28 June 2022

Performance Management for Hybrid Work

Stacia Garr
Co-Founder & Principal Analyst
Priyanka Mehrotra
Research Lead

TL;DR

  1. Three levers are critical for today’s performance: Culture, Capability of managers, and Connection.
  2. Organizations need to expand how they think about culture as compared with 2 years ago.
  3. Clarity on goals matters more than ever for engagement and NPS.
  4. Managers are conduits of coaching, care, confidence, and candor.
  5. Organizations should consider building connections to enable manager effectiveness in a hybrid work world.

Please read on for more details about these findings. If you have further questions, please reach out to us at [email protected].

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Many of us are beginning to return to the office (RTO). Who could have imagined it would take more than 2 years? What an experience we've lived through. So, it's safe to say none of us are the same as when those first shelter-in-place orders were announced in early 2020.

For one thing, we've collectively lived through a grand experiment in remote working. And, as it should be with any experiment, we've learned a lot. For example, we've seen that:

  • Certain work can get done better in distributed environments than in the office
  • Not all work needs to be done synchronously
  • Through improvements in technology and process, we can work in new and often more effective ways
  • People can be much more self-directed and effective than many had imagined

We've also been reminded of just how much humans are social creatures. This has been reinforced by situations where in-person work interactions truly allow us to flourish. After 2-plus long years, there’s an incredible attraction to be together again with our teams—to create together, rejoice in being alive together—in a physical workplace.

Now’s the time for us to move to the next phase of the experiment—hybrid working. As we enter this period, the question becomes,

How can we keep the goodness of both situations—distributed (remote) and in-person work—while enabling our people and organizations to perform effectively?

While we have many components to do this, one area that many organizations are overlooking is performance management.

In this report, we focus on a few things:

  • The critical levers for performance management (PM) and how they've evolved thus far since the start of the pandemic
  • Why those specific levers are especially critical to hybrid work
  • How to audit your organization's current practices and get started

This research is based on a number of different studies we've done over the years on PM, as well as the results of our 2021 survey of employees and HR leaders on performance management. See the appendices for the nitty-gritty methodology. This report gives you the data, insights, and practical suggestions you need to prepare your organization for this next grand experiment.

Performance management: Critical to the hybrid work experiment

PM is always important—it:

  • Touches every employee in the organization
  • Provides clarity on goals, objectives, and performance
  • Influences incentives

While important, PM is far from perfect—its limitations and potential biases have been documented by many.

Unfortunately, many biases will likely be exacerbated in a hybrid work setting (see Figure 1). For example, managers may be susceptible to proximity bias when assessing performance if some employees are in the office more than others. To potentially overcome these biases, employees may begin to come into the office more often, even if it’s not where they get their best work done.

There are several PM biases that can be exacerbated in remote work

Figure 1: Common performance management biases & their potential impact on remote workers. Source: RedThread Research 2022.

To ensure that employees can perform as effectively as possible—and managers can support them fairly—leaders need to make sure PM works for all in this new hybrid work world.

While this might feel a bit daunting (or not even be on your radar at all), let us assure you this is possible. After all, we've just been through a global pandemic and have learned some important lessons that we can apply to the future. Not only that, our RedThread data show that some organizations and managers have already adjusted their practices to better suit a hybrid work environment. So, your organization may already be further ahead than you know.

Introducing the new 3C model

While a wide range of practices can be considered essential when desiging performance management for hybrid work, the question, of course, becomes:

Which practices and behaviors matter most?

When we first conducted this study in 2019, we introduced a model that organizations needed to focus on most to drive PM. The model was comprised of 3 levers:

  • Culture. Promotes the values and norms of the organization to drive organizational performance and engagement
  • Capability of managers. Plays a role in creating the right environment to drive individual performance
  • Clarity. Enables individuals to understand their contribution—in the present and the future—to drive engagement

Our latest research provides an updated model of 3 levers that organizations need to focus on when it comes to PM in current times. As readers can notice in Figure 2, some elements of the old model remain important, while others have evolved.

There is a 3C model that organizations should focus on for PM in hybrid work

Figure 2: The 3C model for modern performance management. Source: RedThread Research, 2022.

The 3 levers that organizations should focus on in a hybrid world are:

Culture. A culture that clearly promotes the organization's values and prioritizes people became an even bigger priority for leaders during the crises of the past 2 years. As companies look to implement new ways of working once again, they need to maintain their efforts to reinforce a high-performance culture. This lever has evolved in 2 important ways when compared with the 2019 version:

  1. Culture now includes the new subfactor of “clarity” (that was its own separate lever in 2019). A high-performing culture must now provide employees with clarity around their goals and performance.
  2. Another subfactor from our 2019 model, “future-focus,” is now renamed “fostering growth.” Organizations need to provide opportunities that help employees grow in their current roles and no longer view development as future-oriented.

