History of Performance Management
Updated: Sep 24
Employee performance management isn’t a new concept. Performance management has evolved in many ways over the twentieth and twenty-first century, but some companies are still using antiquated methods to measure employee performance. In this article, we outline a brief history of performance management to understand the main drivers of changes throughout history and some of the main factors that are driving modern day companies to evolve their current performance management systems.
A Brief History of Performance Management
Performance management became critical during the expansion of business and industry in the 1920s. With companies' goals to maximize mass production, operational efficiency became the focal point. As you would expect, employee development and engagement were considered less important at this point.
In the 1950s, personality-based performance appraisal systems started gaining adoption. Employees would be rated on traits such as job knowledge, sincerity, and loyalty; however, it was soon realized that measuring the performance of workers based on inherited traits had nothing to do with their productivity in the workplace. As a result, companies began to look for better ways to assess their employees.
In the 1960s, annual formal appraisals began to focus on what an individual might be able to achieve in the future. In addition, there was more focus on goals and objectives, and the term ‘management by objectives’ became popularized.
The 1970s was fraught with court cases due to the subjectivity and biases with performance appraisals, which led to the introduction of psychometrics and rating scales in performance management. In the 1980-1990s, the multi-rater feedback system (also termed 360-degree feedback) became popularized, although it’s worth noting that multi-rater feedback was used prior to the 1980s by a few companies, including Esso Research and Engineering Company which was one of the first organizations to use multi-rater feedback in the 1950s.
The 1990s and early 2000s saw a shift of focus to employee motivation and engagement. In this modern day, companies are now ditching the annual performance reviews and choosing more continuous feedback-driven practices. While the importance of feedback cannot be understated (check out our blog article about the importance of feedback), is it simply enough to implement more frequent feedback and expect immediate changes in employee productivity and retention? In short, the answer is no - but it's definitely a good start.
Evolving Our Current Performance Management Systems
There are several drivers that are forcing business and HR managers to question the effectiveness of their performance management systems. These include: changes in workforce, the movement toward more agile structures, and the realization that feedback is a double-edged sword.
1. Changes in workforce
Millennials now comprise the 35% of the workforce and this is expected to be ~75% of it by 2025. While all employees want feedback, Millennials want more of it. They want recognition for jobs well done, corrective feedback on what they need to improve, and transparency into their career paths. It's crucial that managers implement systems that work for them.
2. Deconstruction of company hierarchical structures
Companies no longer operate in the hierarchical structures that once worked decades ago. Employees are now working in multiple roles, across different teams, with several managers throughout the year. We need agile performance management systems that match these agile networks of teams that organizations are now becoming.
3. Continuous is not enough - feedback has to be constructive
Feedback is a double-edged sword - poorly-delivered feedback is worse than no feedback. All feedback should be constructive. In most companies, there isn’t enough training or tools to help employees understand how to provide and receive constructive feedback. Constructive feedback is action-based, effort-based, and forward-looking. We talk about the this in our blog problems with traditional performance management systems. Check it out to learn more!
The takeaway is that as new generations enter workforce and companies continue to evolve, so should our performance management systems.