How companies approach performance management is changing. Evidence is mounting that conventional methods to strategic human capital management are broken. A 2013 survey by the Society for Human Resource Management asked HR professionals about the quality of their own PM systems; only 23 per cent said their company was above average in the way it conducted them. 

In short, PM systems in many companies are misleading, cumbersome, and complex, requiring some HR departments to put aside an entire quarter to manage them. More important, they can be counterproductive. In the context of neuroscience research, most PM practices turn out to damage the performance they are intended to improve. This view from Mike Straw, CEO and founder of award winning change and people management consultancy, Achieve Breakthrough, will go on to explain why current PM systems are not effective and how to improve the current system: Labelling people numerically creates a “fight or flight” mentality in which even a high grade creates pushback from people jealous of others

PM systems also foster the “fixed mind-set” that intelligence and talent are basically established at birth and remain static throughout life, Microsoft have completely retired their old PM systems, now focusing on the collaborative results that people achieve together and emphasising continual growth.

Firms who have moved away from old PM systems have generally chosen two paths: highly structured interviews or a guided conversation on peoples goals and targets for themselves, the key is allowing them to have a growth mind-set where their hard work can be rewarded

Traditional PM systems rely 100 per cent on the manager, however in a more empowered system the responsibility is shared between the manager and the employee – this shift in control enables a different outcome entirely. Results of no-rating systems are dramatically better than their rating and ranking counterparts – in satisfaction, retention, and engagement scores, which have been shown to correlate to business performance

Mike Straw believes the number of companies operating this way will increase dramatically, to become the majority. He says: “Eventually the ideal of labelling people numerically will be seen as a blip in HR history. Giving people a rating might be a useful tool in a company with a lot of “fat,” where it makes sense to shake people up and create competition, but in many of today’s lean businesses that demand a great deal from their employees, we need a better model. We need to improve the quality of the conversations we hold with our people. It’s time to kill performance ratings.”