Capability of managers. Few others have played a more impactful role in employee experience and performance during the pandemic than managers. Leaders will continue to rely on managers for their culture-building efforts and to empower employees to perform effectively in the future.

Connection. This is a new lever that organizations need to focus on. The pandemic and subsequent changes in work made the annual performance conversations obsolete for many. Several of these companies increased employee check-ins during the pandemic, which resulted in improved levels of engagement for many. Moving forward, enabling connections between employees, their managers, and the broader organization will be essential to employee performance.

Beyond our data, real-world stories also reflect the criticality of culture, capability of managers, and connections. Over the past few years, several companies have revisited their PM processes to understand what’s working and what needs changing—to ensure continued performance and career development.

A culture of continuous feedback and check-ins, along with clarity and alignment around expectations, are welcomed and encouraged widely. The latest example comes from Google, which recently did away with its biannual performance reviews. The new approach, Googler Reviews and Development (GRAD), involves feedback and check-ins throughout the year, twice-a-year promotions, investments in internal mobility, and once-a-year formal performance reviews.

Why should organizations use the 3C model?

Focusing on the 3Cs positively impacts several talent and business outcomes that leaders care about. Our findings revealed that companies—which focus on culture, capability of managers, and connection—are more likely to have:

  • High engagement. Organizations that focus on the 3Cs are 1.6 times more likely to have high engagement. We know that employee engagement impacts retention, productivity, turnover, and employee health. It became a top priority for leaders during the pandemic—and continues to be critical as companies figure out their next chapter around planning work.
  • Met business goals. Companies that focused on the 3 levers were 1.5 times more likely to have met their business goals in 2021. The pandemic has made it challenging for companies to set business objectives and even more difficult to achieve them as the instability continues. For companies looking not just to survive—but to be successful during such times—and instill confidence in their stakeholders, it’s critical to meet their business goals.
  • High NPS scores. Organizations that focus on culture, connection, and capability of managers are 4 times more likely to receive a positive NPS from their employees. The rise of the “Great Resignation” has focused companies on improving employee loyalty. Similar to employee engagement, NPS data give organizations a general sense of how employees feel—meaning a low score, especially during a crisis, can be terrible news.
  • High manager effectiveness. Companies that score high on culture, connection, and capability of managers are 3 times more likely to have employees who rate their managers as effective. Managers impact an employee’s engagement to a great extent. Managers also play a central role in their employees’ development and career journeys—making it imperative that managers possess the capabilities required to enable effective performance.

The 3 levers in our model (see Figure 3) can impact one, a few, or all of the critical outcomes mentioned above. For example, our data show that organizations should focus on building manager capabilities if they want to drive higher engagement, NPS, and manager effectiveness, in addition to meeting their current business goals. Organizations should consider connection-building if they only want to impact manager effectiveness.

Depending on which outcomes organizations want to drive, they should focus on 1, 2, or all 3 levers. In Figure 3, we look at each of these levers and the outcomes they influence.

There are several talent and business outcomes that are positively impacted by the 3C model

Figure 3: Outcomes impacted by each lever of the 3C model. Source: RedThread Research, 2022.

In the following sections, we take a deeper dive into each of these 3 levers, discuss why they’re important, and look at how some PM practices should change to better fit the hybrid world of work.

Culture

Culture is the shared assumptions, values, and behaviors that determine how people do things within a company which helps them and organizations thrive. When redesigning PM, organizations should look at how each of these—assumptions, values, and behaviors—impact current practices.

In this section, we take a closer look at culture:

  • What it is and why it matters
  • Role of culture
  • Highest priority practices to change

What it is & why it matters

When we looked at the importance of culture as a lever, we found that it significantly impacts all the talent and business outcomes that organizations care about. As we see in Figure 4, organizations that focus on culture experience significant positive results with NPS, manager effectiveness, past business performance, and employee engagement.

The Culture lever has a positive impact on NPS, manager effectiveness, business goals, and employee engagement

Figure 4: Impact of culture lever on individual & organizational outcomes. Source: RedThread Research, 2022.

Additionally, in comparing 2021 data with 2019, we notice that culture's impact on employee engagement has grown significantly. In 2019, we found that organizations which did well in creating a high-performing culture were 32% more likely to experience high employee engagement. In 2021, this likelihood nearly doubled to 63% (see Figure 5).

 

Organizations with a focus on culture, experience high employee engagement

Figure 5: Likelihood of high employee engagement in organizations focusing on culture, 2019 vs. 2021. Source: RedThread Research, 2022.

Role of culture

While culture is extremely important, it can be hard to pinpoint exactly what aspects of culture matter most for PM. Our 2019 research revealed 3 cultural elements⎯feedback, fairness, and future-focus⎯that organizations needed to focus on to drive performance. However, organizations must now rethink culture for hybrid work—and our new model reflects this change. To build a high-performing culture for a hybrid world of work, organizations must continue to do what they’re already doing—and provide employees with focus and clarity around their goals. (See Figure 6)

There are 4 aspects within the culture lever that organizations should focus on

Figure 6: Aspects of the culture lever from the 3C model for modern performance management. Source: RedThread Research, 2022.

