By Ray Williams
October 8, 2020
Performance measurement systems have proliferated in the past 20 years, with executives in both the private and public sectors relying on performance metrics for promotion, compensation, strategic planning, and decision-making to drive bottom line results.
Managers are still required, in most organizations, to sit down once a year with each of their team members and have this weird conversation: the annual performance review. It tends to feel forced and awkward, and it usually doesn’t do a lot to help employees get better at their jobs.
For most organizations, the performance review is simply assumed to be “the right thing to do.” That’s how we’re supposed to determine pay and establish accountability, right? But in recent years, many business leaders have started asking themselves, “Why do we do this in the first place? “Are our performance reviews really helping us get the most out of our people and engage them?
In July 2015, Accenture—one of the largest consultancies in the world—announced it was shedding annual performance reviews in favor of a system in which employees receive timely feedback from their managers immediately following assignments.
Other prominent corporations have decided to ditch the forced rankings and voluminous paperwork that have come to be associated with performance reviews, and which some studies indicate don’t foster productivity or improvement and actually incite antagonism between managers and employees.
Deloitte has announced that it’s experimenting with a new program that eschews rankings, evaluates workers incrementally throughout the year and relies on only four simple questions, two of which require mere yes or no answers. Microsoft chucked its stacked rankings almost two years ago, as have Adobe, Gap and Medtronic. In the 18 months following Adobe’s March 2012 announcement that it would replace stacked rankings, shares in the software company rose 68 percent, according to a Forbes article.
An increasing number of Fortune 500 companies have scrapped rankings, according to CEB, a management research firm formerly known as the Corporate Executive Board. Cliff Stevenson, a senior research analyst for the Institute for Corporate Productivity.
In research conducted by Robert Sutton is Professor of Management Science & Engineering at Stanford University and Ben Wigert is Director of Research and Strategy, Workplace Management, at Gallup and author of Re-Engineering Performance Management, they argue “Fans of the annual appraisal say it’s a tool for year-on-year performance comparisons that feed into business decisions. And of course, all that data fits nicely into a spreadsheet!
The problem is, however nice the data looks, it is often wrong! Research shows annual appraisals fail to accurately measure performance or improve results. For example, at least 30% of performance reviews lead to decreased employee performance!” They contend the annual performance review has outlived its usefulness because:
- It provides limited annual feedback. Limiting important feedback to the annual appraisal means it is often irrelevant and meaningless. Employees don’t want to know what you thought of their work 8 months ago, they want to know how they are performing right now! In fact, research shows millennials prefer weekly, if not daily, recognition for their work.
- It gives generic feedback including rating systems.Many companies use a 1-5 scoring system to judge each employee’s annual performance. Does this really reflect the true picture of employee performance? Employees’ strengths, achievements and sudden expressions of pure brilliance can’t be reduced to the likes of a Rotten Tomatoes review. Research shows when we feel our status is threatened, our creativity and ability to assess information drops.
- Giving feedback is difficult. Whether it’s good or bad news, giving feedback is difficult! 67% of leaders feel uncomfortable communicating with staff. A further one in five managers admit to finding it difficult to praise others. The formal performance review ramps up the pressure! Suddenly, you’re sat across from your direct report and they want to know exactly what you think of them!
- They often include meaningless goals. Can you remember your New Year’s resolutions? The problem with setting goals once a year is our good intentions get forgotten or become meaningless. Goals need to adapt to remain relevant and useful.
- They are poorly communicated.Weddings, networking, dinner parties…We all know the power of formal occasions to render people speechless or dishing out monosyllabic, standard answers. This is the last thing you want when you are trying to have open, honest conversations with your employees. Yet, in the formality of a performance review, staff may tell managers what they think they want to hear. Worse still you may get a lot of “don’t knows” for answers!
- A lack of purpose and clarity. A key reason why annual appraisals fail is because people don’t understand the point of them. The Institute for Employment Studies says companies often under-communicate the aims of performance reviews and instead focus on the administrative procedure. A lack of communication means employees don’t understand how the performance review benefits them or the wider company.
What the Research Says
A 1965 article, “Split Roles in Performance Appraisal,” which was published in the Harvard Business Reviewby three highly respected psychologists who were employed by General Electric: Herb Meyer, Emanuel Kay, and John R.P. French. Not long before, the legendary Douglas McGregor (of theory X & Y fame) had written another HBR article, “An Uneasy Look at Performance Appraisal.” Because of the interest this had stirred, the GE team decided to conduct research within GE on this topic. Their findings were:
- Criticism by a manager has a negative effect on the recipient. Although employees say they want more information about their performance, negative feedback does damage. No one wants their year’s performance converted into a single Arabic digit.
