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History of Performance Management

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Employee performance management isn’t a new concept. Performance management has evolved in many ways over the twentieth and twenty-first century, but some companies are still using antiquated methods to measure employee performance. In this article, we outline a brief history of performance management to understand the main drivers of changes throughout history and some of the main factors that are driving modern day companies to evolve their current performance management systems.

A Brief History of Performance Management

Performance management became critical during the expansion of business and industry in the 1920s. With companies’ goals to maximize mass production, operational efficiency became the focal point. As you would expect, employee development and engagement were considered less important at this point.

In the 1950s, personality-based performance appraisal systems started gaining adoption. Employees would be rated on traits such as job knowledge, sincerity, and loyalty; however, it was soon realized that measuring the performance of workers based on inherited traits had nothing to do with their productivity in the workplace. As a result, companies began to look for better ways to assess their employees.

In the 1960s, annual formal appraisals began to focus on what an individual might be able to achieve in the future. In addition, there was more focus on goals and objectives, and the term ‘management by objectives’ became popularized.

The 1970s was fraught with court cases due to the subjectivity and biases with performance appraisals, which led to the introduction of psychometrics and rating scales in performance management. In the 1980-1990s, the multi-rater feedback system (also termed 360-degree feedback) became popularized, although it’s worth noting that multi-rater feedback was used prior to the 1980s by a few companies, including Esso Research and Engineering Company which was one of the first organizations to use multi-rater feedback in the 1950s.

The 1990s and early 2000s saw a shift of focus to employee motivation and engagement. Many companies have ditched the annual performance reviews and opted for more continuous feedback-driven practices.

And while the importance of continuous feedback cannot be overstated (check out our blog article about the importance of feedback), many critics in this modern day are saying that continuous feedback is simply not enough anymore for maximizing employee productivity and increasing retention.

Evolving Our Current Performance Management Systems

There are several drivers that are forcing business and HR managers to question the effectiveness of their performance management systems. These include: changes in workforce, the movement toward more agile structures, and the realization that feedback is a double-edged sword.

1) Changes in workforce

Millennials now comprise the 35% of the workforce and this is expected to be ~75% of it by 2025. While all employees want feedback, Millennials want more of it. They want recognition for jobs well done, corrective feedback on what they need to improve, and transparency into their career paths. It’s crucial that managers implement systems that work for them.

2) Deconstruction of company hierarchical structures

Companies no longer operate in the hierarchical structures that once worked decades ago. Employees are now working in multiple roles, across different teams, with several managers throughout the year. We need agile performance management systems that match these agile networks of teams that organizations are now becoming (to this end, many companies are implementing 360 degree feedback).

3) Continuous is not enough – feedback has to be constructive

Feedback is a double-edged sword – poorly-delivered feedback is worse than no feedback. All feedback should be constructive. In most companies, there isn’t enough training or tools to help employees understand how to provide and receive constructive feedback. Constructive feedback is action-based, effort-based, and forward-looking. Workshops on what effective feedback is and how to share it is critical for all modern day workforces.

What will the future of performance management hold?

Since we have written this blog (back in 2019), performance management has changed significantly.

Forced lockdowns and the switch to fully remote work in 2020 served as a looking glass for employers. Many performance management problems that were previously creeping under the radar – such as lack of feedback, inefficient check-ins, once-a-year reviews, and unclear expectations – got exposed and the spotlight fell onto HR. 

As a result, many organizations and managers were forced to adapt. In fact, 79% say that performance management has changed in some way when compared with the pre-pandemic era. Remote feedback discussions (versus in-person), increased frequency of 1-on-1 meetings, and more of a focus on employee wellbeing and mental health in performance conversations were a few of many things implemented. 

As we move forward, HR professionals believe that future of performance management will be more employee-centric with frequent feedback conversations and a focus on employee career development and growth. What do you think?

For more interesting statistics on the current state and future state of performance management, download our guidebook on The Current State of Performance Management in 2022.

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