Then, in 2012, Deloitte decided to start digging deeper into the numbers and found something shocking: Completing annual review forms, holding meetings and creating employee ratings consumed a whopping 2 million man hours per year—most of it spent with managers behind closed doors discussing past performance rather than top performers’ future prospects.
“We wanted to get away from a system that was about an arbitrary assignment of a numerical rating to one that was about getting people focused on developmental conversations,” says Mike Preston, Deloitte’s chief talent officer. That led the firm on a course to completely change the way it collects data on employee satisfaction and performance, how it recognizes that performance and how it drives even better performance. Although the longitudinal data is not yet in to prove a correlation with retention, says Preston, “I do know that if it’s increasing engagement, it will reduce turnover.”
Deloitte is one of a growing number of companies, including Accenture, Microsoft, Medtronic and Adobe, ditching the traditional “rank and yank” method of talent evaluation, which falls short not only in evaluating talent but also saps morale and leads to frustration and voluntary attrition. With the talent war raging once again, employee retention and turnover are the top focuses for HR professionals, who, in a recent survey by the Society of Human Resource Management, report that these are the biggest challenges their companies face today.
CEOs are increasingly finding that the old methods of engagement don’t work for today’s diverse workforce, whose members seek not only competitive pay, but also flexibility, recognition, mentorship, a sense of purpose and a clear path to their next job. When they don’t get those things, they tend to walk. “When we have someone leave Deloitte, they don’t leave for money,” says Cathy Engelbert, CEO of Deloitte. “They leave because maybe they didn’t feel they were valued.”
Engelbert sees it as her role to set the tone and engage her own team of leaders, which then cascades through the workforce. “As CEO, I see an important role for me in driving culture, especially when managing a diverse and multigenerational workforce.” A look at how top employers are experimenting with new tools for engaging their best employees reveals the following best practices.
1. KILL THE ANNUAL PERFORMANCE REVIEW
The time-honored tradition of getting together with direct reports in a closed-door session to reveal strengths, weaknesses and the year’s compensation numbers is a failure, says Preston. For starters, “you’re often reviewing something that happened nine months ago,” he says. A better bet? Change the focus from remediating past behavior to the future career of that employee and what will energize him or her to want to do better.
Millennials, in particular, don’t want to be told where they stand once a year. “They’ve grown up in a culture of transparency, in a world where you can get online and see what people think about everything—good, bad or indifferent,” says Erika Anderson, founder of coaching firm Proteus International and author of Leading so People Will Follow and Growing Great Employees. They want the same transparency at work, she says.
“The Millennial is used to rich, robust information—all the time,” agrees Daniel Pink, author of Drive: The Surprising Truth About What Motivates Us. “Then, we bring her into a large organization and say, ‘I know you’re used to rich, robust, meaningful feedback every waking hour. But here, we give you feedback once a year in an awkward kabuki-style theater in an office.’ How do you think that will work for her?”
Adobe realized its approach wasn’t working back in 2011 and was the first to implement a completely different system of communication between managers and employees: the CheckIn. The new system required managers to convey what was expected from their employees clearly, to give and receive feedback and to provide opportunities for personal and professional development. The form and the frequency of check-ins were left to the discretion of managers, although conversations are required once per quarter at a minimum, with many doing it monthly, weekly or even daily. Because managers must also be open to feedback from employees, Adobe established organization-wide leadership workshops where managers were trained on how to deliver constructive feedback and receive feedback about their own performance as team leaders.
2. ENGAGE AND EVALUATE AT THE TEAM LEVEL
For those who thought simply increasing the frequency of performance reviews might be the answer, Marcus Buckingham, founder of The Marcus Buckingham Company, a global provider of performance solutions, offers a resounding negative. “That’s actually going to make things worse before they get better. The first problem isn’t frequency; it’s who the heck is this for?”
Buckingham believes engagement should be driven by team leaders, not by central HR or even the C-suite.
What employees want isn’t feedback necessarily, he explains, but coaching and steering in the right direction. “Think about what people yearn for—positive attention that helps me get better. That’s a 180-degree flip from these ranking systems. HR risks becoming increasingly irrelevant by making it all about feedback when, in fact, we’re looking for attention from someone who wants us to grow,” says Buckingham, who worked with Preston as Deloitte was reinventing its performance management system.
Therefore, evaluating employees based on the org-chart team layout won’t accurately depict what is really going on. In fact, the variation is so great from team to team that the “Best Places to Work” surveys that frequently tout winners like Google and Apple often tell an inaccurate story, Buckingham charges. “There is no one culture at Google or at Apple or any company because the experience of what it’s like to work there varies so much by team. And if you’re the CEO, you want to see that variation, the spread, the scatterplot.”
After Adobe eliminated the stack-ranking system it had previously used to reward top performers, the company also changed the system for awarding incentive pay. Instead of HR providing a budget for compensation with parameters based on rankings and ratings, managers are given a budget and left to determine how it’s distributed, putting much more autonomy at the team leader level.
3. DEVELOP YOUR BEST PEOPLE, AND RECOGNIZE THEM
Upward mobility has always been a key draw; but today’s employees want to see specifically where they might track upward from their current roles and what sort of training and development they’ll receive to get there. Too often, the support to progress is lacking, creating a frustrating experience for Millennials, says Dan Schawbel, managing partner of consultancy Millennial Branding and partner and research director at Future Workplace, an executive development firm. “The No. 1 complaint Millennials have is they’re unprepared for their roles as managers. They’re moved into roles quickly, but they’re not prepared and are not as successful, as a result.”