- Praise does little to change performance. (Later research suggests praise does improve the manager-subordinate relationship.)
- Criticism generates defensiveness on the part of the subordinate, which in turn leads to poorer performance.
- Coaching between a manager and a subordinate should occur day-to-day, and not be reserved for a once-a-year event.
- Goal setting with clear targets and deadlines improves performance.
The annual performance review, have been a failure in most organizations, according to research conducted by the Maastricht School of Management, Watson Wyatt and The Society for Human Resource Management.
According to a Gallup study only 14% of employees strongly agree their performance reviews inspire them to improve.
A People IQ 2005 survey, in which 87 percent of both managers and employees believed annual reviews were ineffective, and not useful.
In an article published in The Psychological Bulletin, psychologists A. Kluger and A. Denisi report completion of a meta-analysis of 607 studies of performance evaluations and concluded that at least 30% of the performance reviews ended up in decreased employee performance.
Tom Coens and Mary Jenkins argue in their book, Abolishing Performance Appraisals: Why They Backfire and What To Do Instead,cite studies that clearly show performance appraisals do not work and suggest a replacement.
Garold Markle, in his book, Catalytic Coaching: The End of The Performance Reviewargues that performance reviews have reached the end of their utility and should be replaced with a manager-employee coaching system.
Aubrey Daniels, author of Oops! 13 Management Practices That Waste Time and Money,argues that performance appraisals are actually counter-productive. Daniels cites a study by the Society for Human Resource Management that found 90% of performance appraisals are painful and don’t work; and they produce an extremely low percentage of top performers.
Charles Jacobs, author of Management Rewired: Why Feedback Doesn’t Work and Other Supervisory Lessons from Brain Science,says the brain is wired to resist what is commonly termed constructive feedback, but is usually negative criticism. Brain science has shown when people encounter information that is in conflict with their self-image, they tend to change the information, rather than changing themselves. So when managers give critical performance appraisal feedback to employees, their brains’ defense mechanisms are activated, and the motivation to change is improbable.
Samuel Culbert author of Get Rid of the Performance Review! How Companies Can Stop Intimidating, Start Managing–and Focus on What Really Matters, writes in the Wall Street Journal“It’s time to finally put the performance review out of its misery.… This corporate sham is one of the most insidious, most damaging and yet most ubiquitous of corporate activities. [Performance reviews] instill feelings of being dominated. They send employees the message that the boss’s opinion of their performance is the key ingredient of pay, assignment, and career progress.”
In her summary of some fascinating research carried out by scientists at Kansas State University, Eastern Kentucky University, and Texas A&M University, the Washington Post‘s Jenna McGregor explains how, in the context of a performance review, ‘constructive criticism’ doesn’t really build anyone up. Instead, it deflates even those employees who might be perceived as ready to receive it: “Those who like to learn—presumably some of the best employees—were significantly bothered by the negative feedback they received.”It’s not about having thick or thin skin. Even the elements of a performance review that a manager doesn’t intend to be critical can often be perceived in a negative light. McGregor goes on to say that “managers need to be especially careful that what’s intended as praise doesn’t get misconstrued as criticism. This particularly applies to performance ratings, which HR professionals often plot along a bell curve and use to classify employees’ performance.”
A TriNet study of over 1,000 young professionals exiting their annual performance reviews found that half of the respondents felt they couldn’t do anything right.
The Idiosyncratic Rater Effect, published by The Marcus Buckingham Company, reveals that “61% of a performance rating is a reflection of the rater, not the ratee.” Different raters will consistently give different ratings to the same person, which can be extraordinarily problematic when the results of these evaluations are tied to employee compensation and career advancement.
In a case study developed for a course on scaling organizational change, the Stanford Graduate School of Business detailed the history of Adobe’s employee evaluation practices and its successful restructuring. There were several key findings in the case, one of which was the counter-effective nature of stack ranking: “With stack ranking, Adobe employees felt compelled to strategically ensure they ranked among the top 15%… Employees attempted to maximize individual success, often at the expense of the team… stack ranking threatened effective teamwork and collaboration because it pitted employees against one another.”Because only a certain percentage of employees can be listed as top performers, many employee evaluation practices with a stacked ranking system risk harming the health of the organizational atmosphere.
