Performance reviews are the latest frontier in the employer-employee tussle. Large employers, including Google and Salesforce, are setting higher standards for employee performance reviews, with intentions to weed out underperformers and cut down on rising labor costs. Others, like Goldman Sachs, have brought back performance reviews after a brief pandemic-induced hiatus.
“What we’re hearing from clients is, ‘We need to up our standards because performance management processes aren’t actually getting anyone to do anything,’” says Melissa Swift, U.S. transformation leader at Mercer. It’s not enough for employees to write down their job descriptions as their goals. “That’s not aspirational because that doesn’t really drive greater growth, profitability, anything. It’s just [saying], ‘I do these activities, that’s my job,’ and organizations are saying, ‘Wait a minute, that’s not helpful.’”
But that doesn’t mean organizations should set unrealistically high standards for the sake of cutting workers. Employers should connect organizational development goals with individual goals, write Michael Birshan, Roel Hoyer, Alex Katen-Narvell, and Dana Maor in a blog post for McKinsey. Organizations should be transparent about the business’s priorities, allowing employees to translate them into individual goals.
“Visibility into the company’s evolving direction helps employees see opportunities for their own development and advancement,” the authors write. “Our research finds that lack of opportunity for growth is one of the leading reasons for the elevated rates of voluntary turnover.”
Employers should also keep messaging in mind when announcing performance review changes. Burnout is still prevalent in the workforce, and employees are less likely to respond positively to messages espousing the need to work harder and leaner or saying, “You losers get back to work and perform better,” as Swift puts it. Instead, employers should communicate how the company is becoming a fairer and more thoughtful organization.
Swift points out that employees also hesitate to set more ambitious goals, fearing punishment for not meeting them, so employers must be conscious about rewarding those with a growth mentality.
“All of these discussions of performance are very much paired with [asking], ‘Are we going to need to reward people differently?’ Because the reality is that all the risk-averse behaviors feeding ineffective performance management came from explicitly not rewarding risk-taking,” she says.
So how are leading companies updating their performance management to reflect new business needs and the economic climate? While they vary, one key theme is a focus on tangible contributions to organizational growth. Below are some companies taking a new approach to performance reviews.
According to Insider, managers evaluate employees based on the company’s leadership principles, performance, and future potential. Employees are ranked on several factors, including what they delivered that year versus expectations for the role, feedback from peers and self-evaluations, and notes from check-ins between managers and employees. Low-scoring employees go through coaching programs called Focus and Pivot.
Amazon tries to cull around 6% of its lowest-performing office workers annually, a quota it calls “unregretted attrition.” It also expects more than one-third of employees on performance improvement plans to fail, though it has also said that such plans aren’t intended to punish workers.
Goldman Sachs has for years used performance reviews to weed out the bottom 5% to 10% of employees annually. After a hiatus during the pandemic, CEO David Solomon in July hinted that the process would make a comeback before the end of 2022. The investment banking giant laid off 500 employees in September 2022 and over 3,000 in January 2023.
Google unveiled a new performance review system in May 2022 called Googler Reviews and Development, or GRAD. The changes came after employees criticized the previous review system for being a time suck. The new version reduces performance reviews to once yearly instead of twice, and managers meet with employees in a series of feedback check-ins throughout the year, with promotions happening twice yearly. During annual performance ratings, employees are ranked from “not enough” to “outstanding” or “transformative” impact.
Under this system, 6% of full-time employees are expected to fall into a low-ranking category that puts them at risk for corrective action. That’s up from 2%. Fewer employees are likely to fall into one of the top two categories, down from 27% to 22%.
Meta CEO Mark Zuckerberg’s “year of efficiency” is touching every aspect of the company, including performance reviews. In July, the tech giant instructed managers to identify low performers and report them to human resources. Cut to early 2023: The company gave thousands of employees subpar ratings in recent performance reviews and reduced a bonus metric. However, employees tell the Wall Street Journal that strict ratings aren’t new for Meta, which was known to give harsh performance reviews before the pandemic. Just weeks after its most recent review process, the company announced plans to cut another 10,000 roles over the next several months.
Salesforce CEO Marc Benioff expressed disappointment in the company’s output in January, telling employees, “We don’t have the same level of performance and productivity that we had in 2020 before the pandemic.”
Salesforce laid off an undisclosed number of employees in November, which allegedly mostly impacted salespeople. That came after Salesforce reportedly assigned top salespeople unrealistic goals, such as signing hard-to-win customers.
In February, Insider reported that the company was introducing new performance metrics for engineers and forcing salespeople to choose between a 30-day performance improvement plan or a “prompt exit package.” Salesforce also introduced code check-ins for engineers to review changes developers make to a code base (not dissimilar to Elon Musk’s code reviews at Twitter in November). Salesforce announced the stricter rules at the same time it cut 10% of its workforce.
Shopify HR head Tia Silas announced plans to overhaul the company’s performance review process in October 2022. The new system is meant to be more “evidence-based” and less ambiguous, she said. People leads were first asked to participate in an exercise to gauge how teams currently perform and a separate self-reflection exercise designed to solicit employee thoughts on growth and development. The company said it would also clarify the type of work each employee does to standardize the language around jobs. Other changes to expect in 2023 include a new promotion blueprint and more clarity on growth opportunities and advancement.
This story was originally featured on Fortune.com
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