Are Performance Reviews An Endangered Species? (Chapter II)

Sept. 16, 2008

Last quarter we discussed the fact that while employee performance management has been a mainstay of most organizations, the process is fraught with imprecision and dissatisfaction.

Rather than serving as opportunity for providing direction, growth and alignment, performance management is more often seen as a necessary evil. An Aberdeen Group study indicated there is clearly a disconnect between the concept of performance management and its successful execution, since 95 percent of participants reported giving performance reviews but only 11 percent felt the reviews actually improved performance levels.

In our June post we discussed the two key performance criteria that defined Best in Class Companies with regards to performance management:

Improved bottom line results: best in class companies experience a minimum profitability growth of 10 percent or move over last 12 months. Increased employee retention rates: 94 percent of best in class companies increased or maintained stable employee retention rates over the last 12 months.This quarter, we would like to discuss WHY focusing on performance management is seen as more important a project than ever. According to Aberdeen, industry pressures are forcing all companies to adapt to change in two primary elements of their business. First, the labor pool is shrinking and second, the pressure to perform more profitably is unceasing. The study show the top five (5) pressures driving performance management within a company were:

Pressure to improve overall company performance indicated by 57 percent of group.

Pressure to improve employee productivity indicated by 46 percent of group.

Pressure to increase employee satisfaction indicated by 31 percent of group.

Pressure to gain visibility of goals, metrics and ratings indicated by 30 percent of group.

Pressure to add structure to the process indicated by 20 percent of the group.

Key takeaway? Employee performance management used by best in class companies as a method to increase company performance. Key disconnect? 31 percent of the group indicated they were dissatisfied with their employee performance management solution. Bottom line? The review process is anticipated by both managers and employees with a great deal of dread and trepidation. Aberdeen's study showed:

Best In Class: in the top 20 percent of companies, 94 percent improved employee retention and 88 percent increased profit at least 15 percent.

Industry Average: in the middle 50 percent of companies, 74 percent improved retention and 4 percent increased profit at least 15 percent.

Laggard: in the bottom 30 percent of companies, 59 percent improved retention while 0 percent increased profit at least 15 percent.

Key Takeaway? Companies that successfully use employee performance management are much more likely to retain more employees, leading to significant profit growth.The key to success? Hire employees that fit their jobs, and make sure they are capable of doing the job, doing the job how you want it done and being interested in doing a good job. Coming next quarter: What IS the connection between productivity, turnover and job match? Thank you for taking the time to read about employee performance management. Your employees are your company's largest asset; with work forces shrinking, employee retention will be key factor impacting success of any company.