With many organizations seeking a more effective alternative to the annual performance evaluation, doing away with the traditional ranking system would be a good start.
That's according to new research from the Ivey School of Business. There are better ways to motivate employees than enumerating how far they fall short and telling them to work harder, says Kun Huo, an assistant accounting professor at Ivey. Rather than helping, the increased scrutiny and pressure can cause some people to "choke."
Instead of using the commonly applied performance evaluation method, which numerically ranks all employees, a growing body of research shows that organizations can attain better results with what Prof. Huo calls relative performance information. This method provides information on how the top performers have succeeded – and that, coupled with relevant training opportunities, enables others to figure out what they have to do to close the gap without the fear factor, Prof. Huo said.
"People have a desire to be successful … but you don't need to know, sometimes you don't want to know, how far down you are because that can be de-motivating," he said.
The prospect of public recognition when they do succeed is also a powerful incentive for people to improve, Prof. Huo said. "Just to remind employees of the consequences, framed in a positive tone, [of] the chance to get recognized, and this looks good on your résumé, is a good thing, right? It's a very simple message but it gets lost when all the other stuff is going on."
A summary of his research about non-financial performance incentives, Beyond the Paycheque, is posted on the Ivey website.
A number of leading organizations have already axed the annual performance appraisal on the grounds that it is no longer a timely or effective practice, says Edmond Mellina, president of Orchango, a Toronto-based consulting firm that specializes in change management.
Given the pace of change "in the age of digital disruption," it is not particularly useful to look back at how well employees met targets that are no longer relevant to the business, Mr. Mellina said.
At the same time, organizations still have to find a way to manage performance, and are experimenting with new methods. It shouldn't be so informal that employees – especially those aiming for promotion – don't know whether they are on track to advance. "They need some metrics," Mr. Mellina said.
"It's true that the old way of doing performance appraisals, which was a yearly process, was stressing everybody out. Nobody liked it, not the managers, not the employees. It was not forward-looking. … The fact that more companies are moving towards something that is more frequent and ongoing [in terms of feedback] makes a lot of sense, because it is more future-oriented, development-oriented which is good," Mr. Mellina said.
"You have to be dynamic, you have to be agile. Individuals have to reinvent themselves, organizations have to reinvent themselves if they are going to succeed – and that requires a high degree of collaboration."
In the fall of 2015, in a radical departure from past practice, global consulting firm Accenture LLP, moved to scrap annual appraisals for its 358,000 employees worldwide in favour of more regular feedback that can be acted on immediately.
Nicholas Greschner, Canadian director of human resources at Accenture, said his company's new "performance achievement approach … focuses on the achievements and talents of each employee and means our leaders spend more time coaching and talking with employees."
This meets the needs of the business, and accommodates the working styles of the newest generation of employees in particular. The less-hidebound approach also gives the company an edge in attracting and retaining talented employees, he added.
"Millennials and Gen Z-ers [their younger colleagues] don't want hierarchy, formal feedback processes and appraisals. They demand real-time, in-person feedback, forward-looking conversations and support to grow their careers," Mr. Greschner said.
"We believe that when we hire great people, we should trust them and give them the freedom to innovate – rather than managing, measuring and administering a process.
"We realized that investing significant time in backward-looking performance appraisals – and figuring out the Holy Grail of forced rankings – simply does not yield the best outcomes for our company or our people."