Does Performance Management Actually Work?

1. The Performance Management Crisis

2. Performance Assessment vs Performance Management

3. A Data-Driven Approach to People Operations

4. Two Key Metrics for Measuring Performance

5. The Practical Implementation Challenge

6. The ROI Question: Employee Lifetime Value

7. Real-World Example: Finding Hidden Talent

8. Focus on Employee Lifetime Value

The Performance Management Crisis

Brandon: We have a great topic for today: does performance management work? Before we get to our guest Jessica Zwaan, I wanted to share some concerning statistics. There was a report called the State of Performance Enablement 2023 that found 64% of workers see performance management as a waste of time, and 37% of workers said performance management is an outright failure in their company.

Bethany: As an employee, I've been subjected to all kinds of box-ticking, stress-making, justifying processes. I've definitely had ones where my bonus was tied to my performance, creating this need to prove things that were oddly aligned to values and frameworks - pages and pages of horror.

Brandon: You end up with a colossal time commitment that delivers back almost no value to the organization. The question is: what are we trying to get out of it? Leadership making that clear is usually lacking.

Performance Assessment vs Performance Management

Brandon: Jessica talked about the separation of performance assessment versus performance management. Performance assessment is leveling across the organization for pay calibration purposes - that systematic analysis is quite different from performance management, which is much more about the individual, one-to-ones, career progression frameworks, and helping grow skills and confidence.

Bethany: There was another element on performance assessment: are you investing in the right areas? Is your business right-sized? It's not just looking at whether that's the right person in the seat, but should that seat exist at all?

A Data-Driven Approach to People Operations

Jessica Zwaan: I've developed a product management approach in what I do in people and operations. I try to take as much of the analogy of customer-facing product building and apply it to people ops. The way I talk about performance is: are your customers paying? Are your employees performing?

Understanding the answer to this question is probably the most important question you can answer in HR. I do think there are ways to figure out if your team are genuinely performant, but probably no - the majority of the ways we're doing that right now do not answer the question effectively.

Two Key Metrics for Measuring Performance

1. Organizational Network Analysis (ONA)

Jessica: The first metric is organizational network analysis - how deeply interconnected are your employees within the employee base and who are they having a positive behavioral halo effect with. There are great tools that measure this, like Encompass Labs and Performica.

What they're trying to assess is the behavioral impact that your employees have among other employees. Performica will ask: "Who is the person you go to when you need technical help?" rather than "How do you rate this employee's technical capacity?"

Brandon: This organizational network analysis feels very powerful because when you think about companies, you have no sense of this. There's no value placed on it because they don't understand who's actually making an impact.

2. Goal Driver Trees

Jessica: The second thing that's very effective is a driver tree of goals that impact revenue. Not just asking "What are your goals? Did you achieve them?" but also "Were they the right goals and were you the right person to be working on those goals?"

You should be looking at all of these things as a system and where your team fits within the system, whereas performance assessment has been built traditionally as looking at the individual on an individual-by-individual basis.

The Practical Implementation Challenge

Bethany: This sounds great in theory, but the idea of rolling it out in reality sounds horrific and slow and painful. What tools do you use? Do you spend more time navel-gazing than actually doing work?

Jessica: We ran a model on this. If you had a team of 5,000 people and it took them a day each, we calculated it would take just under two weeks if everyone contributed within the timeframe every quarter - about eight working days total.

In my team, we do a version of this with a Google Sheet and it takes us five working days quarterly. Our team is submitting theirs today - they're finalizing their drafts of who's accountable for what.

I think there's a difference between giving an individual feedback on their personal growth trajectory and understanding performance as it relates to the system of your company. I believe my managers are fully capable adults able to deliver feedback effectively in real time and escalate if there's a problem.

I spend the majority of my time focused systemically on how our organizational design is helping us reach our goals and where there are spikes - very strong individuals and very weak individuals.

Bethany: So you're not actually doing what I would think of as performance management - the individual scoring tied to bonuses. Yours is much more systemic: how do we structure an organization and is it working?

The ROI Question: Employee Lifetime Value

Jessica: Companies are here to make money and be successful. If your employees are consistently not able to deliver on goals that are valuable to the company and they're not connected with other people in the team, then are they actually performant?

We are paying those individuals a salary. If the work is not being recognized in any way, do we have an obligation to increase that salary or apply a bonus if an employee isn't doing the things we expect to drive value?

Real-World Example: Finding Hidden Talent

Jessica: I know a CEO who ran organizational network analysis at a 300-person distributed e-commerce company. They found three members who were the highest performing in terms of being deeply connected and technically strong - but they were relatively junior members of the data team, managed by someone who scored fairly low.

What was surfaced was: these are very performant individuals being managed by someone effectively shadowing our ability to see them. The story wasn't that those individuals are poor performers - these individuals may actually have the potential to be very strong performers, but we have a non-performant manager.

Brandon: How do you do a really good calibration exercise connected to pay?

Jessica: If you're doing individual-by-individual traditional performance assessment, calibration is necessary but time-consuming - it's doing the hard yards for what I think is a fairly ineffective way to assess performance.

In a world where you take a more analytical approach, calibration becomes about telling stories with data you're not seeing otherwise. Instead of measuring where everyone should be in boxes, it's: "This individual is deeply connected but doesn't achieve goals - what's driving that?"

Focus on Employee Lifetime Value

Jessica: As a COO, the best thing I have done for my people operations team is to gear them toward the goal of thinking about employee lifetime value and return on investment as it relates to the 65% of my P&L which is headcount.

Making them almost myopic about: are we improving our employee lifetime value? If you're having conversations with your people operations team that feel disconnected from that goal, ask yourself a serious question about whether you're enabling them to do the work you really need them to do.

The shift toward a more autonomous, distributed workforce has made this question more urgent. We're not in zero-interest land anymore. We have pressure from VCs to be profitable, rising costs, and teams getting disappointed because they're not getting continual pay rises. This is pushing us to be more focused on both performance and output than we were a couple of years ago.

Bethany: I feel like it's always been a strategic imperative, but it's just really hard. With command and control, it was easier to measure things. Now with more empowerment, we have to figure out more effective ways of doing it.