Strategic HR

How Does Performance Management Technology Influence Reporting and Compliance?

In yesterday’s Advisor we looked at how technology is changing aspects of performance management like monitoring performance or coaching employees. Today we’ll look at how technology is changing the ability to develop evaluation reports, determine compensation, facilitate reporting and compliance, and more.

Developing Evaluation Reports

Even when you take advantage of continuous performance management, managers will need to provide their employees with written evaluations once in a while. Performance management systems, though, cut the time managers must invest in the tedious administrative aspects of employee evaluations, freeing them up for more face-to-face discussion with their staffs.

Technology can make the process much easier for HR, too. For example, software can send reminders, prompting managers about what they need to do and when, reducing the need for HR nagging. Standardized writing tools can help managers produce meaningful, concise reviews that are clear about how their employees’ performance measures up against their goals—on their first drafts. The tools also ensure more consistency among reviews compiled by different managers.

Better yet, managers can use technology to crowdsource reviews and thereby enhance their credibility with employees. Single-reviewer appraisals are understandably viewed with suspicion, seen as largely tainted by subjectivity.

Accenture Strategy found that 63% of leaders and employees say relying on a single supervisor’s evaluation isn’t an accurate way to assess an employee. A survey conducted by the Society for Human Resource Management (SHRM) indicates that 90% of HR professionals believe a combination of feedback from an employee’s manager and others in the organization results in a more accurate picture of employee performance.

“Rather than relying on a once-a-year, inexact analysis of individuals,” the McKinsey report says, “companies can get better information by using systems that crowdsource and collect data on the performance of people and teams. Continually crowd-sourcing performance data throughout the year yields even better insights.

“Because [data] are collected in real time from fresh performance events, employees find the information more credible, while managers can draw on real-world evidence for more meaningful coaching dialogues.”

Determining Compensation

Compensation can be among the most vexing issues facing an employer. Historically, raises have been closely tied to annual performance evaluations. High ratings on performance evaluations brought above-market compensation, while low ratings garnered below-market pay intended to provide a disincentive.

Not surprisingly, compensation decisions based primarily on the feedback of a single, possibly harried, distracted, or—worse—vindictive manager often aren’t warmly welcomed by employees.

Unfair evaluation ratings under the traditional system aren’t necessarily attributable to manager malice. A manager may use desired compensation distributions to reverse engineer ratings. “To pay Tom x and Maggie y, the evaluator must find that Tom exceeds expectations that Maggie merely meets,” the McKinsey report explains.

“That kind of reverse engineering of ratings from a priori pay decisions often plays out over several performance cycles and can lead to cynical outcomes … These practices … discredit the performance system and often drown out valuable feedback. They breed cynicism, demotivate employees, and can make them combative, not collaborative.”

Many companies nonetheless continue to cling to their “bell curve” approach to compensation distribution. The validity of bell curves has been called into question more and more, though.

The McKinsey report suggests a more accurate shape would resemble a hockey stick.

It cites a 2012 study finding that the top 5% of workers in most companies outperform average ones by 400%. (Caveat: Industries with high manual labor and low technology use are exceptions to the rule.) McKinsey extrapolates that “10 to 20 percent of employees, at most, make an outsized contribution.”

That means that attempts to differentiate among the great majority of employees who meet expectations but aren’t exceptional are a waste of time and don’t actually move the needle on performance. “Since only a few employees are standouts, it makes little sense to risk demotivating the broad majority by linking pay and performance,” the McKinsey report concludes.

“Snapping the link between performance and compensation allows companies to worry less about tracking, rating, and their consequences and more about building capabilities and inspiring employees to stretch their skills and aptitudes.”

Of course, employers will still need to identify their exceptional employees, as well as those at the other end of the line—the two groups for whom pay should be closely based on their performance. Technology gives employers far more information to do so than annual reviews ever could, while reaping substantial savings by seeing that only top performers receive top pay.

Nurturing Career Development

“After salary, career growth is the No. 1 reason candidates accept job offers,” Puckett says. “Top talent is hungry for career development, and companies should do everything they can to provide it.”

Technology empowers employees to take a more active role in charting their own development, giving them insight on their growth opportunities, from available training to open positions in the company that might be a good match. “New tools are emerging—and using predictive analytics, much like how Amazon recommends products based on past purchases—to help an employee develop a personalized development path,” the Saba article says.

Managers can then follow employees’ progress on the plan to assess their commitment and when they’re ready to advance.

Facilitating Reporting and Compliance

Performance management technology can also come to the aid of HR by generating comprehensive reports for senior management and the board of directors. The software usually includes dashboards that you can tap to capture and analyze information on demand and put it into a format that will support solid decision making.

Automation also increases the likelihood of compliance with applicable legal requirements and internal processes, as well. Reliable reminders and standardization promote adherence to processes and facilitate quick identification of who is falling behind on their performance management-related obligations, whether managers or employees. Automated Web forms prevent users from going astray without approval but allow customization when appropriate.

Get on Board

Technology-enabled and -enhanced performance management is rapidly taking hold and poised to become even more prevalent. As machine learning and artificial intelligence gain greater acceptance, the quality and availability of data will only get better, and performance management should become easier and more valuable for both employees and employers.