New Research on Cutting-Edge Performance Management: What Are We Learning?

Editor's Note:  Last summer we posted an announcement from Gerry Ledford (one of our profession's leading scholars) introducing a new academic study focused on leading edge performance management practices and an invitation for any qualified organizations to participate.  Today, we're very excited to showcase this post from Gerry, where he shares the results and insights from that study (also the topic of a special WorldatWork Journal edition, as our image indicates), along with his thoughts on where its all going!

For the past year, I have been leading research on cutting-edge performance management practices at the Center for Effective Organizations (CEO), University of Southern California. We define cutting-edge practices as ratingless performance reviews, ongoing performance feedback, and crowd-sourced feedback. Ratingless reviews eliminate the use of any grade or score of performance; ongoing performance feedback involves at least four meetings per year between managers and subordinates; and crowd-sourced feedback uses social media to provide 24/7 feedback from peers and others about performance. These practices have received tremendous attention from the business press in the past two years. Every major business publication has run at least one article on cutting-edge performance management practices. The Harvard Business Review alone published four articles in 2015 (one in print, three online) on cutting-edge performance management – this from a journal that has published only a few articles on performance management in its entire history. However, there has been almost no research that can guide the design and implementation of these practices. We are working to remedy that.

One very visible stream of our research is based on a survey of 244 organizations that use one or more cutting-edge practices, which I have done with George Benson and Ed Lawler from CEO. The study, supported by WorldatWork, is the first to analyze data from a large sample of users of these practices.   We have reported results from this study in an article in Workspan (April) and an article in the current issue of the WorldatWork Journal. Also in preparation is a monograph that provides very detailed and complete findings from the study. We have finished the content, and WorldatWork is preparing the work for publication. Look for it this summer. Finally, we are conducting research on a field experiment in a major health insurer that is adopting ratingless appraisal in four pilot units, and we are collected before-and-after data in pilot and comparison units. We will collect the final data next month and will begin producing a set of academic publications that will be available later this year from CEO.

For those of you who are attending the WorldatWork Total Rewards Conference in San Diego this week, you may be interested in seeing our innovative session on Tuesday afternoon (3-5 pm). This will be a session based on the work presented in the new issue of the WorldatWork Journal, for which I was guest editor. The first hour of the session will feature a summary of key findings from our survey study. The second hour will be a set of breakouts with people from the four companies that provided case studies in the special issue: Microsoft, Adobe, Cardinal Health, and Sears. The breakouts will be highly interactive and will give participants a chance to ask questions of practitioners who have been there before. Incidentally, the four cases are really excellent and I consider them to be among the best case studies ever published in the WorldatWork Journal. Anyone considering the adoption of cutting-edge practices needs to read them.

That brings us to an important question: what are learning about cutting-edge performance management? There has been a tremendous amount of hype in the business press. Do the data indicate that the hype is warranted? Here is a summary of some of the key findings from our study of 244 users of cutting-edge practices.

1. Ongoing feedback is the most prevalent practice. Although ratingless appraisal has gotten more ink than the other two practices, in fact ongoing feedback is the most widely adopted practice. Almost every company in the study (97%) uses ongoing feedback; 51% use ratingless reviews and 27% use crowd-sourced feedback. Clearly, companies are not adopting either ratingless reviews or crowd-sourced feedback without also adopting ongoing feedback.
2. Cutting-edge practices are being used in addition to, rather than in place of, many older performance management practices. There is a lot of talk of “blowing up performance management” and “ending performance management as we know it,” but that is not really happening. Almost all companies continue to use older practices such as pay for performance at the individual level, cascaded goals and assessment of goal achievement, competency assessment as the basis for assessment, calibration of assessments, and so on.
3. Adoption is widespread. Most press accounts are about the adoption of cutting-edge practices in very large high tech and professional service firms. However, our study found that organizations in every industry and sector – even government – are adopting these practices. Moreover, most adopters are small and mid-sized firms, not large ones.  
4. Why do they do it? Companies adopt cutting-edge practices for many different reasons that fall into three categories: alignment with company needs, the performance management process, or meeting reward system objectives. Reward system goals are less important for companies adopting ratingless reviews, and are more important for companies adopting crowd-sourced feedback.
5. Do these practices work? Our data suggest that cutting-edge practices are somewhat effective in meeting their goals. The results don’t live up to the most breathless hype in the press, yet the results are supportive of these practices. They are more effective in alignment with company needs and improving the performance management process than in reward system goals, but the effects are positive in almost all cases. (They do not help in attracting new employees, perhaps because they are so unfamiliar to most people at this point.) We also were able to compare the responses to the survey of cutting-edge practices to the responses from earlier surveys; those results suggest that cutting-edge practices are more effective than traditional practices. That, of course, is a key issue for adopters.
6. What works best?

• The combination of all three cutting-edge practices appears to be more effective than using any one or two practices. Thus, they are complementary and each covers the flat spots of others.
• Ratingless reviews plus ongoing feedback – one of the most common patterns of adoption - is less effective for strategic alignment and reward system objectives than other patterns of practice.
• Crowd-sourced feedback impressed and surprised us by the degree to which was associated with effectiveness. There is very little written about and almost no research on this growing area, but we think it may replace traditional 360 feedback over time. It uses a technology (social media) that most employees know, it is delivered in real time rather than annually, and the feedback is free form and therefore less artificial than a 360 rating form. This area of practice bears close watching.

7. The effects of cutting-edge practices on compensation are mostly positive, and these practices are not associated with an increase in compensation costs or with the abandonment of pay for performance.
8. There are opportunities to increase the involvement of rewards professionals in the design and implementation of cutting-edge practices. We think this will be important in improving the level of effectiveness of these practices in meeting reward system objectives.
9. Implementation matters – a lot. The change process is an important determinant of the effectiveness of cutting-edge practices. Success factors include leadership from the business and HR, widespread involvement of stakeholders in the design, a clear strategy that is based on business needs, training of both employees and managers, and the use of performance-oriented success metrics.
10. Expect more adoptions in the future. Given the many positive effects and the limited negative effects of cutting-edge practices, we predict that there will continue to be a rapid increase in the adoption of these practices as part of the performance management process.

Stay tuned – we will have a lot of research yet to publish on the topic of cutting-edge performance management practices.

Gerry Ledford is Senior Research Scientist at the Center for Effective Organizations, Marshall School of Business, University of Southern California.  Much of his professional work focuses on employee reward systems.  He returned to the Center for Effective Organizations in 2012; he was a key contributor there from 1982-1998.  From 1998 to 2003, he held leadership positions at Sibson Consulting. Since 2004, he has been President of Ledford Consulting Network LLC.  He received a Ph.D. and M.A. in Psychology from the University of Michigan.  Gerry has authored over 125 articles and ten books and he frequently speaks at professional events.

Comments

[Jay Schuster]

Gerry Ledford and Ed Lawlor are the best!!! Pat and I will be with the bears in Alaska and not with those at the WoWo Conference in SD.

[E. James (Jim) Brennan]

Wish I could be there for the presentation, because I know it will be excellent.

[E. K. Torkornoo]

Thanks. The link to the Special Issue of WorldatWork Journal also features insights on changes at Adobe, Microsoft, Sears, and Cardinal Health. I'm digging in for the details. I miss San Diego! Have a good conference!

Thanks.

[james]

Also check the June issue of Workspan for some interesting reactions to these developments. Letter to the editor is very good.