We're looking forward to seeing you at next week's interchange session. We're going to divert from our work in The Great Engagement and instead discuss performance management as a way of motivating and supporting the growth of your people. Below is a short article, less than 5-minute read, from McKinsey and company that's a good primer for our discussion. In it they lay out four key pillars for effective systems:

1. goal setting,

2. performance reviews with skilled managers,

3. ongoing feedback, and

4. rewards.

This is a state of practices that, when systematized,  can produce huge rewards; in engagement, employee retention and performance.

Leading Off

Keeping employees motivated is an everlasting challenge for leaders. Today, though, it’s more complex than ever as companies wrestle with rapid technological advancements, shifting workplace requirements, and generational differences in what employees expect from their work experience—and from their bosses. In an age of quiet quitting, how can leaders inspire their people to feel connected to their work and achieve better results? This week, we take a closer look at the approaches to performance management that motivate employees to do their best.

What matters most to employees

To find out what really encourages employees to perform well in these volatile times, McKinsey’s Asmus Komm, Brooke Weddle, Dana Maor, and their coauthors went straight to the source: their research involved more than 1,000 employees around the world. The survey respondents report that they are most motivated when their companies’ performance management systems are consistent and simple.

According to the authors, such systems involve four key pillars: goal setting, performance reviews with skilled managers, ongoing feedback, and rewards. Some companies have moved away from result-based performance management goals and metrics in favor of more holistic approaches—for example, considering how external factors affect performance and how well employees adhere to the company’s cultural norms. But the survey shows that employees appreciate result-based assessments rather than systems without clear and easily understood structures, which respondents view as significantly less motivating and fair.

That’s how much more likely companies are to outperform their peers when they focus on their people’s performance, according to a McKinsey review of industry best practices and research on how companies gain a competitive edge. Companies with effective performance management systems realize an average of 30 percent higher revenue growth and see an attrition rate that’s five percentage points lower than their peers’. According to partner Asmus Komm and his coauthors, companies that focus on their people and organizational health also reap dividends in culture, collaboration, and innovation—as well as sustained competitive performance.

One way to make performance review season less nerve racking is to commit to giving feedback throughout the year. This practice benefits both the employee and reviewer, says Matt Abrahams, a lecturer at Stanford Graduate School of Business and author of Think Faster, Talk Smarter: How to Speak Successfully When You’re Put on the Spot. “That’s because the recipients see you as someone who cares,” Abrahams says. “You’re taking time to note their strengths when they do something well, as well as when things need to be adjusted or fixed.” Think of it as making deposits in an employee’s “bank account” in the lead-up to their formal review. “If I give you praise throughout the calendar year and then have to give you some pretty direct negative feedback, it’s not so painful when I make a withdrawal, because I’ve already put some of that praise into the bank,” he says.

Staying in a middle management role doesn’t always mean being stuck. While conventional performance management wisdom says that leaders should reward employee excellence with a promotion to the next level, that’s not always the right move for everyone. McKinsey partners Emily Field and Bryan Hancock and McKinsey alumnus Bill Schaninger say that superstar middle managers should stay where they are: at the heart of their company’s success.

Too often, leaders promote these employees into positions where they no longer do what they love (coaching and connecting with people) and where they may have less impact on organizational performance. “We need to view middle managers as being at the center of the action,” the authors say. “Without their ability to connect and integrate people and tasks, an organization can cease to function effectively.”

The authors stress that it’s time to reject the notion that anyone who stays in a middle management role for a long time must not be any good and to start thinking of other ways to reward these individuals. Such options can include giving raises, bonuses, and stock awards to the best middle managers and expanding their scope of responsibilities without changing the essentials of their role.