A few things to note about the culture lever in 2021 when compared with 2019:

1. Clarity, an independent lever in 2019, is now a critical aspect of the culture lever. Culture took on new meaning during the pandemic. With remote work, companies have had to:

  • Become explicit about the work that needs to be done
  • Show how it ties to the company’s overall mission and goals
  • Provide employees with the support and resources to do it

This means that organizations can’t rely on individual managers' varying capabilities and enthusiasm to provide clear goals and feedback. Instead, organizations must have a cultural competency around clear goals and feedback—so that, if employees don’t get what they need, then they’re empowered to ask for it. As such, our analysis revealed that “clarity” is now a part of organizational culture.

2. Growth continues to be an important part of culture, but is no longer solely future-oriented. As mentioned earlier, we renamed the subfactor “future-focus” from our 2019 model to “fostering growth.” In 2021, we saw a new urgency overtake upskilling and continuous L&D (as they apply to PM) as employees encountered both complex and mundane challenges that they hadn’t faced before the pandemic. For this reason, we no longer see growth and development in the performance context as being about preparing for the future, but rather as essential to executing the job today.

As organizations look to put in place practices and processes for hybrid work, they must consider these 4 areas under culture—feedback, fairness, fostering growth, and focus and clarity—as guiding lights for driving performance.

We know there’s a greater likelihood of new and existing biases creeping up in a work setting in which some portion of the workforce is remote. Organizations that are rethinking their culture should intentionally design and implement practices that address these biases. Specifically—by promoting a culture of fairness and trust—organizations can avoid halo / horn bias, whereby good or bad traits can dominate perceptions. Similarly—by encouraging feedback and emphasizing clarity—organizations can make sure that managers receive constant information and feedback on employee performance, thereby avoiding proximity, primacy, and centrality biases.

For example, Salesforce implemented “Flex Team Agreements” after receiving feedback from employees that they needed greater flexibility. These agreements are broken down into 3 levels—office-flexible, home-based, and office-based—and help provide clarity to employees on what's most important for them, including how many days a week they come into the office and what kind of work they’ll continue to do at home.

Teams can also decide how they communicate and what behaviors are most important to them. For instance, the Employee Success team agreed to “no meeting Fridays” and monthly wellbeing days. The team also prioritizes in-person meetings twice a year, volunteer days, and end-of-quarter celebrations to keep everyone feeling connected.

Similarly, IBM was able to build trust and psychological safety by replacing a system of once-a-year performance conversations with a culture of continuous feedback. Based on input from employees, the company put in place a new performance development process called “Checkpoint”—where feedback is self-driven and centered around providing a more holistic evaluation of employees.

To ensure strategy alignment across departments, offices, and countries, 5 key dimensions—or core values—were created:

  • Business results
  • Client success
  • Innovation
  • Skills
  • Responsibility to others

In addition, IBM partnered with a PM technology solution to have one platform for check-ins, feedback requests, and goal-setting. The company has been able to move past traditional questions like, “Did you accomplish your yearly objectives?” to questions like, “How are we performing? What are the skills needed? How does this impact my career?”

Highest priority practices to change

So, what are the specific practices that lead to a high-performing culture? Depending on the outcomes that leaders want to influence, our data revealed specific practices which are important.

Figure 7 breaks down the specific culture practices used by high-performing organizations. While there are certainly more practices which organizations can adopt, we include only those that have a significant impact on outcomes.

There are specific practices under the culture lever that drive talent and business outcomes

Figure 7: Practices that positively impact talent & business outcomes, culture lever. Source: RedThread Research, 2022.

Real-World Threads

Patagonia redesigns performance management with a focus on culture

When Patagonia decided to redesign its PM process, leaders wanted to make sure that the changes aligned with the company's strong culture of being a place at which people were proud to work. The existing PM approach was traditional top-down and rigid—whereas the company’s culture was more bottom-up, open, collaborative, and heavy on authenticity.

The company decided on 3 design principles to guide its reinvention of performance at Patagonia—more dynamic, more democratized, and more data. To make it dynamic, the company put in place 3 new performance tools:

  • Quarterly stretch goals
  • Quarterly check-in conversations
  • Continuous crowdsourced feedback

Each tool (stretch goals, check-ins, and feedback) was built to allow employees to drive the process, while managers provide support and help them improve. Managers took on the roles of guide, coach, and advocate on behalf of their employees. To enable more data usage, the company integrated digital tools that collect data on the frequency of feedback, and networks of people giving and receiving feedback.

Employees still meet with their managers in the first month of the new fiscal year and set a few high-level, yearly targets—but they avoid getting too detailed about them (see Figure 8). After that, employees begin using the 3 optional (but highly recommended) performance tools.