Another example of the stack ranking system occurred at Microsoft.Every current and former Microsoft employee by a Vanity Fair investigative reporter interviewed cited stack ranking as the most destructive process inside of Microsoft, something that drove out untold numbers of employees.The system — also referred to as “the performance model,” “the bell curve,” or just “the employee review” — has, with certain variations over the years, worked like this: every unit was forced to declare a certain percentage of employees as top performers, then good performers, then average, then below average, then poor.The expected negative effects unfolded and amplified over the years: By 2002, the by-product of bureaucracy — brutal corporate politics — had reared its head at Microsoft. And, current and former executives said, each year the intensity and destructiveness of the game playing grew worse as employees struggled to beat out their co-workers for promotions, bonuses, or just survival. Microsoft’s managers, intentionally or not, pumped up the volume on the viciousness. What emerged — when combined with the bitterness about financial disparities among employees, the slow pace of development, and the power of the Windows and Office divisions to kill innovation — was a toxic stew of internal antagonism and warfare.
The most comprehensive research on what ratings actually measure was conducted by Michael Mount, Steven Scullen, and Maynard Goff and published in the Journal of Applied Psychology. Their study — in which 4,492 managers were rated on certain performance dimensions by two bosses, two peers, and two subordinates — revealed that 62% of the variance in the ratings could be accounted for by individual raters’ peculiarities of perception.Actual performance accounted for only 21% of the variance. This led the researchers to conclude: “Although it is implicitly assumed that the ratings measure the performance of the ratee, most of what is being measured by the ratings is the unique rating tendencies of the rater. Thus ratings reveal more about the rater than they do about the ratee.”
Corporate Executive Board (CEB) research has found that more than 9 in 10 managers are dissatisfied with how their companies conduct annual performance reviews, and almost 9 in 10 HR leaders say the process doesn’t yield accurate information. In addition, “they’re incredibly time-consuming,” said Rose Mueller-Hanson, HR practice leader at the CEB, who noted that in a recent CEB survey, managers said they spend an average of 210 hours a year in performance management activities. Managers said their employees, in turn, each spend 40 hours a year. Seventy-seven percent of HR executives, Mueller-Hanson said, believe performance reviews don’t accurately reflect employee contributions. “It turns out this mistrust is well-founded,” she added. “Our research shows that individual performance ratings have absolutely zero correlation with actual business results. Many of our members and clients have started to really question the return they are getting from all this work.” Furthermore, performance reviews “set up an uncomfortable dynamic between managers and employees in which one person is judge and jury for the other,” she said. “Recent neuroscience research shows that this dynamic can put employees on the defensive and actually result in worse performance—even for high-performers.”
Pietro Micheli, professor of organizational performance at Britain’s Warwick Business School argues that the myths and mistakes “often encourage exactly the behaviors their organizations neither need or want.” Here’s a brief summary of the myths:
- Myth 1:Numbers are objective. Performance data is in fact “ambiguous and open to interpretation and it’s use and impact on performance depends on commonality of interpretations.”
- Myth 2:Numbers are accurate and precise. Organizations invest huge amounts of money to gather data to manage performance, but ask themselves the wrong question. Instead of asking whether the data is of good quality, the question should be “are we getting the data that is good enough for our purposes?” or in other words, are the data connected to strategic objectives?
- Myth 3:Data adds value. Performance data is often never used in organizations, or in other words, the data is not used to make new decisions only reinforce.
- Myth 4: Performance data is alignement with organizational goals. Recent studies show, while organizations are making considerable efforts to align employee behaviours and actions, Micheli contends, their results are often dismal because they are initiated top-down in a rigid fashion with no discretion left to employees.
- Myth 5:Performance data motivates employees for improved performance. Performance targets, indicators and rewards are often used to focus attention, and engage and motivate staff. Yet, despite good intentions, organizations often generate what he calls a vicious cycle of performance management: “The usual reaction is to quickly introduce a series of measures to gather ‘objective’ data and to attach rewards to specific targets to incentivize employees. Unfortunately, as a result of this people get measure fixated.” They do a good job hitting the target but lose touch with the underlying objective or goal. Then over time a culture of performance measurement emerges which employees blindly follow. They work on what is measured, blind to the organization’s overall success.
- Myth 6: Performance data facilitates change. Many organizations use performance targets and indicators to kick-start the implementation of change, but measurement systems “have often acted as obstacles rather than enablers,” Micheli argues, adding that a rigid system regulated by managers often dampens employee initiative, rather than adopting an empowering and flexible approach.