When training and leadership development is not made a priority, emerging leaders are essentially set up to fail. “This is something that drives me crazy,” says Anderson. “If somebody is going to be a lawyer, they go to law school and they have to pass the Bar. But if someone wants to be a manager, they walk into the boss’s office and the boss says, ‘Congratulations! You’re managing a team of three. Let me know if you have any problems.’”
While some people are born leaders, most are made, she says, adding that the leadership qualities that can help an emerging good leader become a great one are teachable. Investing in education—whether one-on-one coaching or leadership training via a business school program or other form—can be a great way to let employees know you are willing to invest in them. According to studies of Millennials by the Intelligence Group, 72% say they would prefer to be their own bosses— but if they had to work for a boss, 79% say they would want that boss to serve more as a coach or mentor.
Anderson also encourages CEOs to practice what they preach with their own direct reports, even the very senior among them. “Too many CEOs think, are you kidding? This guy is the head of sales. If he’s not developed yet, he’s never going to be. But the great CEOs I know are helping their very senior people continue to grow.” Bonuses aside, all employees want to be recognized for a job well done, and recognition not only provides incentive to do the job well, but engenders loyalty on the part of the recipient.
The more tightly the identification is tied to the company’s mission, the better the retention, according to a 2015 survey by the SHRM. HR professionals reported that employee-recognition programs had a positive impact on employee engagement (90 percent values-based vs. 67% nonvalues-based), increased employee happiness (86% vs. 70%) and improved employee relationships (84% vs. 66%), among other findings.
Anderson points out that employee recognition programs can actually be as simple as one-on-one recognition from a leader—or the CEO. “When you’re the CEO, everything you say is enormously magnified, good and bad,” she says. So when he or she takes the time to point out what a team has done well, it registers. “The CEO is the one person who can make everyone at the company feel valued.”
4. HIRE THE RIGHT PEOPLE
As many experts will agree, hires that weren’t good fits for the company culture or for the role account for a good share of retention problems. Bryan Kennedy, CEO of Epsilon/Conversant, reports that being more intentional about college recruiting has led to a 75% retention rate after five years for employees hired out of college. “That’s a very good rate in a hot market, and those are all Millennials,” he says. “Once you find young, talented people with some degree of depth in technology or critical thinking, you can build and grow talent from there.”
Mike Wachholz, president of workforce solutions provider Pontoon, adds that the importance of hiring the right people and successful onboarding applies to contract and temp workers, as well. “From a legal perspective, they’re not employees, but they’re a critical part of your environment.”
5. KNOW WHAT YOU’RE TRYING TO ACCOMPLISH
Before investing in any new systems or technology aimed at better retention, CEOs should first determine the ultimate goals, says Linda Brenner, co-founder and managing partner of Designs on Talent. It may sound harsh, she notes, but not every role is on the same level, as far as contributing to the company’s value. Having a retention strategy that’s too broad or general and that groups people together by, say, title rather than by role, can jeopardize your efforts to hold onto your best people.
“We have to link performance management with how value is created in the business, and value is created in most businesses today through intellectual capital,” says Brenner. That means that, for a pharmaceutical company, while the sales reps and training managers are very important to the business, they’re not on the same level as the people in R&D— even if both are at the vice president level. A greater pool of resources should be channeled toward keeping those employees who are creating the company’s intellectual capital, rather than a random “top 20 percent of the company,” she says.
Preston notes that the investment in Deloitte’s new system has been significant on a relative scale, particularly given the results. He adds that it isn’t just about performance management. “It’s way more than that. It’s a way to be innovative, to drive a culture change around development and engagement and to use predictive data analytics to your advantage. Calling it ‘performance management’ really almost sells it short.”
WHAT EMPLOYEES REALLY WANT
PERKS LIKE on-campus dry-cleaning and subsidized gym memberships are nice; but, if the fundamental drivers of performance are missing, they won’t keep people in their positions. For example, if you don’t pay people enough, it’s over from the start, says Daniel Pink, author of Drive: The Surprising Truth About What Motivates Us. “Pay people enough to take the issue of money off the table.” Once you do that, address these three key motivators for enduring performance:
PURPOSE: Employees need to know why they’re doing something, says Pink. “People who know why they’re doing something will do it better.” He offers an example: “People working at a call center to raise money for a scholarship fund will work harder if they meet a recipient, because they remember why they’re doing it.”
MASTERY: The single best motivator for people is making progress at meaningful work. “The days people make progress, they’re motivated; the days they don’t, they’re not,” says Pink. Progress depends on information and feedback so that individuals can course-correct and make headway.
Erika Anderson says that companies have to create environments where people are encouraged to learn completely new skills and roles, rather than being standing experts in a specific job where no more growth is required. “The core of a good retention strategy is giving people the tools and the permission to be novices over and over. That’s both about risk-taking behavior and about letting people try things they’re not good at. That’s what makes people happy. But if you say to someone, ‘This is your job, just do it and shut up,’ they’ll leave.”
AUTONOMY: “If you want people to be compliant, manage them. But if you want people to be engaged, that doesn’t work,” says Pink. Giving people the ability to come up with ideas on their own, to figure out the best and most efficient way to work on a project and to present that back to the company as the author of that strategy—that’s motivating. “The technology of engagement is self-direction,” says Pink.