Performance Management

Spotify is the latest in a series of organizations that are announcing layoffs. The organization announced a third wave of layoffs affecting 17% of its workforce. It's yet another push toward more productivity and efficiency. Investors are hungry for profits and want confidence that human resources are used in full. This financially backed desire has put a strong focus on performance management. Instead of wait and see, leaders are forced to make difficult decisions to optimize employee performance further.

Performance management is a critical process that gets mixed reviews. Initially, performance management started as an end-of-year review of individual employees and their on-the-job performance. It was a check-the-box evaluation of whether an employee did a good job or not. Nowadays, the process is much more sophisticated. Performance management happens more frequently and there are clear actions linked to the outcome of each evaluation. Instead of checkboxes, performance is constantly monitored and assessed against productivity and efficiency metrics. That's plenty of reason for executives to buy in. Its traditional definition plus some of its more modern applications, however, tend to avert employees. Performance improvement plans - better known as PIPs - are a great example of how something developed with the right intent can turn into an absolute nightmare with disastrous impact. Nonetheless, good performance management, meaning a regular and healthy process of evaluating performance against relevant metrics and providing actionable feedback, is beneficial for leaders and employees alike. It provides a framework and tools to identify and overcome roadblocks that get in the way of an employee's performance.

The call for better performance ripples across industries. Emphasis on performance management is increasing. The layoffs at Spotify don't stand on their own. Earlier this year, Microsoft, Meta, Google, Amazon, and Zoom, among others, downsized. This year is a year full of news stories covering layoffs and other methods used by organizations to answer that call for better performance. In light of a different economic climate, organizations must cut costs, improve productivity, and promote continuous growth among their employees. Performance management is perceived as a vital supplement to enhance leaders' capability to meet those needs. Adding to its importance is its role in addressing ongoing challenges concerning employee engagement, remote and hybrid work, and talent shortages. Performance management touches upon a wide variety of factors important not only to organizations but also to employees. When effective, performance management can have a very positive impact on all levels of an organization.

There's a lot of potential in performance management. Effective performance management helps secure a variety of objectives and benefits. It's difficult to capture the exact value of performance management due to its broad impact. Take a look at communication and giving feedback. They are core components of performance management and affect, among others, engagement, productivity, and job satisfaction. Communication gaps lead to misalignment between leadership and employees. Gantner (2023) looked at the need for employees to be seen as a person, not just an employee, and found that 82% of employees say that's important. However, only 45% of employees say their organization sees them that way. Addressing this misalignment is a win for performance. Communication and feedback also affect employee turnover. Data by Zippia (2023) showed that organizations can cut their turnover rates by as much as 50% if they promote communication and collaboration more strongly. In a report by Grammarly (2023), leaders stated good communication bumps productivity and employee confidence while decreasing stress. Communication is only a fraction of performance management yet it has much potential to shake things up. And so there are many pieces linked to performance management that can contribute to big changes in organizations.

That performance management has enormous potential doesn't mean leaders are materializing that potential. The opposite seems to be true. A study by Gallup (2021) found that 95% of managers are unsatisfied with their performance review process. Furthermore, just 14% of employees felt strongly about performance reviews inspiring them to do better. Slack (2023) found in its survey that 71% of executives experience extremely large pressure to increase productivity. That pressure finds its way to employees who, in response to calls for better performance, spend a third of their time making an effort to look like they are working. Because there's such a focus on performance management, leaders are making poor choices that harm performance. Poor performance management has led to the misuse of tools such as PIPs initially designed to help employees overcome performance challenges with the support of their leaders and talent teams. The best illustration of misuse is perhaps the story of a disgruntled former member of the Amazon talent team, who developed post-traumatic stress disorder (PTDS) from the performance work they had to do, got put on a PIP themselves, and eventually quit (Insider Inc., 2023). Rushed performance management fixes have seldomly succeeded in capturing the full performance potential and more than once resulted in organizations inflicting self-harm.

Leaders eager to maximize returns on performance management need to follow best practices. It starts by reviewing the current approach. If it's based on the traditional check-the-box evaluations, it needs revision. Performance management is not a one-time exercise at the end of the year. It's a continuous process with frequent touchpoints between managers and their teams. Training on that understanding is required. Leaders need to be trained in running continuous performance improvement processes. Employees need to be trained to frequently receive and action feedback. What must develop is a culture in which coaching and feedback become intertwined. Instead of obsessing over productivity metrics, leaders have to focus on enabling employee success. They need to exercise empathy and build trust to encourage employee engagement. Employees have to be coached on how to set clear and realistic expectations toward themselves and their peers. It's leadership that has to set a good example by defining concrete objectives and clearly communicating these to their workforce. Performance management is not to be perceived as a means to correct performance but as a framework to promote continuous growth.

People tend to respond negatively to performance management due to its historic meaning and hasted execution. However, when done right, performance management can be incredibly beneficial for organizations, leaders, and employees. It's a vital additive especially when the economy drives tough decisions. The potential of good performance management spreads across a variety of benefits including greater employee productivity, satisfaction, and engagement. Doing it right requires releasing the valve on performance management, avoiding rushed decisions, and taking a multi-year approach to developing a culture that breathes coaching and feedback. That's what will limit the use of layoffs as a last resort.