee needs to know what s expected of them, but 1 in 4 don t McLean & Company 24 8

11 Why don t employees understand what s expected of them? What actions can be taken to improve their understanding? McLean & Company 25 Set Expectations Check-in and Review Document Business and Development Goals Provide Feedback and Coaching McLean & Company 26 Have managers and employees develop agile goals that are fluid and that will empower employees Goal Sourcing Goal Setting Goal Achieving Goal Measuring Determine Agile Goals Past appraisals Organization goals Development goals Use SMART Goals Support Employees Evaluate Regularly S = Specific M = Measureable A = Achievable R = Relevant T= Time Empower No micromanagement Review in check-in Meetings Adjust as needed Don t over complicate Focus on communication McLean & Company 27 9

12 Use agile goal setting for short term business and development goals Short term goal setting drives the culture of agile Goals are typically daily, weekly or monthly Sets employees up to respond quicker to changes in the environment and shift their goals accordingly Goals should be focused on current work, projects, process improvements, innovation and development opportunities How? Employees prepares draft of the goals Manager reviews and discusses McLean & Company 28 Set Expectations Check-in and Review Document Business and Development Goals Provide Feedback and Coaching McLean & Company 29 Use our 3C s model to frame feedback Context Communicate Confirm McLean & Company 30 10

13 Set Expectations Check-in and Review Document Business and Development Goals Provide Feedback and Coaching McLean & Company 31 Monthly check-ins are a great opportunity for managers to build their relationship with employees Managers Set expectations and goals Review each goal to ensure they are meeting their targets Focus on outcomes, action items, and obstacles Provide direct and honest feedback with examples Employees Book the check-in meetings Use the feedback and coaching to improve their performance Document outcomes Our voluntary turnover is at an all-time low since we implemented check-ins. -Ellie Gates, Head of Global Management Excellence & Learning Strategy, Adobe Inc. McLean & Company 32 Empower your managers to make compensation decisions based on value, not performance rating Now that there isn t a rating to hide behind, what do you think that employee truly deserves? McLean & Company 33 11

14 Use our agile compensation framework to make base pay decisions Value of employee s performance + Goal achievement + Position in salary range + Performance comparison against peers + Base salary budget Base pay increase decision McLean & Company 34 Using the agile compensation framework, review the following scenario Total salary costs: $200,000 Budget: $5,000 (2.5%) Salary band: $65,000 - $80,0000 Employee A The star ( A player) Employee B Average performer Employee C Average performer Base salary $67,000 $65,000 $68,000 Recommendation 5.0% 2.5% 0% $3,350 $1,625 $0 McLean & Company 35 Follow good communication protocols for announcing the change with consistent messaging Senior-level communication Champion Champion Champion Manager-level el communication Employee communication McLean & Company 36 12

15 Shared accountabilities is part of the common messaging and should be addressed in both meetings Human Resources Support and communicate the new process Be available for employees and managers to answer questions or concerns Check-in with employees and managers on an ad hoc basis Solicit feedback for changes Updates process and template as needed Manager Make time to meet with employees for a minimum of 30 minutes once a month Check-in meetings could be part of a regular one on one meeting Set expectations with each employee Review and assist employees with setting agile business and career goals Give honest, direct feedback on how to further improve performance or develop Give feedback on the areas employees are performing well Provide coaching and advice on employees career goals Ask if employees are having any issues Employee Book the check-in meetings Be prepared to discuss goals and outcomes from previous check-in Discuss accomplishments and areas of difficulties Solicit and listen to feedback with an open mind Clarify if you don t understand, if you disagree ask for more direction or examples Document the outcome and action items in the agile goal template Send the agile goal template to manager for review after the check-in meeting Be pro-active, it s your career! McLean & Company 37 Check up on employees and managers three months after the change to solicit feedback and manage pushback McLean & Company 38 Address manager pushback of time constraints by reviewing reporting structures Manager Pushback #1 I don t have time. I ve got my own work to do as well McLean & Company 39 13

16 Coach managers who are not comfortable giving feedback Manager Pushback #2 I m not sure if my feedback has any impact on my employees McLean & Company 40 Review goal setting with managers who are struggling Manager Pushback #3 It s hard to set goals for employees. McLean & Company 41 Continue to conduct check points and review metrics to determine success and ongoing needs 6 months 12 months 9 months McLean & Company 42 14

17 Not ready for agile? Move to a modern approach to drive employee engagement, productivity, and commitment Traditional Expectations are unclear with no connection to competencies. Goals are only reviewed once a year. Review is backward looking. Feedback is infrequent. Ratings are misunderstood and unclear. Modern Clear expectations are set with competencies. Goals are reviewed quarterly. Review is backward and forward looking. Coaching and more frequent feedback are included. Employees self assess. Performance ratings are more accurate. Agile Expectations are fluid and clear. Goals are reviewed monthly. Review is backward and forward looking. Feedback and coaching are given on a monthly basis. There are no performance ratings. McLean & Company 43 If you could do one thing to improve your current performance management practices, what would it be? McLean & Company 44? McLean & Company 45 15

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