Two thirds of large companies are making changes to their end of year performance reviews, with 5% of organisations considering dropping performance ratings altogether – according to new PwC research.
PwC’s ‘2015 Performance Management Research’, which surveyed 100 UK-headquartered organisations and 1,000 employees, found a renewed focus from organisations on their performance management process and how it can motivate employees and drive better engagement.
The research shows that the growing frustration from employees and managers with the year-end performance process is leading many organisations to focus on creating a continuous feedback culture to take the emphasis off the year-end appraisal.
However, dropping ratings can create unintended consequences, not least for the allocation of bonuses. PwC’s research shows that over half (53%) of employees’ bonuses are determined based on individual performance. And although wider recognition and non-financial rewards are becoming more valued, the research found that of all the reward tools available to HR bonus remains an important motivator.
The research also revealed that the majority of employees find the year end performance review useful. Of those employees surveyed, nearly two thirds (67%) said they help them understand how they are doing, four in 10 said they motivate them and nearly half (48%) said they help them progress and think about their career. Only just over a third (37%) said the end of year performance review is a waste of time. However, people did want feedback on a more regular basis – every six months was the most popular option, followed by quarterly feedback.
Employees in general also think that their ratings have been judged fairly. Nearly two thirds (65%) said their last performance rating was fair and a similar number (63%) said it was expected. Where employees felt that change was needed was in the quality of, and time devoted to, performance conversations.
Alastair Woods, director in PwC’s reward team, said:
“There have been a number of high profile global organisations getting rid of year-end performance reviews and ratings and we are aware of a number of other companies considering this move. While this may be the right answer for some, the focus on ratings is a red herring – it is how performance management is carried out that really counts. The real problem has been that performance management happens just once a year.
“Organisations should be focusing greater attention on equipping managers with the appropriate skills to deliver effective and motivational performance conversations on an ongoing basis and creating a culture where employees can grow and develop.
“Companies need to be careful not to throw the baby out with the bath water. Without the year end rating, the danger is that the distribution of pay and bonuses can become even more of a dark art as shadow systems evolve without proper governance and infrastructure behind them. Our research shows that when done well, with a balance between rewarding past performance and considering future development needs, performance conversations can really motivate employees. And many employees appreciate the clarity that an effective formal assessment provides.”