It’s that time of the year again
It is that time of the year again (at least in Australia), where the financial year ends on the 30th of June. It is the time of the year when most organisations and managers are scrambling to finish the dreaded “annual performance reviews” that will dictate the “bonuses” and salary increases for millions of employees.
As you can imagine; I am not a big fan of Annual Performance Reviews; or at least the way they are being done in most organisations at the moment. In my mind, they continue to be one of the elements that stop organisations from achieving more agility as I have explained in previous newsletters.
If an employee’s bonus depends on the performance of certain projects or products that were set at the beginning of the financial year; it becomes a potential barrier to the employee or organisation stopping, pivoting or killing those projects for at least 12 months, even when they realise that they’re no longer the right thing for the business.
The issue, in my mind, is that we try to connect two different things: the assessment of performance and monetary rewards. There is some connection between the two; but not as directly as they are perceived generally.
Here are a few tips to help you think or design a more “adaptive” approach to Performance and Reward:
Ongoing Continuous Feedback
Set up a system where rather than a “once a year” event; the review happens on an ongoing basis. Usually, this would be the one-on-ones that managers set weekly or monthly with their direct reports – which, by the way, is usually what gets cancelled in calendars when people get busy. Regular one-on-ones are good; and if done well, the “annual performance review” should not be a surprise for the employee. If you want to go an extra step; try to create a culture where feedback is sought after and well received by anyone at any time in the organisation. We are doing a trial now at Neu21 where we have regular group coaching rather than one on ones and the results so far are very positive.
Collective Performance vs Individual
I believe that in today’s world of work; success is less dependent on the performance of individuals but far more on how well the system is designed, so the individuals that form part of that system, can help their team or organisation. I wrote a few weeks ago about having continuous fluid structures where people change roles, teams or leaders depending on the actual work and what is best for the organisation.
If we want to create a system that allows for that fluidity of movement; an individual performance assessment would be a constraint. In fact, I believe that the wider you go the better – for example, function/department is better than team and company is better than function/department. So, assess how well the organisation did collectively; not how well the individual performed.
I am a believer that it is better to pay a good salary rather than breaking up people’s compensation into fixed remuneration + commission or bonus. But if you want to give a bonus, do it on the overall performance of the business and give the same to everyone. If that doesn’t feel like a fair option for your organisation because some people hold up the fort more than others, it’s probably worth looking closely at your system and why that’s the case.
Assess values, behaviours and connection to purpose, not performance.
If you still need to assess individual performance; my advice would be to anchor that assessment on values and behaviours rather than on “work or projects performance”. Most organisations have a purpose and set of values, and one can easily assess employees against those – in fact, most organisations would have at least one value that’s directly linked to performance. So rather than say “did you perform well in project A or B”; the conversation is more around “did you live the values and purpose of the organisation and how”.
In fact, exploring how employees connect to the organisational purpose is very useful. These days organisational purposes are becoming more and more customer-centric, but the behaviours of their people are in contrast often individualistic or org-centric. Having a conversation around connection to purpose helps to re-align team members to the north star and keep them focussed on the big picture.
Focussing less on performance and more on bigger picture elements, allows us to pivot if projects need to be stopped. But also, because sometimes the market conditions or other factors outside people’s control can cause the “performance” of a project or product to fail. It also allows us to celebrate “failures” and kill projects quickly.Decouple salary from performance reviews
An individual performance should be just one of the aspects to consider when increasing or not, people’s salaries. There should be a wide range of factors to consider when doing so: the organisation’s performance, the person’s salary in comparison with peers inside the organisation and outside, years in the business, value of the person for the organisation – not just from a performance point of view but also culturally for example, cost of living, etc, etc…
In summary, if your organisation is still on the traditional side of the agility spectrum, try to have regular one on ones so the dreaded performance review is not an anxiety driven event for your employees and more a confirmation of what’s been discussed throughout the year.
If you can move the needle a bit more to the agile side of the spectrum, start by assessing values on the individuals rather than “work performance”; if you can push a bit more, assess the collective and not the individual, and if you want to push all the way, do as we do at Neu21 where there are not Annual Performance Reviews and instead create a culture of Ongoing Continuous Feedback.