Continuous Performance Management: Why What & How

The last few years have seen a major shift in how companies manage employee performance.

Continuous Performance Management
Continuous Performance Management

Why did this shift happen?

  1. To understand why this change happened, you need to look at the kind of companies where it all started. Companies like Google, Adobe, Deloitte are very different in terms of how they operate, the nature of work, and what they value, compared to behemoth of the previous era like GE where the earlier process of rating and bell curve was popularised. These companies realized that the process of ranking and bell curves was not adding a lot of value for them and instead created more problems.
  2. The economic context and the industry also play a very important role in dictating the kind of performance management system used by the company. For example, when human capital is plentiful, the focus is on which people to let go, which to keep, and which to reward. While when talent is in short supply, developing people becomes a greater concern.² Today, the market in most countries is dominated by software, services, brands, and R&D companies all of whom are competing for top talent. Hence this trend towards continuous performance management is on a rise.
  3. With research in emerging fields like positive psychology, behavioral science, growth mindset, etc, there is increasing realization that clarity, purpose, and a sense of growth are what helps people perform, and companies are increasingly adopting insights from these new research in their performance management practices. ¹
  4. Today in the VUCA world, annual goals and reviews are no longer relevant, the roles are becoming increasingly complex and distinct, and there is a greater focus on teamwork and collaboration vs. individual performance. Companies and employees are also expecting more from each other. With these changes, companies are realizing their traditional ways of managing performance have become outdated.

What has changed?

  1. Most companies have done away with forced rankings and the bell curve.
  2. Annual Review still exists but is now complemented with regular check-ins, 1:1s, feedbacks, and even quarterly or semi-annual reviews.
  3. There is a shift towards a more inspiring, flexible, and transparent goals setting process like OKRs.
  4. Many companies have moved away from a system of assigning a single rating or score to employees, to a system with pseudo ratings, multiple scores, or no ratings at all.
  5. Compensation conversations have been separated from growth and development conversation to bring a dedicated focus on employee development.

Employee still see the process as biased and unfair. Managers still see performance management as a bureaucratic, box-checking exercise. ⁴

How should one implement continuous performance management practices in their organization?

Make it Continuous

The main difference between the process from the previous era and this new one is that you are looking at performance on a continuous basis instead of a one time exercise in a year.

Make your managers ready for it

While the frequency of conversation between manager and employee matters, the quality of the conversations has a much bigger impact. Managers know the most about their team members, but most of them lack the skills and knowledge needed to conduct meaningful conversations, and the confidence and ability needed to evaluate them fairly. So investing in managerial capability is paramount to effective performance management.

Not about continuous but “effectiveness”

There are certain practices which are a must for any effective performance management process, continuous or otherwise:

  • Today, you need flexible goals that can be adjusted with changing business priorities.
  • Making goals transparent increases the perception that the process is fair, as well as drives greater commitment from individuals and teams.
  • The goal-setting process should be a collaborative exercise between manager and employee, and not driven from the top.
  • Don’t spend time cascading goals from top to down. Follow a market-based approach where top goals are published and everyone’s goals are visible.
  • In a continuous performance management process, goals should be reviewed and adjusted regularly during 1:1 meetings.
  • When asked to rate, peers and direct reports tend to be nice to each other. Don’t ask to rate, instead use 360 feedback to ask specific questions about the individual employee — strengths, areas of development, what they have done well or can do better, what they should start/stop doing, etc. Also, read the Idiosyncratic Rater Effect.
  • Ensure you get feedback only from people who have spent enough time and worked closely with the employee.
  • Ask a maximum of 4–5 questions and run the cycle twice during the year. Complement it with the any-time-feedback process with similar questions, particularly if you have employees moving quite often across projects/teams.

Ratings or No Ratings?

Don’t do away with ratings if you don’t have a mechanism of explaining compensation decisions. In the quest to take the anxiety out of performance management, it is tempting to do away with rating systems³. But research shows that it hasn’t had any positive impact and may create new problems, particularly in managing and explaining compensation changes.

What about Compensation?

Ideally, with continuous performance management, the compensation reviews should also become continuous. Bonus can remain to be aligned with business review cycles, whether that is quarterly or annually. But, the salary changes should become an as-needed process. What that means whenever the manager and the company believe that an employee should get a salary raise, they should get the raise then and there, and not wait for the annual exercise. Sometimes that is difficult to implement, so a close substitution is quarterly compensation reviews.

  • Bonuses will be decided based on a formula consisting of metrics and/or performance ratings.
  • Salary raise will be decided based on some form of a matrix with one axis being compensation benchmarks(compa-ratio) and the other axis being a single rating score or formula of multiple rating categories.
  • Don’t bother differentiating a lot among the middling performers, particularly if roles are interdependent and collaboration is critical. Assign them the same rating and similar pay.
  • Only identify and differentiate stand-out performers and low performers — clear-cut cases who would not need a lot of calibration and discussions.
  • Pay a handsome premium(10–15%) to stand-out performers and address the low performer cases³.
  1. Focused on performance and developmental feedback.
  2. Focused communicating ratings and compensation linked to those ratings.



Product Manager in HR/People Tech domain. I explore and write about emerging research to solve people and org problems through tech.

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Mayank Prabhakar

Product Manager in HR/People Tech domain. I explore and write about emerging research to solve people and org problems through tech.