If you want to demotivate employees and generate unhealthy competition, keep using your traditional
performance appraisal system. A new McKinsey report indicates 90% of companies are still using appraisal systems that were designed to measure output in a factory environment. This is no way to treat your talented team. Read on to learn how trendsetters are tracking performance.

The Feedback Loop

Today’s thought-​leading managers are implementing systems that continuously collect input on team members from a variety of sources – co-​workers, managers, and clients. In addition, in some cases they are allowing, and even encouraging, employees to access this information regularly. Doing so helps them to adjust how they work in order to better contribute to the organization.

Research consistently shows that employees, especially members of younger generations, crave feedback. At the same time, the pace of business and technology changes continues to increase. To stay on track, your employees are constantly changing what they do and how they do it. Instead of making them wait a year to find out if they're meeting expectations, you can decrease the anxiety level by making sure your managers provide frequent feedback. Other surveys reveal that today’s employees are increasingly motivated by “seeing purpose and value in work.” So talk with your team members about how what they are doing is contributing to the greater good.

Compensation

Your team members also keep track of pay. The real source of anxiety for most employees at performance appraisal time is all about compensation. They’re wondering if they’re going to get dinged for the big mistake they made last month. Are they going to get as big an increase as the co-​worker who is constantly sucking up to the boss? Experts recommend that companies separate compensation from the feedback process. More employers are now offering a generic increase to all employees. They hold back sufficient funds to reward star performers, either by giving them bonuses or adjusting their base compensation completely.  These strategies remove the stress and petty behaviors that erupt regarding who received a bigger salary increase.

As you shift from a traditional to a more flexible performance management system, keep the lines of communication open.  Touch base with your employees to explain how the system works. And, make sure to structure your manager positions so employees who carry out this task have enough time to do their jobs well, including coaching.