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May 2010 Newsletter

Performance Management 102:

Why Do Performance Appraisals At All?

 

Sometimes events converge and compel one rethink long held beliefs.  I had that experience the other day. It was time again for me to write my next monthly Pragmatic Thoughts articles and I was pondering about building onto last’s month’s topic of performance appraisals.  Then last week, while waiting to have some coffee with an esteemed colleague, I read an article in the New York Times about how performance appraisals/ reviews are a major stressor in the workplace and should be eliminated.   A few minutes later when discussing some talent management issues with this retired HR executive, he stated that he tried to get rid of performance reviews and felt they hurt more than they helped. All of this got me thinking about whether the performance appraisal process itself is fundamentally flawed and that all our efforts are trying to repair something that is not worth salvaging.

 

First, let me differentiate performance appraisal from performance management.  For the sake of this article I define performance appraisals/ reviews as those formal events which managers go through to review, evaluate, quantify and discuss past performance with their subordinates, with primary emphasis on the judging and justifying.  Performance management, on the other hand, includes all of this plus the informal, day to day interactions where performance goal setting, standards setting, evaluating, feedback and providing consequences such as merit increases, bonuses, and corrective action plans performance management links to other processes such as succession planning. The argument I put forward is the elimination of the performance appraisal process, but not performance management.

 

Secondly, different organization cultures and current HR practices may be more or less compatible with the approaches I am about to discuss. For example, formal performance appraisals are better suited for organizations that have adopted a competitive individualistic performance management model, while organizations which have a more developmental teambuilding goal performance management system may be better suited eliminating the formal appraisal process.  Similarly, the employee relations climate will also play a role if appraisals can be eliminated. Obviously, if these relations are poor and there is a high probability of employee litigations, attorneys would recommend the need for rigorous and standardized evaluation methods.

 

The Case Against Performance Appraisals

 

How much of whom you are today is a function of performance appraisals?  Most of us would respond “not much”.  If performance appraisals have little positive impact on our lives, then why do we continue to do them? Maybe it is because it’s the best idea we have come up with to date. Most performance reviews are at best, break-even events.  A good performance review is one where there are no surprises. Employees receive their expected and high than expected ratings. Thus, they will continue to perform as they did in the past.  Oftentimes performance reviews provide employees with evaluations that are lower than expected. Reactions to such reviews will range from anger, fear, defensiveness, and lowered motivation to accepting and willingness to change.  While I have not found any research to support this, I think that these dysfunctional reactions are more prevalent than the positive one of motivating employees and improving their long term performance. Although future behavior/performance may change, it may undermine other important factors like employee commitment, engagement and loyalty.

 

 

Most managers feel uncomfortable evaluating and conducting performance reviews. I have never met a manager who looks forward to completing performance evaluation forms and sitting down with her subordinates, once, twice or even four times a year.  Even after years of conducting these reviews, there is an uneasy feeling of the unexpected (e.g., what if the employee disagrees with the evaluation?).  Completing the forms, especially providing narrative portions is an onerous task. Managers find it hard to generate meaningful narratives to justify their performance ratings. Two of the top 25 books on Amazon’s Human Resources Management section provide performance review phrases managers can use. Obviously, managers find these books of highly useful and fill a need.

 

Performance appraisals are inherently inaccurate. Despite of all the science and best practices of improving the accuracy of performance ratings, is it really worth all that time, effort and money to build forms and train managers to produce more accurate ratings?  If training does improve rating accuracy (and I believe it does have some impact), do we think that having managers rate subordinates more often will make their ratings any more accurate? Aren’t we just compounding the problem by conducting performance appraisals sessions more than once a year?

 

You can’t separate the formal performance review from compensation decisions. Even if performance reviews are conducted without discussing how they impact merit increases and bonuses, when the time comes for communicating that decision, employees they will link it back to their last performance review, whether it was last week or 6 months ago.  The reality is that most performance evaluations use ratings (comparing employee against some performance standards), but most compensation decisions are made using a ranking (comparing employees against one another) system. There is only so much money allocated for salary increases and bonuses and it becomes a zero-sum game which managers have to confront. It’s nearly impossible to fit this square peg of performance reviews into the round hole of compensation decisions. 

