Performance Management in Australian Organisations: Current Practice and Future Plans
A REPORT ON THE STATE OF PLAY
This study undertaken in collaboration with the University of Sydney Business School draws on survey data obtained in May 2021 AHRI HR professionals on current and planned performance management practices in Australian organisations, particularly to gauge continuity and change in performance management practice prior to and during COVID and plans for change in practice use in 2022-23.
EXECUTIVE SUMMARY
THE STUDY
The study draws on survey data obtained in May 2021 from 163 AHRI HR professionals on current and planned performance management practices in Australian organisations, particularly to gauge continuity and change in performance management practice prior to and during COVID and plans for change in practice use in 2022-23. With a view to maximising data consistency and comparability, the survey instrument specified 17 performance management practices. While not disclosed to participants, ten of these were classified as ‘traditional’ practices. While the remaining seven were categorised as ‘new’ practices, also referred to elsewhere as ‘cutting edge’ or ‘performance management 2.0’ practices. Respondents were asked to provide quantitative data on the practices specified and their organisation’s performance management system (PMS) overall, as well as qualitative information on the impact of COVID on their organisation’s approach to performance management and on current and planned responses. A small number of respondents also agreed to participate in a follow-up interview for case study purposes.
KEY FINDINGS
Finding 1: Tradition practices remain prevalent, if not predominant.
Some traditional practices continue to be used extensively, with over 70% using performance planning discussions, self-assessment, and rating scales, and over 40% using cascaded goals and 360-degree feedback. A significant minority of organisations who were not using particular traditional practices at the time of the survey had plans to introduce them within two years, with rater training, deep competency assessment, team assessment, cascaded goals, and peer feedback being most prominent in these plans. This suggests that change in the Australian context is essentially cautious and evolutionary in nature and that claims of the demise of traditional performance in this context are premature.
Finding 2: Innovation is underway, albeit very selectively.
While Australian organisations continue to lag well behind the extensive uptake of ‘cutting edge’ practices in the US before COVID, there are some signs of selective change. Two non-traditional practices, namely ongoing feedback and development coaching, are either already used or slated for introduction within two years. Conversely, the uptake of five other ‘new’ practices, namely ratingless reviews, greatly simplified ratings, crowd-sourced feedback, electronic performance monitoring and use of AI for performance management, remains low at present although plans are afoot to increase the use of electronic monitoring, evidently in response to the changes wrought by the pandemic.
Finding 3: Size matters – in complex ways.
While better placed to maintain a multi-faceted PMS, large organisations seem to be more tradition-bound and less agile than their smaller counterparts. Small organisations are far less likely to embrace traditional resource-intensive practices such as rating scales, but they are no less innovative than are the largest organisations in taking up newer practices. While large oganisations are more active in using some new practices (simplified ratings, electronic monitoring, AI use), small organisations are just as innovative as large organisations when it comes to the use of ongoing feedback, career coaching and ratingless reviews. In the case of ratingless reviews, small organisations are actually more innovative.
Finding 4: Sector matters, with the mix of practices in not-for-profits (NFPs) being surprisingly complex.
Relative to other sectors, NFPs make particularly high use of a number of traditional practices (performance planning discussions, self-assessment, peer feedback) as well as several new practices (development coaching, ratingless reviews, electronic monitoring and AI). Conversely, NFPs are relatively averse to some traditional practices (rating scales, rater training, calibration meetings and team assessment) and also to some newer practices (greatly simplified ratings and crowd-sourced feedback). Publicly-traded firms are most active in the use of both traditional and new practices, followed by privately-owned firms in most instances. Public sector organisations also have a relatively high incidence of most old and new practices, though their usage of some practices (peer feedback, ratingless reviews, crowd-source feedback, electronic performance monitoring and use of AI) is noticeably lower than in other sectors.
Finding 5: Whether the practice is traditional or new, workforce coverage is generally high.
Of the ten traditional practices, nine were applied on average to at least half of the workforce, with rating scales, self-assessment, performance planning discussions, deep competency assessment, cascaded goals and calibration meetings covering the vast majority of workers. Most revealing though was the extensive coverage of new practices in those organisations in which they were being used, most notably ongoing feedback, ratingless reviews, greatly simplified ratings and developmental coaching. When organisations take up these new practices, they do so quite holistically.
Finding 6: Few practices are perceived as being highly effective in their own right.
Except for ongoing feedback, no practice – traditional or new – was rated as being particularly effective in improving employee performance. Practices with the lowest perceived effectiveness were rating scales, rater training and use of AI for performance management. Since they speak to both old and new practices, these less than positive perceptions suggest that there are underlying shortcomings with PMS in Australian organisations that go beyond the use/misuse of particular practices per se.
Finding 7: Performance management systems effectiveness is not rated highly.
Respondent perceptions point to ongoing shortcomings at the level of the system as well as regarding specific practices. While a majority agreed that their existingPMS was helpful in 5 identifying individuals’ performance strengths, weaknesses and development needs and in supporting learning and development, only a minority believed that it supported business outcomes, drove reward outcomes, distinguished adequately between employees performance-wise, helped to make legally-defensible HR decisions, and supported good succession planning, performance counselling, and staffing strategies.
Finding 8: There is some evidence that the use of new practices boosts performance management system effectiveness.
When new practices are in use, perceived PMS effectiveness is higher on some key outcome criteria relative to that in organisations where the practice is not used. The specific PMS criteria in which new practice use appears to make a positive difference are: impact of firm performance, connection to reward management, employee development and legally defensible outcomes.
Finding 9: COVID-induced disruption is having a variegated impact on PMS continuity and change.
In some cases, old habits have persisted, even if only by default. In others, performance management has been side-lined in the face of an existential organisational challenge and/or the imperative to prioritise employee wellbeing and support. In a minority of cases, COVID has presented an opportunity to either initiate or accelerate PMS transformation.
Finding 10: COVID appears to be setting the stage for accelerated change in PMS principles and practices.
Consistent with the quantitative survey data, the qualitative responses suggest that the disruption brought about by COVID may have created conditions conducive to greater receptivity to the principles and practices of the ‘new performance management’ – less bureaucracy, less paperwork, less retrospectivity, less ritual, less judgementalism, and less hierarchy; more inclusivity, more problem-solving, more forward planning, more developmentalism, and more technology-enabled data management.
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