In the first month of each new quarter, employees write 3–5 quarterly stretch goals. Then they ask for feedback from their peers and managers using digital tools. In the first month of a new quarter, they use the digital platform to fill out a check-in form that guides them through self-reflection questions. Finally, they schedule a 30- to 60-minute check-in meeting with their manager.

Patagonia adopted a regenerative approach to their performance management

Figure 8: Patagonia’s regenerative performance approach. Source: People + Strategy Journal, SHRM, 2017.

By applying this "regenerative performance" approach, the company has created an ongoing cycle that supports continuous growth and performance improvement year over year.

Capability of managers

Given the spotlight on managers during the pandemic, it comes as no surprise that capability of managers continues to be a crucial lever for driving performance management.

In this section, we take a closer look at this lever:

  • What it is and why it matters
  • Role of capability of managers
  • Highest priority practices to change

What it is & why it matters

Organizations are increasingly relying on managers to:

Our data (see Figure 9) reveal that organizations, which focused on building manager capabilities, were highly rated by their employees on NPS, manager effectiveness, engagement, and the likelihood of meeting business goals in 2021.

The capability of managers lever has a positive impact on talent and business outcomes

Figure 9: Impact of capability of managers lever on individual & organizational outcomes. Source: RedThread Research, 2022.

Role of the capability of managers

Managers play a central role in making hybrid work successful. Similar to conditions during the pandemic—shifting priorities, work practices, and differing experiences of employees—require organizations to rely on managers to lead effectively. This is especially true as companies think about making sure the new working conditions are fair and equitable for everyone.

Findings from our data indicate the evolving nature of the manager’s role in today’s work environment. As we see in Figure 10, in addition to providing coaching, exhibiting candor, and clearing barriers for employees⎯as it was important for them to do in 2019⎯managers must also now exhibit confidence and care.

There are 5 aspects of capability of managers that organizations should focus on

Figure 10: Aspects of the capability of managers lever from the 3C model for modern performance management. Source: RedThread Research, 2022.

The addition of confidence and care for managers’ capabilities isn’t surprising for a few reasons:

  • Having confidence in employees and trusting them are fundamental elements for a thriving work environment, especially in times of crisis and upheaval. Our Responsive Manager study revealed that—among the behaviors adopted by managers in organizations that are highly responsive to disruptions—trust and showing respect toward employees greatly impact enabling effectiveness. For example, the computing company NVIDIA exhibits confidence and trust in its employees with its “the project is the boss” philosophy. This approach leaves it up to the employees (and their schedules) to decide when work is completed, as long as the project is finished as expected.
  • Care, a practice that has become extremely important over the past 2 years, is now seen as foundational to a manager’s role. Managers need to be supportive, flexible, and inclusive to help employees feel a sense of stability and empowerment, along with feeling valued, during a time of crisis. For example, one of Microsoft's steps to be successful at hybrid work is to encourage managers to care for employees’ unique needs in and outside of work, and their career aspirations and goals. “Care” is part of the company’s manager framework that was introduced a few years ago and on which the company continues to lean heavily.

Organizations must double-down and invest even more in manager capabilities as they move toward hybrid work environments for a few reasons:

  • Preventing biases. Managers—who fail to recognize work that lacks a direct line of sight (between the manager and employee) and continue to promote those they physically see in the office—will inadvertently exacerbate the common PM biases in a hybrid work setting.
  • Managing split teams. Hybrid work means teams with employees who might have different work schedules and days when they come into the office versus working from home. This means taking into account the different needs and challenges that can arise unexpectedly and on short notice. Companies need managers who are able to effectively solve these challenges while displaying consideration and care.
  • Overseeing employee wellbeing. According to one study, 56% of employees report improvements to their mental health as a result of the hybrid work environment—and managers played an important role in that during the pandemic. As companies set long-term policies around hybrid work, they need managers to be responsible for leading this charge.

Highest priority practices to change

So, where should organizations focus? Our data revealed specific practices and behaviors that managers should look to adopt.

In Figure 11, we list them along with the specific talent and business outcomes they impact. While organizations can adopt several other practices, we include here only those that have a significant effect on the outcomes.

There are specific practices under manager capabilities that drive talent and business outcomes

Figure 11: Practices that positively impact talent & business outcomes, capability of managers lever. Source: RedThread Research, 2022.

Real-World Threads

Zillow equips managers to better support their teams

In order to better assist their managers during the pandemic, Zillow, an online real-estate company, set up cohorts of managers across the organization. The purpose of the cohorts was to allow managers to engage in rotating 1:1 conversations with their peers to troubleshoot their current managerial challenges.

These conversations offered safe opportunities to engage in vulnerable conversations that focused on how managers can commit to specific actions to support the wellbeing of their team. Managers were able to practice empathy with their peers, ask specific questions to understand their challenges, and articulate their own circumstances in response to probes.

