In 2014, Cigna decided to rethink its performance management philosophy and process, after reviewing the findings of recent research on human motivation. The company dropped its end-of-year performance ratings, and moved instead to requiring that managers conduct more frequent, less formal, check-in-style conversations with subordinates about their performance, emphasizing continual learning and growth. Cigna’s goal in this shift was to support aggressive business expectations: creating a more positive and motivating work environment while staying fully committed to a “pay for performance” compensation philosophy. Three years later, the new performance management process is still in place, and a recent survey of employees showed overall positive results.
And Cigna isn’t alone. A growing number of companies have moved away from performance rankings and are building a stronger culture of collaboration in which employees ask managers and peers to engage in more frequent conversations about their performance. The early adopters of this new approach — companies such as GE, Microsoft, Juniper Networks, Adobe, and Autodesk — say they have no plans to go back. The numbers suggest that the movement is becoming a bandwagon. In 2012, our research showed that only a dozen larger firms had decided to do away with rating people formally and focus instead on encouraging managers to have quality conversations. By 2015, the number had risen to 55, and by 2016, it was 150. This week, at the Annual NeuroLeadership Summit in New York City, we will show that more than 400 large organizations are on this path, including many major banks and government agencies, making this one of the fastest-moving trends in human resources.
The big question, of course, is whether reengineering a performance management process actually helps a company perform better. Unfortunately, the data of stock price or other financial indicators has not yet revealed an obvious answer.
However, a very clear signal is emerging about employee engagement, which has consistently been found to correlate with business performance. Recently, a research group at the Neuroleadership Institute (where we are senior leaders) studied 27 companies that had gotten rid of formal ratings and were between two and five years into their new performance management framework. And of the 22 firms tracking employee engagement, all of them found that it went up after the new system was in place, and it has continued to do so.
We consider the journey to reimagine performance management positive when managers are having more conversations with their team members about performance, these conversations are higher quality than the annual assessments they replaced, and engagement is going up — not just in the first year, but in the second year as well. This standard was met by every organization we can find that took three steps.
The first step is having a framework to encourage regular conversations. Firms that are succeeding at this transformation don’t just remove ratings and tell managers to discuss whatever they want, whenever they want. They are putting explicit expectations in place, such as requiring four conversations about goals. Many firms provide guidance on the kinds of questions they want managers to ask in these conversations.
The second step is to ensure that the conversations focus on the future, and are not just the same old assessment discussions but now without a ranking.
The third step involves some kind of change management, such as training both managers and employees to have quality performance conversations; providing just-in-time tools, conversation guides, and continued focus; and consistent messaging from senior leaders throughout the organization.
The success achieved is all the more striking because the top leadership in every one of these 27 organizations felt its managers were not ready with the skills they needed to conduct these conversations. At the outset, no one thought their managers could be good coaches and guides for their subordinates in a relatively unstructured way. Clearly, many companies assumed that because managers are bad at ratings-oriented conversations (which by nature are highly structured around the numbers), they would be even worse at looser conversations about employees’ general aspirations and prospects.
But that overlooks a critical issue: why the metrics-oriented approach to performance rankings was counterproductive in the first place. At its core, there are two basic problems with performance management. First, labeling people with any form of numerical rating or ranking automatically generates an overwhelming “fight or flight” response that impairs good judgment. It primes people for rapid reaction and aggressive movement. This naturally leads to highly charged, emotionally challenging conversations. Moreover, at least half of all employees will receive a B or C rating, no matter how hard they worked or how many A ratings they had garnered in the past. Managers then have to talk about the disappointment in numbers, and the differences in rankings among peers, with most their direct reports. That is an especially uncomfortable conversation.
Take away the discussion of metrics, and people can focus on what they have contributed and what they have learned. This conversation can still be challenging, but it’s much less threatening, and it provides opportunities for employees and their supervisors to talk thoughtfully and reflectively about their mutual interest: the link between individual growth and the growth of the enterprise.
Take away the discussion of metrics, and people can focus on what they have contributed and what they have learned.
Performance metrics reinforce what Carol Dweck, the Lewis and Virginia Eaton Professor of Psychology at Stanford University, calls the “fixed mind-set,” or the belief that intelligence and talent are established at birth and remain static. If you get a 2 on a performance assessment, you feel you will always be a 2. But the new conversations foster a “growth mind-set,” based on the belief that people can always change and improve.
These factors help explain why, of the companies that tracked conversation quality, 100 percent said that it had improved. Some surveys showed impressions of quality increased by 2 to 3 percent a year. Moreover, 83 percent of companies reported that conversation frequency increased compared with previous years. And fully 100 percent of companies that transformed their performance management systems this way answered yes to the question “Has it been worth it so far?” As one HR leader put it, “The contrast in conversation quality is so huge that if we were to go back to the old system, it would be reverse evolution. You simply don’t go back.”
So what’s next? We recently asked this question to more than 100 firms at a retreat in Silicon Valley. Many are moving toward everyday feedback, which might seem like a good practice — but which could backfire. The human brain tends to regard criticism from other people, even if it’s generally positive, as a threat to social status. Feedback about performance, in particular, tends to activate the brain’s primary threat network, which produces a feeling akin to physical pain.
Firms that want to bypass this threat response can build a culture of feedback that directly addresses the threat problem. Stop telling people to give feedback as a practice, and instead, encourage their employees to learn to ask for feedback. When a person asks for feedback, he or she is much less anxious about receiving it, and the giver feels less anxious too. If employees are encouraged and trained to ask for feedback regularly, they will get it when they need it, and they will get it from more people — which can mitigate the bias involved in feedback from any single source. An “ask for feedback” culture is being tested in a number of large organizations now, with some exciting early results. As research continues in this area, it will help all companies improve these practices, and thus help performance management do what it truly should be doing — enabling people to give their best and get the most out of their work.