Utilizing appropriate metrics can facilitate the alignment of goals and incentivize a greater number of companies to adopt flexible work arrangements.

While the era of exclusively remote work may be coming to an end, there is a growing demand among employees for flexible work options. However, as the global health emergency caused by Covid-19 subsides, more companies may insist on a full return to the office, leading to a potential conflict.

Some companies, such as Google, Meta, and EY, have chosen to continue offering teleworking opportunities to some extent. On the other hand, following the example set by Twitter’s CEO Elon Musk, other organizations have mandated that employees return to the office on a full-time basis. The drawbacks of flexible work arrangements often cited include challenges with onboarding, difficulties in coordinating asynchronous work, a potential decline in team cohesion, culture, and collaboration, as well as the risk of decreased employee motivation.

Inherent tensions and misalignments between employer and employee goals have always existed, and flexi-work has only amplified them. Managers may prefer in-person work environments to maintain control and facilitate coordination, while employees typically prioritize convenience, efficiency, and meaningful collaboration. Organizations value performance, culture, and talent development.

Surprisingly, a possible solution lies in modifying the performance appraisal system. By doing so, priorities can be aligned, common ground can be established, and an organizational culture can be fostered where flexible work arrangements benefit both individuals and businesses, enabling them to thrive.

Managing the tensions

For a long time, performance appraisals have been crucial for evaluating business performance and managing talent. These appraisals not only align individual and organizational objectives but also facilitate collective progress during times of change.

Traditional performance measurements have typically focused on tangible and easily quantifiable metrics, such as closing deals, achieving sales targets, and acquiring new users. However, with the rise of digital transformation, sustainability initiatives, and increased social consciousness, companies are now urged to consider factors beyond financial outcomes. In this broader context, the transition to flexible work presents an excellent opportunity for organizations to incorporate additional assessments related to collaboration, engagement, and contributions to the company’s culture into their performance appraisals.

Without appropriate metrics in place, discrepancies are likely to emerge. For example, according to the Microsoft New Future of Work Report 2022, employees and managers often have different interpretations of productivity. The Microsoft 2022 Work Trend Index revealed that while 80 percent of employees reported increased short-term productivity since switching to remote work, 54 percent of business leaders expressed concerns about the negative impacts.

A more effective performance appraisal system could be a valuable tool for aligning these diverse perspectives and complementing flexible work policies, while enhancing the way organizations evaluate their employees. Additionally, it can also fulfill the often overlooked role of encouraging desirable behaviors and assisting companies in achieving greater success.

Moving to an outcome-driven system

Managers who are concerned about asynchronous work often advocate for a return to the office. However, this can give the wrong impression to their teams that they prioritize presenteeism and the superficial aspects of work. Merely being physically present in the office doesn’t necessarily mean that employees are being productive. Some individuals may appear to be hard at work while sitting next to the manager’s office, but they may actually be preoccupied with activities like updating their resumes or engaging on LinkedIn.

To address this issue, implementing an outcome-based appraisal system, rather than one focused on productivity key performance indicators (KPIs) like the number of hours worked or time spent on customer calls, can be beneficial in a flexible work environment. Such a system can shift the conversation towards collective problem-solving and foster trust between managers and their team members.

The best organizations will embrace KPIs that measure outcomes the team needs to achieve, such as customer satisfaction and retention, operational improvements, and user acquisition costs. This approach helps employees understand the broader objectives of the organization, define their roles accordingly, and empower them to determine how best to utilize their time to achieve those goals. By encouraging behaviors that prioritize long-term solutions, outcome-driven appraisals can effectively ensure the continued success of the company, surpassing the effectiveness of conventional models.

Investing in employees

To retain talented employees in a highly competitive environment, companies need to invest in their employees’ development and ensure that performance appraisals motivate workers to improve their skills and foster professional growth. However, hybrid work arrangements present challenges by creating a sense of distance between employees and their managers.

To address this, companies must adopt more sophisticated appraisal policies that effectively engage workers. One approach is to prioritize individual growth alongside performance and efficacy goals. Extrinsic factors like bonuses and salary increases can enhance productivity and quality for manual laborers, intrinsic motivations are generally more effective for intellectually challenging work that requires creative problem-solving skills.

An effective appraisal process should invest in employees’ professional development, tap into their intrinsic motivations, and align them with rewards, recognition, and enticing new opportunities. For example, individuals who excel in their specialized roles might prefer recognition through a company award from the CEO rather than a promotion to a managerial position. Experienced supervisors might find more fulfillment in mentoring younger colleagues rather than taking on additional projects to oversee.

Furthermore, companies can modify the timing of their appraisal process. Instead of conducting one or two significant annual reviews, managers can initiate more frequent and smaller check-ins with team members. For instance, Google encourages supervisors to have periodic conversations with employees about their career aspirations, areas for development, and potential opportunities.

As face-to-face interactions between managers and employees decrease due to flexible work arrangements, regular check-ins can facilitate ongoing engagement and connection despite the physical distance. Effective managers focus on providing immediate and actionable feedback after significant events to help employees improve. This approach contrasts with the traditional “record-keeping” approach that merely documents achievements and mistakes without offering constructive input.

Fostering team culture and camaraderie

To promote team culture in a remote work environment, it is important for new performance appraisal systems to give equal consideration to an individual’s contributions to their team and organizational culture, in addition to the financial performance of the company. This approach can enhance communication, coordination, and prevent the formation of isolated groups, which can undermine a sense of belonging.

While workers generally do not oppose going to the office, the costs of commuting and time wasted in numerous in-person meetings need to be reevaluated. The in-office experience should be seen as valuable time for building team culture and strengthening social connections with colleagues. To achieve this, performance appraisals could assess a person’s impact on others’ learning and development, team morale, and psychological well-being, which are often best accomplished through meaningful face-to-face interactions.

Leading consulting firms like BCG, Bain, and McKinsey, as well as Microsoft, include team satisfaction and client net promoter scores in their performance appraisals, giving these factors equal importance to project delivery and financial performance. They also gather feedback from peers and internal stakeholders regarding individuals’ contributions to the team, culture, and the development of coworkers to assess collaboration’s impact. These measures support community building and enable individuals to leverage their unique strengths, while ensuring that time spent in the office is purposeful and meaningful.

Due to reduced face-to-face interaction between managers and employees, performance reviews could incorporate feedback from an employee’s team members in addition to manager evaluations. This provides a more comprehensive and accurate understanding of how workers are performing and the impact they have on a broader range of team members, which may not be immediately visible to managers.

Schneider Electric, a multinational company, implemented 360-degree feedback for all senior managers, leading to 85 percent of employees reporting a more positive working experience and improved employee engagement. The results of these assessments are analyzed and shared annually to promote effective leadership and cultural development throughout the company. This approach gives employees a sense of involvement and investment in the company, even when working asynchronously.

In conclusion, an ideal performance appraisal system for a flexible work environment should consider a wide range of factors beyond performance and productivity alone. It should prioritize the well-being and growth of individuals, foster trust and camaraderie within and across teams, establish psychological safety, and encourage a culture of innovation.

Simply enforcing policies to bring workers back to the office may evoke negative emotions. Implementing an outcome-driven performance review system can guide companies toward an effective path forward in the future of flexible work.

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