As a result, the conversations offered managers the opportunity to fail in a safe space and be better prepared to help their employees. This also promoted a coaching culture within the company, with managers offering each other ideas and advice outside of structured times.

Clarus Commerce consistently reinforces trust & confidence in its employees

The philosophy at Clarus Commerce, a small advertising and marketing company, resembles that of a winning sports team. The leadership works to:

  • Hire good people
  • Train them through practice and preparation
  • Coach teammates to back up each other
  • Learn from their mistakes
  • Accept wins and losses together

Once the new hires are ready, leadership lets the players play.

Once play begins, or the new hires have proven they’re capable of tackling projects on their own, managers will only step in a limited number of times. The field of play at Clarus is set by goals and budgets. Within these boundaries, it’s up to the workers to execute. This empowerment enables the company to move quickly according to conditions on the ground and diligently to meet changing customer needs.

Connection

Much has been said about the importance of connection-building during the past 2 years. As such, we weren’t surprised (although excited!) to see it emerge as a lever in our new model.

In this section, we take a closer look at the connection lever:

  • What it is and why it matters
  • Role of connection
  • Highest priority practices to change

What it is & why it matters

Connection surfaced as a modern PM lever for a few reasons:

  • Genuine relationships within a company can help to create a workforce that’s generally more satisfied and less stressed
  • Research shows that a top challenge among remote workers is loneliness—add to that ambiguity over expectations and goals due to a lack of frequent conversations—and it’s a sure-shot recipe for a disengaged and unproductive workforce
  • Bonding connections (within-group interactions) and bridging connections (across-group interactions) that are important for collaboration and innovation deteriorated from the virtual work environment during the pandemic—organizations need to be intentional about rebuilding these connections to drive growth

One of the primary ways that leaders build a connection with their employees is through check-ins. Our research shows that the frequency of daily check-ins increased by 8% from 2019 to 2021, while that of monthly structured conversations increased by 10% from 2019 to 2021 (Figure 12).

The frequency of check-ins and conversations increased in 2021 compared to 2019

Figure 12: Frequency of daily check-ins & monthly conversations, 2019 vs. 2021. Source: RedThread Research, 2022.

These increases in conversations (connections) occurred for the following reasons:

  • Organizations shifted to more continuous goal-setting approaches that required frequent conversations between managers and employees
  • Leaders feared that employees might feel cut off from company culture—resulting in a greater effort to engage employees through frequent check-ins
  • Managers lacked previous levels of visibility into an employee’s work—resulting in managers speaking with their team on a more regular basis
  • The informal means used before the pandemic to provide “in-the-moment" feedback to employees disappeared—leading managers to set more frequent conversations

As many organizations implement policies that require the workforce to return to the office for some portion of the week, it’ll be tempting for managers to let go of these habits—this would be unwise.

Our findings reveal that 70% of employees want more daily or weekly check-ins than they’re having with their managers. Although low as compared with other levers, connection has a significant positive impact on manager effectiveness (see Figure 13).

Organizations with ineffective managers could end up losing critical talent. While the impact isn’t necessarily high, we believe it’s just as important because of how it impacts other PM levers for a few reasons:

  1. Companies need to foster connections through regular and frequent conversations. This is especially critical to empowering managers to build trust and show candor with their employees. This can have a positive impact on the capability of manager lever, too.
  2. A culture of feedback and clarity requires frequent conversations. Quick check-ins are a great way for managers to give “in-the-moment feedback,” and clarify employee goals and expectations. This can have a significant impact on the culture lever as well.
The connection lever has a positive impact on talent and business outcomes

Figure 13: Impact of connection lever on organizational outcomes. Source: RedThread Research, 2022.

Role of connection

We believe that building and managing connections will continue to be important—if not more so—as hybrid work becomes a reality for many. A few reasons for this include:

  • Addressing the “fear of missing out” (FOMO). Employees who continue to work entirely from home or for some portion of the week might experience anxiety due to the fear of missing critical information or being left out of important decisions. Frequent check-ins with their managers can provide opportunities for employees to discuss and address such concerns, as well as alleviate their sense of FOMO.
  • Staying connected. Employees need to feel connected with their workplace and a part of the company culture—which can be challenging to maintain in a hybrid work environment. Connections built through informal check-ins can assuage some of the fears and feelings of being disconnected.
  • Avoiding bias and discrimination. Because remote work offers a better experience for women and people of color, they’re more likely to prefer working from home than others. Organizations must provide and promote opportunities for frequent conversations between employees and managers in a hybrid workplace setting to avoid proximity bias from creeping in. Regular conversations can help address concerns, provide the necessary support, and ensure they’re not forgotten or passed over for development opportunities.

Figure 14 provides an overview of this third lever in our PM model.

There are 2 aspects of connection that organizations should focus on

Figure 14: Aspects of the connection lever from the 3C model for modern performance management. Source: RedThread Research, 2022.

