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
Leverage
performance management
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.