How to Ensure Success Performance Rankings

In 2014, Cigna decided to rethink its performance management philosophy and process, after reviewing the findings of recent research on human motivation. The company dropped its end-of-year performance ratings, and moved instead to requiring that managers conduct more frequent, less formal, check-in-style conversations with subordinates about their performance, emphasizing continual learning and growth. Cigna’s goal in this shift was to support aggressive business expectations: creating a more positive and motivating work environment while staying fully committed to a “pay for performance” compensation philosophy. Three years later, the new performance management process is still in place, and a recent survey of employees showed overall positive results.

And Cigna isn’t alone. A growing number of companies have moved away from performance rankings and are building a stronger culture of collaboration in which employees ask managers and peers to engage in more frequent conversations about their performance. The early adopters of this new approach — companies such as GE, Microsoft, Juniper Networks, Adobe, and Autodesk — say they have no plans to go back. The numbers suggest that the movement is becoming a bandwagon. In 2012, our research showed that only a dozen larger firms had decided to do away with rating people formally and focus instead on encouraging managers to have quality conversations. By 2015, the number had risen to 55, and by 2016, it was 150. This week, at the Annual NeuroLeadership Summit in New York City, we will show that more than 400 large organizations are on this path, including many major banks and government agencies, making this one of the fastest-moving trends in human resources.

The big question, of course, is whether reengineering a performance management process actually helps a company perform better. Unfortunately, the data of stock price or other financial indicators has not yet revealed an obvious  answer.

However, a very clear signal is emerging about employee engagement, which has consistently been found to correlate with business performance. Recently, a research group at the Neuroleadership Institute (where we are senior leaders) studied 27 companies that had gotten rid of formal ratings and were between two and five years into their new performance management framework. And of the 22 firms tracking employee engagement, all of them found that it went up after the new system was in place, and it has continued to do so.

We consider the journey to reimagine performance management positive when managers are having more conversations with their team members about performance, these conversations are higher quality than the annual assessments they replaced, and engagement is going up — not just in the first year, but in the second year as well. This standard was met by every organization we can find that took three steps.