Highest priority practices to change

As we mentioned earlier, connection's impact on organizational outcomes is low as compared with other PM levers. However, organizations mustn’t ignore this lever for a few reasons:

  • Employees want more conversations. Our survey findings show that about 70% of employees want more daily or weekly check-ins than they currently have
  • Companies need connections to drive the other levers. Those wanting to implement a culture of clarity, feedback, and coaching will find it hard to succeed without implementing processes that encourage frequent conversations and communications between managers and employees

So, what are the specific practices on which organizations focus? Our data reveal one practice that organizations should look to adopt¾quick check-ins. In Figure 15, we outline the practice and the outcome it impacts.

There are specific practices under connection lever that drive talent and business outcomes

Figure 15: Practices that positively impact talent & business outcomes, connection lever. Source: RedThread Research, 2022.

Real-World Threads

Spotlight adopts more frequent conversations between employees & managers

Before COVID-19, Spotlight, an analyst relations firm, had a PM process in place that consisted of employees and managers having development conversations on an annual or biannual basis. Once the pandemic hit and employees shifted to a remote work environment, a clear need surfaced for more frequent development conversations. Company leaders received feedback from employees asking for more frequent conversations and 1:1s with their managers.

As a result of this feedback, the company:

  • Executed focus groups to understand the specific pain points around its current performance management process as experienced by managers and direct reports
  • Researched practices instituted by other companies to address similar pain points
  • Leveraged technology to make the process easier and execute the changes

Because of these steps, Spotlight was able to redesign its PM process—so it’s now comprised of practices, such as providing continuous feedback, weekly check-ins, and monthly 1:1s with managers.

Early results from these efforts show that employees generally report a more positive experience with their managers. The company has seen an increase in employee scores on questions around employee relationships with their managers, their levels of trust toward them, and development investment from them.

UCHealth makes conversations an integral part of its PM process

UCHealth’s mission is to improve lives through learning, healing, discovery, and human connection. The healthcare system of hospitals and facilities wants everyone who connects with the organization to have a positive experience, thus making UCHealth an attractive employer in a tight marketplace. The company believes that relationships are the most potent and essential lever which leaders can pull to influence behaviors, align employees’ work, and inspire the workforce.

Over 2 years, the company collected data to understand its Employee Value Proposition (EVP) and found 2 things that mattered most to employees and for retention:

  • Personal, instead of transactional, relationships
  • Opportunity for growth

Unfortunately, the existing PM process eroded the company’s EVP as it didn’t help employees focus on growth, improve performance, or build connections with leaders. Instead, it focused on:

  • Evaluating performance to provide ratings for merit-based pay increases and bonuses
  • Giving feedback on past performance
  • Satisfying regulatory and legal requirements and internal processes

After collecting feedback and data through conversations and forums, the organization decided to revamp its PM process. The overall objective was to design a process that:

  • Supports retention
  • Encourages relationships rather than being transactional
  • Helps grow and move talent
  • Provides a forum for comparative rating for merit-based raises
  • Aligns with UCHealth’s overall objectives and mission

In 2019, the Organizational Development and Learning Services team revamped the process to reduce the administrative burden. The following year, it decided to formally shift the focus of performance reviews from evaluation to “Career Conversations” around professional development. “Career Conversations” drive inspiring discussions between employees and their managers about the employee’s performance, growth, and opportunities at UCHealth. They’re mandated for everyone and framed around 3 core sections for all leaders and employees.

Managers begin by asking employees if they’re willing to take on extra and challenging work. Starting with this section allows the organization to focus the bulk of the conversation on discussing growth and career development. Questions in this section are not rated, and encourage useful dialogue between employees and managers. The following 2 sections cover discussions around whether the employee is getting their current job right and if they are a good teammate. The organization evaluates these sections on a 5-point rating scale.

Overall, the new process provides equal opportunity to all employees to manage their development, while simultaneously fulfilling the need for comparative ratings to inform the annual merit pay increase and bonuses.

UCHealth emphasizes that leaders go beyond transactional relationships, and build deep and meaningful connections with employees. It also invests in helping leaders build interpersonal skills—and holds them accountable for meaningful conversations with employees throughout the year through “Career Conversations”, stay interviews, and other informal check-ins.

Because of the critical role that managers play in the new process, the organization:

  • Helps managers improve their interpersonal skills by building deep connections and relationships
  • Provides resources, such as formalized learning opportunities and courses, to help leaders hold conversations
  • Provides opportunities to role-play different scenarios to help leaders prepare for difficult conversations

“The challenge of the next decade for organizations will be to figure out how to create a space where individuals can feel heard, aligned, and part of something bigger while still getting the work done.”

Matthew Gosney, Vice President of Organizational Development and Learning Services

By designing a PM process that puts an onus on building connections and holding meaningful conversations around growth and development, UCHealth is actively working on addressing this challenge and fulfilling its overall mission.

