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During an evening conversation with a few senior business executives and HR leaders, a CHRO with decades of business experience made a thought-provoking statement: “I think we have a problem of definition when it comes to performance.” This remark lingered in my mind, prompting me to delve deeper into the subject.

In recent weeks, I have engaged in discussions with approximately 50 executives on this very topic. Many leaders highlighted how rigid and fixed goals cannot keep pace with shifting business priorities, while others emphasised that the lack of meaningful conversations between managers and employees hinders individual growth and organisational progress.

Furthermore, the leaders noted that there is a disproportionate focus on individual goals and achievements, overshadowing the significance of team objectives and collective accomplishments. It is frustrating for leaders to witness organisations acknowledging the importance of cohesive teams yet struggling to foster an environment that values and promotes collective success.

Another recurring pain point is the overemphasis on monetary rewards at the expense of recognising employees’ intrinsic motivations. Personal growth, autonomy, and recognition play a significant role in driving employee engagement and satisfaction, yet many organisations narrowly prioritise financial incentives, disregarding the power of intrinsic motivators.

Inadequate performance differentiation and unfair reward distribution are common concerns business leaders express. The overreliance on managers’ personal opinions, coupled with outdated and ineffective rating mechanisms like the bell curve and five-point rating system, contributes to inconsistencies, favouritism, and a lack of objectivity, undermining the integrity of the performance evaluation process.

Here is what an Executive Director of a well–known digital media company said: “The current approach of relying on the manager’s memory of an employee’s performance over the past few months leads to recency bias, which is not conducive to accurate performance evaluation.”

As the enigmatic CHRO indicated, we do have a definition problem when it comes to employee performance. First, performance as the act of goal achievement often gets conflated with achieving results. Second, discussions on employee performance often veer into debates on rewards mechanisms and various performance evaluation or appraisal methods. Finally, there is a tendency to interchangeably refer to performance, performance factors, and improvement mechanisms. The ‘definition’ problem stems from the seemingly paradoxical state of the importance of employee performance and the sheer number of actors involved. Too many cooks in the kitchen, perhaps?

To navigate this complexity, we can consider performance from four dimensions and examine their consequences separately.

‘Clarity’ is the first dimension. Organisations must clearly define performance expectations, goals, and objectives, ensuring employees understand what is expected of them. These expectations should align with individual aspirations, allowing organisations to link individual efforts with overarching organisational goals. Clarity enables employees to work purposefully and directionally, with each person understanding their contributions toward the organisation’s success. A Vice President of HR at a multinational engineering and technology firm explains, “In an ideal setup, each employee should be able to clearly articulate their individual contributions towards the organisation’s overall goals, with the sum of these contributions totalling 100%.”

The next dimension is ‘support.’ Organisations must provide employees with the necessary resources, guidance, and assistance, enabling them to perform at their best. By offering development opportunities, removing obstacles, and fostering a supportive work environment, organisations can enhance employee performance and facilitate their success. The CEO of an Indian multinational BPM services company emphasises, “An ideal performance management system should be able to create individual development plans that help employees become better versions of themselves and improve their skills and abilities.”

The third dimension is ‘feedback,’ which plays a crucial role in performance management. Regular and constructive feedback helps employees understand their strengths and areas for improvement, allowing them to make necessary adjustments and grow professionally. Organisations should encourage a feedback-rich culture that values open and honest communication, fostering continuous improvement and development. The director of a multinational food and beverage company states, “Effective feedback is a crucial driver within organisations, and a sign of its effectiveness is when employees are aware of their specific areas of strength and how their work positively impacts organisational goals.”

‘Recognition and rewards’ constitute the final dimension. While monetary rewards are often emphasised, non-monetary rewards such as recognition, career advancement opportunities, and meaningful work assignments are vital in fostering employee engagement and satisfaction. Organisations must align employee rewards with the goals they contribute to achieving or the business outcomes they help accomplish. The CXO of a multinational telecommunication company states, “Organisations must link employee rewards to the goals they contribute to achieving or the business outcomes they help accomplish. However, career development, career growth plans within the organisation, and similar considerations should be decoupled from remuneration.”

In addition to clarity, support, feedback, and rewards, fostering high-performance habits can significantly drive modern-day performance. Organisations should enable employees to develop positive work habits and practices, including prioritisation, regular reflection on progress, strengths, and areas for improvement, and adherence to consistent routines. This approach encourages holistic employee development.

To top it all off, mental variables such as psychological safety and access to support and guidance impact the inner game of the employee. Even if an employee demonstrates effective behaviours to achieve a goal, external factors such as weak market demand for a particular product or service can hinder overall performance. Therefore, a comprehensive performance landscape must consider both the ‘inner’ and ‘outer’ variables at play.

In today’s fast-paced business environment, organisations are recognising the limitations of traditional performance management approaches and embracing new methods. For instance, forward-looking organisations have revamped their feedback discussions by separating feedback from performance ratings. Managers can now engage in open and constructive conversations with employees, free from the pressure of assigning and justifying ratings. Many organisations have also adopted technology solutions to facilitate continuous feedback exchange throughout the year, promoting ongoing improvement and development rather than confining feedback to periodic annual or semi-annual reviews.

However, few organisations truly decode the full spectrum of performance, from its dimensions to the consequential factors, variables that shape it, and mechanisms to improve it. Even fewer take the necessary steps to implement changes, big or small, that can create a virtuous cycle of performance effectiveness.

Navigating the inconsistencies in defining and managing performance is a critical challenge for organisations today. By focusing on clarity, support, feedback, and rewards and fostering high-performance habits, organisations can create an environment that empowers employees to perform at their best. Embracing new approaches to performance management and considering the individual and collective dimensions of performance will be key to driving organisational success in the dynamic and competitive business landscape.

The enigmatic remark made by the experienced CHRO holds true: there is indeed a problem of definition when it comes to performance. While a clear definition offers a starting point, passionate leaders who are driven by purpose understand that it is more than enough to catalyse change. By addressing this problem head-on and adopting comprehensive strategies, organisations can unlock the full potential of their employees, leading to sustainable growth and success.

(Hariraj Vijayakumar is Founder and CEO of NWORX, a performance enablement platform.)