Goldman Sachs drops Annual Reviews, moves towards continuous evaluation
Now its Goldman Sachs, the American multinational banking firm has decided to do away with Annual Reviews. What made a giant like GS drop the Annual Appraisals like GE, Adobe and move towards a continuous evaluation process. We talk about it.
Seems the people who love numbers, do not seem to love seeing them as numbers.
Goldman Sachs drops Annual Reviews and Ratings
When an employee gets under-rated in their performance review, what does it actually say? Did the employee really didn’t prove their worth or is it that the management failed to make them understand their goals? Is it fair to rate an employee on the basis of a year-long unguided performance?
Most of the time the companies gets so busy in competing in the market and spend so much time in satisfying their external customers and stakeholders that they tend to forget their employees. It is normal for an organization to want the best performing crowd working for them, but the process of picking the best should not affect employee morale and leave the others confused on company’s expectations.
This was the case in Goldman Sachs till they decided to change the policy. The appraisal process had a forced ranking system with the bottom 5% always ending up separated from the organization. The need to be the best in the market drives company to reward the over-achieving employees through rewards and incentives and punishing the ones in the lower strata is forced to leave. They don’t get a fair hearing or a chance to understand and perform better.
What happened and what changed?
Goldman Sachs boasts of a rich culture and an employee friendly work environment. It’s has a strong brand in recruiting circles as the top multinational bank has successfully able to recruit top talent in technology, financial and other functions. But on a deeper note, the situation was more than just an inability to fair well in financial decision making. It was observed that in its race in the financial market, it was paying less attention to its employees and was not able to retain the millennial employee force.
And it’s hard to ignore millennials, is isn’t. There is a constant increase in the number of millennials as part of the workforce, with a majority climbing from junior level positions to mid-level positions are the top performers. This breed of a younger workforce is very competitive and believes in smart working and quick results (we live in a world of Twitter and Instagram, can we blame them). They don’t believe in tedious processes and lengthy procedures. Such employees need constant feedback and a bit of empowerment. They require a role model or a mentor to help them achieve their goals and to help them understanding their growth areas in the organizations. Along with a good career growth, these employees like to maintain a good work-life balance and would react negatively to stress and pressure. They are also better-abled in teams and are not very comfortable as an individual contributor.
The company followed a 360-degree appraisal system and involved the employees getting reviewed by many layers of management. This was a good process but the problem arose when the collated reviews from their peers, seniors, juniors, and external stakeholders was given to the line managers who then had to sit and rank the employees on their performance on a scale of 9. This forced rating meant that the person rated 9 was ideally the achiever and was rewarded and the employees rated 1 and 2 were asked to leave every year. This whole process was tedious due to the number of people participating in the process and it was de-motivating for many employees as they never got a chance to better their performance and did not get a regular feedback or guidance from their superiors.
“Employees want more direction with respect to how they can improve,” says Edith Cooper, global head of human capital management at Goldman Sachs. According to an internal memo issued to the employees, the CEO Lloyd Blankfein says that the company will focus on creating an environment which focuses on enhancing employee performance that will enable them to work to the fullest potential. The millennial workforce has a constant zeal to enrich and enhance their skill. They are also observed to be less loyal to the company and more towards job satisfaction and growth. Understanding their needs and addressing their need for constant feedback and regular guidance on what the company wants from them and where they are going wrong is of paramount importance.
What can be done ?
For any organization to grow it is very important that the employees are happy and in-line with the company goals and vision. The organization must focus on providing a better work environment and give the employees a chance to prove their worth. This enables a positive work culture and a better retention plan. The younger workforce doesn’t feel the urge to leave the company due to the lack of feedback and proper guidance.
Organization can strive between a focus on profit margins and business to employee growth and welfare. Job rotation and horizontal growth creates diverse learning possibilities for the employees and helps them in understanding their strengths and weaknesses.
Goldman Sachs has altered its process to include a continuous feedback with regular monitoring and specific directives to enable them to showcase their fullest potential. They have come up with a plan to remove the number ratings and have a system of a more verbal rating system which includes-Outstanding, good or needs improvement. This would enable them to understand their positions better and is less de-motivating. Detaching appraisals and performance evaluation helps the employees in understanding their goals better and enable them to perform well in the organization. It also reduces attrition and enables the organization in holding on to its millennial workforce.
Continuous Reviews for Goldman Sachs ?
Instead of the one-word rating, Goldman Sachs has asked managers to provide a detailed written performance summary so that the performance can be better understood along with the reason behind it. This would enable the organization in understanding the kind of developmental action required to better equip the employee.
The appraisal process itself has become online with all the feedbacks getting recorded on a regular basis so that it is easy to track and monitor progress. It also saves many man-hours and paperwork that is otherwise required to document the process.
Apart from these, a change in mindset of the organization is required. They need to visualize the change they want to incorporate in the process to be able to better bring it to effect. Employees must be allowed a transparent work environment with the ability to voice an opinion on the matters of the management.
A regular check on the employee performance and a one on one chat with the managers at regular intervals are also important in understanding the employee better and in building a development chart for him. The management can train him for specific skills to better empower the employee in performing better.
While annual appraisals are important for every organization, it is imperative that employee development is not hampered in the process. They must have continuous learning and development areas to explore. The managers must enable the employees in minimizing their blind-spots and help them in understanding ways to grow in the corporate ladder.
Rank and Yank is not a solution for an organization which has a diverse workforce and it will be a futile process which ultimately will become a liability to the organization.
The millennial generation believes in challenging tasks to be delegated to them. They are usually the ones with the most innovative and out-of-the-box ideas and problem-solving ability. This part of the workforce is hence rather important to retain and nurture for every organization.
After every training and development session, the employees must be encouraged to give their feedback on coaching effectiveness and the usefulness of the program. It not only helps in understanding the employee needs better but also enables in evaluating the progress of the employee.
Are you an enterprise or a fast moving organization, looking to take a cue from Goldman’s decision.
We will be happy to have a quick discussion on your biggest Performance Management problems and help you with a solution :
Originally published at grosum.com.