Leading Off: What matters most for motivating employees? A leader’s guide

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ESSENTIALS FOR LEADERS AND THOSE THEY LEAD

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Brought to you by Alex Panas, global leader of industries, & Axel Karlsson, global leader of functional practices and growth platforms

Welcome to the latest edition of Leading Off. We hope you find our insights useful. Let us know what you think at [email protected] and [email protected].

—Alex and Axel

Keeping employees motivated is an everlasting challenge for leaders. Today, though, it’s more complex than ever as companies wrestle with rapid technological advancements, shifting workplace requirements, and generational differences in what employees expect from their work experience—and from their bosses. In an age of quiet quitting, how can leaders inspire their people to feel connected to their work and achieve better results? This week, we take a closer look at the approaches to performance management that motivate employees to do their best.

AN IDEA

An image linking to the web page “What employees say matters most to motivate performance” on McKinsey.com.

What matters most to employees

To find out what really encourages employees to perform well in these volatile times, McKinsey’s Asmus Komm, Brooke Weddle, Dana Maor, and their coauthors went straight to the source: their research involved more than 1,000 employees around the world. The survey respondents report that they are most motivated when their companies’ performance management systems are consistent and simple. According to the authors, such systems involve four key pillars: goal setting, performance reviews with skilled managers, ongoing feedback, and rewards. Some companies have moved away from result-based performance management goals and metrics in favor of more holistic approaches—for example, considering how external factors affect performance and how well employees adhere to the company’s cultural norms. But the survey shows that employees appreciate result-based assessments rather than systems without clear and easily understood structures, which respondents view as significantly less motivating and fair.

A BIG NUMBER

4.2×

That’s how much more likely companies are to outperform their peers when they focus on their people’s performance, according to a McKinsey review of industry best practices and research on how companies gain a competitive edge. Companies with effective performance management systems realize an average of 30 percent higher revenue growth and see an attrition rate that’s five percentage points lower than their peers’. According to partner Asmus Komm and his coauthors, companies that focus on their people and organizational health also reap dividends in culture, collaboration, and innovation—as well as sustained competitive performance.

A QUOTE

“At first, many people would think, ‘I’d never want generative AI anywhere near performance reviews.’ But it’s exciting if we think of this as a productivity aid or as something that helps us be even better.”

That’s McKinsey partner Bryan Hancock on generative AI (gen AI) and the future of HR in an episode of the McKinsey Talks Talent podcast. Hancock doesn’t recommend using AI to generate performance reviews, which require human judgment and empathy. But he notes that leaders can use gen AI to help organize written feedback, performance scores, compliance-related measures, and other facets of complex reviews. “It’s not a replacement for going through everything, but that initial synthesis would help me get more quickly to what I really need to probe for that person’s development and growth,” he says.

A SPOTLIGHT INTERVIEW

An image linking to the web page “How to speak confidently when you’re put on the spot” on McKinsey.com.

One way to make performance review season less nerve racking is to commit to giving feedback throughout the year. This practice benefits both the employee and reviewer, says Matt Abrahams, a lecturer at Stanford Graduate School of Business and author of Think Faster, Talk Smarter: How to Speak Successfully When You’re Put on the Spot. “That’s because the recipients see you as someone who cares,” Abrahams says. “You’re taking time to note their strengths when they do something well, as well as when things need to be adjusted or fixed.” Think of it as making deposits in an employee’s “bank account” in the lead-up to their formal review. “If I give you praise throughout the calendar year and then have to give you some pretty direct negative feedback, it’s not so painful when I make a withdrawal, because I’ve already put some of that praise into the bank,” he says.

POWER TO THE MIDDLE

An image linking to the web page “Middle managers are the heart of your company” on McKinsey.com.

Staying in a middle management role doesn’t always mean being stuck. While conventional performance management wisdom says that leaders should reward employee excellence with a promotion to the next level, that’s not always the right move for everyone. McKinsey partners Emily Field and Bryan Hancock and McKinsey alumnus Bill Schaninger say that superstar middle managers should stay where they are: at the heart of their company’s success. Too often, leaders promote these employees into positions where they no longer do what they love (coaching and connecting with people) and where they may have less impact on organizational performance. “We need to view middle managers as being at the center of the action,” the authors say. “Without their ability to connect and integrate people and tasks, an organization can cease to function effectively.” The authors stress that it’s time to reject the notion that anyone who stays in a middle management role for a long time must not be any good and to start thinking of other ways to reward these individuals. Such options can include giving raises, bonuses, and stock awards to the best middle managers and expanding their scope of responsibilities without changing the essentials of their role.

Lead by motivating your employees.

— Edited by Eric Quiñones, senior editor, New York

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