And the results are proof that these efforts are working. The organization improved its internal promotion rate significantly from 37% to 67% over the last 5 years, with considerable improvement over the previous 2 years. The organization is on track to achieve what it sees as the ideal mix of internal versus external hiring.

A secondary benefit of these efforts is improved representation in the company’s talent pipeline. The organization improved its Black, Indigenous, and people of color (BIPOC) representation in its talent pipeline by 40% in the last 2 years. It also tracks performance metrics around ratings and promotions on the backend, and analyzes them by demographic data to identify biases and discrimination.

What now? Getting started

Now that we know which practices and areas impact performance management, how can organizations get started on applying these across the organization? Different companies have different needs, which means they might focus more on some areas and practices versus others.

One thing is certain—performance management as we know it no longer works.

Companies that redesigned their PM processes in the recent past already see the benefits of doing so. According to our data, in organizations with redesigned PM processes (within the last 2 years), 56% of employees believe their evaluation process is fair and consistent, as compared with only 36% of employees in organizations that haven’t redesigned their PM processes (see Figure 16).

Employees in organizations with redesigned PM perceive the evaluation process to be fair and consistent

Figure 16: Employee perceptions of the fairness & consistency of their performance evaluation, by organizations with / without a recently redesigned PM process. Source: RedThread Research, 2022.

So, what should organizations do? In Figure 17, we outline the 5 steps organizations can take to kick-start their modern PM journey.

There are 5 steps organizations can take when starting their modern PM journey

Figure 17: 5 steps to kick-start modern performance management journey. Source: RedThread Research, 2022.

Step 1: Identify what matters most

While most organizations will agree that engagement, NPS, meeting business goals, and manager effectiveness are all important outcomes they want to drive—each company will differ in which of these outcomes matters the most, given where their individual business is today. This is why the first step to redesigning your PM process should be identifying the outcome you want to impact most.

Our research shows that engagement is one of the primary reasons organizations conduct performance management—and this has changed significantly over the past 2 years. As shown in Figure 18, almost 45% of organizations reportedly managed performance to engage employees in 2021, as compared with only 26% in 2019.

More organizations manage performance to engage employees in 2021 compared to 2019

Figure 18: Percentage of organizations that manage performance to engage employees, 2019 vs. 2021. Source: RedThread Research, 2022.

You can better identify your priority areas by:

  • Clarifying your organization’s philosophy for PM—specifically answering the following questions:
    • What are we hoping to achieve by managing performance?
    • How does that tie to our organization’s overall values and purpose?
  • Pinpointing the desired state or the specific outcomes your organization needs to achieve
  • Specifying what the success of PM practices should look like and how it can be measured

For example, a U.K.-based IT consulting company with a history of acquiring many companies follows a very clear philosophy when it comes to performance management. The company conducts PM to help employees understand:

  • Where they currently stand
  • Where the company needs them to be
  • How they can get there

Even though the company made changes to its practices around manager check-ins and goals over the past 2 years due to the pandemic, the overall purpose of managing performance didn’t change.

Step 2: Determine gaps in the current approach & with the 3C model

The next step is to take inventory of the existing practices within the organization, identify the ones that map to the areas you want to impact, and identify the gaps.

Voice gap” is the difference between how much voice and input workers feel they ought to have versus how much they actually have¾that exists between workers and leadership when it comes to topics that impact them in the workplace. Employees want to participate in decision-making around policies and practices that affect them, such as performance management. Therefore 2 of the most important things for organizations to do in this step are to collect feedback and be open to discussions.

Organizations can execute this in several ways. Figure 19 offers a few steps that we’ve outlined.

There are certain practices that organizations can use to audit their current PM approach

Figure 19: Practices to audit your current performance management approach. Source: RedThread Research, 2022.

For example, Old Mutual Wealth decided to set a customer-centric strategy to ensure the company meets its business goals and recovers from the financial crisis. The company realized that it needed to leverage performance management to bring the new strategy to life. Leadership identified organization-wide, customer-first behaviors that were incorporated into employee performance reviews, manager feedback systems, and an all-employee survey.

The changes spawned a new culture throughout the organization in which everyone took responsibility for their decisions—starting with the CEO, who clearly said that nobody would be blamed for giving him bad news. Within 12 months, 90% of the firm’s U.K. and European insurance books were replaced by new products aligned with the board’s vision. And Old Mutual’s share price more than doubled in 5 years.

Step 3: Ideate & brainstorm solutions

Once the gaps are identified, you may find it tempting to start work on adding in the missing practices needed to drive performance and to weed out the ones that go against the desired state.