- Myth 7:Performance data enables organizational improvement. While the ultimate goal of using a performance measurement system is to improve organizational performance, Micheli’s research shows that the impact on performance is often non-existent, when they are not used to promote employee learning and creative collaboration “Rather than spending months designing the perfect system that can produce objective, accurate and precise data, efforts should be put in communicating to all employees the reasons and benefits of such systems, and connecting strategy, measurement and decision-making,” Micheli concludes.
What Can Replace Traditional Performance Reviews?
- Institute a continuous performance management (CPM)(or agile performance management as it’s sometimes known). This is not only because of the research showing that informal one-to-ones and real-time feedback are much more powerful drivers of performance than annual appraisals. Unlike a performance management system that has a specific start and end date, continuous performance management is an ongoing cycle of performance and development discussions and feedback.
- Eliminate all checkboxes and numeric scales. Performance is more complex than that,” he said. “A good system needs to highlight significant incidents, provide clear examples of positive and negative behaviors, and include specifics.
- Provide feedback on things the employee can change. Avoid talking about personality traits or characteristics they can’t change.
- When giving negative feedback, focus on specific incidents and examples. Talk about your impressions and feelings, and never make judgments about what’s going on in the employee’s head, for instance, by saying: “You clearly don’t care about this project.”
- Don’t set up your team members in competition with one another. As soon as you do that, performance reviews are just an excuse to promote yourself and trash your teammates.
- Focus on strengths more than weaknesses. Focusing on weakness sends the message ‘What’s wrong with you?’ Focusing on strength gets people excited and motivated to grow. A focus on weakness really says that your strengths don’t matter.
- Don’t forget about intangible behaviors. It’s hard to rate behaviors like helping a team member or boosting morale. Reviews need to be more holistic and find ways to take into account nonobvious team-building behaviors. The person who helps keep everyone else’s mood up when things are tough is appreciated, but not really noticed—until they’re gone.
- Use Near-term SMART objectives. Rather than setting a large number of 12-month objectives, employees agree to a small number of near-term SMART goals they can work on over the next quarter. A focus on near-term objectives helps to improve employee motivation and builds momentum, and of course near-term objectives are less likely to become irrelevant over time. Regular reviewing of objectives also makes sense from a business perspective. A study found that 50% of companies who review their goals each month are in the top quartile of financial performance, whereas only 24% of companies where goals are reviewed once a year are in that top bracket.
- Institute Regular check-in discussions. Regular‘check-in’s are the core of the continuous performance management framework. The focus of a check-in is conversation, rather than the mere completion of forms. Talk is future-focused and action-oriented, rather than looking to past performance. When performance discussions happen with greater frequency, it allows employees and managers to step back from what is urgent to discuss what is important. During this time, managers and employees should discuss items such as progress against objectives, forthcoming priorities, strengths and achievements, personal development and career goals, values and behaviors, issues or concerns, and action to be taken before the next check-in.
- Provide real-time feedback. Having regular feedback can dramatically improve employee performance. Employees aren’t getting the amount of feedback they need, particularly millennials. Frequent feedback is genuinely possible with continuous performance management and made simpler with the advancement of performance review software.
- A good performance management system should focus on learning and development. What I advise managers is that they conduct regular conversations with their direct reports that are based on answering the following questions:
- What results have you achieved since we last met?
- What is your understanding of what you need to accomplish in the next few weeks?
- What help do you need from me to remove any roadblocks?
After discussing the “what” about the work being performed, the manager then shifts to talking about the “how”:
- Continue to (insert positive behavior you see the employee using)
- Start to (insert behavior you are not seeing but should)
- Stop doing (insert behavior that is not helping or getting in the way)
Managers need to hold these conversations more frequently with new staff or those working on stretch or learning assignments and less frequently for experienced staff. At a minimum, these conversations should be monthly. The schedule should be flexible enough that any changes that will negatively affect success can be addressed in a timely manner. And that, for heaven’s sake, is much more frequent than once a year.
- The 360 review. An employee review can become much more effective and useful when it’s no longer one-sided. The 360 review is becoming more and more common across modern businesses, especially as the competition heats up for top talent and organizational performance.
- Peer recognition. Although it isn’t exactly a formal review process, peer recognition is a great way for employees to understand which of their contributions impact the organization most positively while showing appreciation. Because it’s often given on a regular cadence, peer recognition can also help avoid the ‘blindsiding’ effect some employee evaluations can have. If you’re using a system like Bonusly to track and catalog these interactions, it can be an extraordinarily useful record to look back on during more comprehensive long-term reviews.
There are better ways for leaders to motivate employees, and monitor their performance. The traditional annual performance review is not one of them, and its time has past.
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