(Note: This post has been updated since it was originally published Feb. 5, 2013)

When was the last time you evaluated the performance of your performance management system? In a recent survey by Deloitte, more than half of executives (58%) said their current performance management approach drives neither employee engagement nor high performance.

That’s a startling statistic. We wouldn’t drive a car with a poor track record of getting us to our destination, so why do so many managers continue to use a performance management system that’s evidently broken?
Aside from driving better results now, performance management is an important component of developing strong future leadership through succession planning.

Many organizations are continually updating and revising their performance management systems in an effort to achieve better results and improve fairness and accuracy. The most common changes are directed toward revising the rating scale and adopting new forms. While these are important components of any performance management system, they do not directly address the key factors that impact the systems effectiveness.

While there is no single “best” approach, we believe that a performance management system is most likely to succeed when an organization applies the following recommendations:

1. Choose an Approach and Stay with It

Manager skill determines whether or not a performance management system is used effectively, not tweaks to the forms, updating technology, or revising rating scales. In addition, making frequent changes to the performance management process in an attempt to “get it right” undermines its credibility and frustrates managers.

2. Clarify the Purpose of Your Performance Management System

Both managers and employees should have a common understanding of the overall purpose of the performance management system, including how performance management supports broader organizational goals. It is critical that managers understand how it contributes to business performance and why it warrants their time and attention. When the emphasis is on completing forms and “getting it done” it is unlikely the system will produce the desired results beyond an administrative record keeping objective.

3. Improve Consistency

There are several factors that have a significant impact on consistency of application:

  • Use a rating scale with descriptive labels—it is difficult to ensure the performance management system is used consistently with a purely narrative approach. We recommend a five-point scale, because we believe that three points does not provide enough variance and it is difficult to discriminate between more than five points.
  • Provide descriptions of “what good looks like”—having specific examples of behaviors that are below, at, and above expectations ensures objectivity and consistency of ratings by minimizing the need for a manager to make up their own definitions.
  • Require evidence to support ratings—managers are less inclined to inflate ratings when they have to provide supporting evidence. The additional information clarifies why a rating is being given and contributes to the perception of fairness and accuracy. It also helps reinforce positive behavior and lays the foundation for developmental discussions.
  • Provide managers with skill training—skill training across all four components of performance management (goal setting, performance evaluation, coaching, and development planning) helps clarify expectations and provides common frameworks and tools.

4. Ensure Performance Management Data is Linked to Other Talent Management Systems

Not only will this improve other talent management processes, it will also increase the likelihood that managers will view the performance management process as value-added to the business, which in turn, helps to increase their commitment to developing people.

5. Hold Managers Accountable

Unless managers are held accountable for developing people and view it as a key responsibility, there is little chance that a performance management system will achieve its objectives. Here are two quick tips for managing accountability:

  1. Emphasize setting clear and measurable goals and providing ongoing coaching and feedback—We believe it is impossible to have a constructive annual appraisal discussion if clear, unambiguous and mutually agreed upon goals are not in place and if managers are not using periodic reviews and on-going coaching as a tool to guide behavior, recalibrate goals, and prevent surprises at the end of the year.
  2. Do not lose sight of development planning—Too often, development planning is not viewed as a key component of effective performance management. Development planning is essential for building employees’ skills and competence, and for supporting organizational training and development initiatives.

Performance management systems are only as good as the people using them. Shifting the focus from tweaking the systems to changing the attitude and mindset about the role of performance management and ensuring managers have the skills to effectively apply the system will produce greater results.

For more best practices on developing leaders,download our program guide, Identifying and Developing Future Leaders: Proven Techniques for Maximizing ROI.