We recommend against doing this—in favor of taking some time to be sure you understand the root cause and gain others’ input before moving forward. Specifically, organizations can take these actions at this stage:

  • Identify root causes of the reasons for the gaps in performance practices
  • Brainstorm potential approaches to address the root causes
  • Test out assumptions on what the implications of those potential approaches would be
  • Consider different variations of practices that could potentially work
  • Conduct research to understand practices adopted by others with similar challenges
  • Do a technology audit to understand how it’s currently used and identify any opportunities for leveraging it more effectively

When it comes to technology, many organizations look to fix a process with technology—but remember: If you simply automate a bad process, then you’re enabling the organization to do bad things faster. Technology should help managers and leaders have better conversations, and provide timely feedback—instead of turning these into tasks for managers to check off their lists. As pointed out by a leader during our research, if managers don’t understand their role in enabling performance and conversations, and giving feedback, then no amount or kind of technology will matter.

Once covered, these steps should make it easy for your organization to narrow down the areas to focus on, allowing it to quickly identify the specific practices needed. Practices for different outcomes should be coordinated and should reinforce each other.

For example, Behavioral Learning Center Inc., a healthcare organization, improved employee engagement and enabled manager effectiveness by adopting a culture of feedback and clarity. New practices adopted by the organization allowed managers to assess and provide continuous feedback to their employees flexibly and frictionlessly.

Managers can also complete evaluations and on-field assessments using smartphone apps, along with initiating feedback as soon as a project is complete. After implementing the tool for real-time feedback, the company witnessed a marked increase in employee engagement, with a decrease of 30% in voluntary turnover.

Step 4: Socialize & refine focus areas

Once the practices and outcomes are identified, the next step is to get feedback. Organizations must continue to refine the focus areas by soliciting feedback on what is and isn’t working. Again, organizations should seek input from employees and managers about their pain points with the new process and the challenges they face.

For example, when an IT consulting company decided in early 2022 to change its performance appraisal process and the role managers play, the company made sure it had support and buy-in from executive leadership. The affirmation from the top helped socialize and communicate the importance of the changes to the other leaders.

The company also refined its focus areas by coaching less tenured managers to ensure they have the necessary skills to lead their teams. In addition to providing training and courses for them, the company looked toward the more experienced and senior managers to support these efforts.

Another essential element to sharing information and continued refinement is using data and insights to track and identify areas of improvement. In 2019, Infosys began using analytics to drive manager enablement in the company.

The company designed “MaQ” (Manager Quotient), a tool to empower the manager community to meet their current and future challenges in a personalized way. The end objective was to make MaQ the one-stop shop for all managers—to find out how they’re doing as managers, as well as chart and track their L&D paths to improve their managerial styles.

Within 12 months, more than 51% of its people managers were using MaQ to either view their assessments or learn small nuggets on managerial effectiveness.

Step 5: Communicate & manage change

Communication must start at the top and be reinforced at every level. Organizations should use different channels on hand to socialize the message around those practices and behaviors that need to be changed. These messages must clearly explain why this is important, and how they align with the business objectives and priorities. The communications should cover 3 core areas (see Figure 20).

Organizations should think about the why, what, and how when communicating PM changes

Figure 20: Communicating performance management changes. Source: RedThread Research, 2022.

Many organizations see the PM designing process as once and done. If the past 2 years have taught us anything, it’s that you can never be entirely prepared for what comes next. With hybrid work as the preferred option for many, organizations will constantly have to be vigilant and monitor those areas that will define their next steps.

To that end, we encourage organizations to focus on how they can continue to make PM relevant for the future—and enable employees to perform to the best of their abilities in a constantly changing environment. This means organizations need to put in place a plan to ensure which practices and processes are revisited and reviewed regularly. Decisions to revisit or reform PM practices can be driven by several factors, such as response to a crisis, declining employee productivity and engagement levels, or a change in leadership.

At a minimum, organizations must always keep a check on the “employee pulse” to understand the value they’re getting from the existing processes. By making sure they’re checking with employees and regularly collecting their feedback, organizations can determine which areas they’ll potentially need to focus on and the steps that can help them get there.

Conclusion

With rising consumer prices, talks of an impending recession, a national baby formula shortage in the U.S., and mass shootings, the first half of 2022 has been rocky for many of us, to say the least. The pandemic has blurred the lines between personal and professional, and there’s little evidence of things returning to how they were 2 years ago. Companies looking to retain and develop their talent will likely find themselves pressed to do more to help employees address challenges. One such thing that companies can do is build a PM process that is fair, transparent, and free of bias.

By focusing on culture, building manager capabilities, and encouraging connections, organizations can better engage employees and improve manager effectiveness while meeting their business goals. Organizations should proactively plan and integrate these practices when designing performance management for hybrid work.

Given the ongoing and upcoming changes surrounding the workplace and hybrid working, many organizations will likely revisit their existing PM practices. Whether they listen to their employees and implement processes that ultimately help them develop and perform their best remains to be seen.

Stacia Garr Redthread Research
Stacia Garr
Co-Founder & Principal Analyst
Priyanka photo
Priyanka Mehrotra
Research Lead at RedThread Research

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