 

Performance appraisals have little to do with promotion and succession planning decisions.  It is rare that the official performance appraisal form is used to make such decisions as who gets placed on the fast track, placed in the leadership succession plan, or provided high potential developmental experiences. These decisions are usually made independent of the formal rating.  It takes into account the a multitude of other factors such as having the right skill sets, consensus of the leadership chain, and a host of intangibles which result in the generalized intuitive feeling that a certain individual is the right choice.

 

The changing nature of work makes it more difficult for managers to accurately rate performance. As more and more employees, especially professional individual contributors, work remotely from their supervisors, and that supervisors themselves have greater spans of control, being able to accurately rate employees can become either a burdensome process or one that is highly inaccurate.  To make it work, a good deal of documentation is required.  Oftentimes such processes collapse under their own weight and are discarded or ignored by managers. Then one is left with forcing managers to rate employees on little and biased/ selective information.

 

Changing The Game

 

In the final analysis do we toss aside performance appraisals altogether and just do nothing?  Absolutely not; we just need to find a different way of accomplishing our performance management goals. Here are some suggestions on how performance management can be maintained without formal performance appraisals.

 

Make performance feedback a continuous, fluid, and natural process. In the course of managing subordinates one should be providing evaluative and constructive feedback at every opportunity. This is not a formal sit down appraisal session, but can range from a casual conversation in the hallway, over the cubicle partition, and last less than minute.  Try to use the same words to describe how the subordinate is performing. For example, “good” “great” “solid”, “exceptional”, “sub-par”, “disappointing” and “unacceptable”.  Using the same set of adjectives will convey to subordinates your verbal rating scale.  One can even use numbers—“You’re handing of that customer’s problem was a 5.” Whatever way performance evaluation is conveyed, the point is to do casually and frequently so that the subordinates know where their performance stands and there is no need for a formal summative appraisal meeting at regular intervals. 

 

Build into the job meaningful performance metrics. Many jobs, especially those which have a repetitive cycle to them, have performance metrics generated though information technology. This can be such information as average time to handle customer calls, average sale per customer, time to completion of a task, percent of time spent performing billable hour consulting, etc. Implementing information technology systems that can provide employees with their own summary data in comparison to all other (aggregated) coworkers allows them to immediately see how they are performing.  Managers can place into these business intelligent systems various performance standard levels, so that subordinate know when reading the report if they fall into the high, medium or low ranges of acceptable performance. Again, this can be done as frequently as hourly, depending on the speed and repetitively of the job tasks. Finally, we can design jobs in such a way that employees know if they did a good or poor job. The more feedback people receive from the job itself, the less their supervisor needs to tell them.

 

Leverage performance management technology to document performance.  There are dozens of web based application software programs that enable managers to keep track of all their subordinates’ performance.  On the simplistic side, managers can keep electronic diaries or critical incident files documenting those brief informal discussions with subordinates.  A sentence or two usually can capture the essence of the interaction. This could be as simple as using the journaling function in the Microsoft Office Suite or create a spread sheet for each subordinate and have one column for the date and another column for performance notes. Such documentation is oftentimes critical in the event that serious personnel actions such as demotions or terminations occur. This documentation becomes the company’s defense in event that the employee chooses to litigate personnel action.  

 

Keep formal performance evaluations confidential. Performance ratings of some sort are indeed needed to make personnel decisions. They are needed to decide on who gets promoted, receives a choice assignment, placed on the high potential list and leadership succession plan, or receives a merit increase or bonus.  This may be as simple as labeling people as A, B and C players, or providing a more finite numerical rating on a 5, 7 or 9 point scale. But these ratings do not need to be shared with employees.  This is a case where transparency is not a benefit. Most of the time these ratings are not just based on the direct supervisors input, but the consensus of the supervisor’s peers and their common boss. 

 

A Final Word

 

As leaders, managers and human resources professionals, we need to create work settings that enable employees to reach their full potential and capabilities.  Most performance appraisal processes are designed with the intent to do this, but fall far short of this lofty and virtuous goal. Maybe it is time for us to rethink the entire paradigm of the formal performance appraisal meeting and focus more on strengthening what works in the performance management process.

 

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