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Employers are modifying, not abolishing them
Feb 16th 2016
IN RECENT months the business press has reverberated with cheers for the end of
performance reviews. Performance reviews are getting sacked, crows the BBC.
They will soon be over for all of us , rejoices the Financial Times. Such
celebration is hardly surprising. Kevin Murphy, a performance-review guru at
Colorado State University, sums up the general feeling about them: an
expensive and complex way of making people unhappy . The problem is, they are
not in fact being scrapped.
A survey in 2013 by Mercer, a consulting firm, of 1,000 employers in more than
50 countries reported that 94% of them undertook formal reviews of workers
performance each year and 95% set individual goals for employees; 89%
calculated an overall score for each worker and linked pay to these ratings. It
is true that a number of big companies have announced that they are abandoning
annual performance reviews; this month IBM did so, joining Accenture, Adobe,
Deloitte, GE, Microsoft and Netflix. In reality, though, they are no more
getting rid of performance reviews than a person who shifts from drinking
whisky to wine is becoming teetotal. Employee reviews are being modified, not
abolished, and not necessarily for the better.
Four changes are proving particularly popular. First, companies are getting rid
of ranking and yanking , in which those with the lowest scores each year are
sacked. GE, which practised this system with particular enthusiasm under its
previous boss, Jack Welch, has now dropped it. Second, annual reviews are being
replaced with more frequent ones quarterly, or even weekly. Third, pay reviews
and performance reviews are being separated. And fourth, some performance
reviews are turning into performance previews , focusing more on discovering
and developing employees potential than on rating their past work.
Is this new system of employee reviews any better than the old? There are good
arguments for getting rid of ranking and yanking: the ritualistic decimation of
the workforce on the basis of a single number routinely paralysed businesses in
the run-up to each year s reviews, killing creativity and setting workers
against each other. Thereafter the picture is murkier.
Some of the arguments being advanced for the new-style reviews are hoopla.
Deloitte says its new system is about speed, agility, one-size-fits-one and
constant learning . The consulting firm s employees sit down once a week with
their team leaders . But good managers should give their charges constant
feedback anyway. Adding another regular meeting to everyone s calendar sounds
like a formula for time-wasting. One-size-fits-one assessment is meaningless:
a vital part of assessing people is measuring them against their peers
particularly when you have to think about who to promote or how to divvy out
bonuses. It sounds nice to focus on people s potential rather than their past
performance. But how do you assess the former without considering the latter?
And if decisions about pay are not based on performance, what will they be
based on?
Some of the arguments are not just hoopla, but dangerous hoopla. Social
scientists have repeatedly demonstrated that performance reviews are distorted
by two things: office politics and grade inflation. Managers are susceptible to
lobbying. They also have an incentive to put a positive spin on things, often
against their own better judgment, because in assessing their subordinates
performance they are, to a large extent, evaluating their own ability to
manage. Deliver a series of damning verdicts on your team and you inevitably
raise a red flag about your own leadership. But the more subjective the
reviewing process becomes, the more powerful these distortions are likely to
be: instant feedback sessions can easily become orgies of mutual praise that
do not teach anybody anything.
For purists, such as Samuel Culbert of UCLA s Anderson School of Management,
this is proof that performance reviews are unsalvageable: better to get rid of
them entirely than to replace one imperfect system with another. In fact there
are good reasons why almost all organisations this side of Utopia use employee
reviews of one type or another.
Insurance against lawsuits
Companies are always having to make difficult decisions, whether allocating
limited resources (such as promotions and bonuses) or sacking people if they
hold the organisation back or if the market turns down. It is preferable to
make such decisions on the back of robust criteria rather than on the basis of
managerial whim. Increasingly, firms also have to defend those decisions in the
courts against people who feel hard done by. Firms that embrace more
touchy-feely assessment systems, let alone get rid of them entirely, may be
setting themselves up for legal nightmares.
Annual performance reviews can certainly be improved. Companies need to put
more effort into guarding the guards training them in how to conduct reviews
and holding them accountable if they are overgenerous or otherwise sloppy.
Google wisely encourages its managers to review each other s assessments.
Bosses also need to be more rigorous about acting on what they discover: there
is no point in amassing information about weak performers if you only act on it
in a crisis.
However, provided they are carried out consistently, rationally and fairly, and
supplemented with more frequent feedback, annual performance reviews have many
virtues. They provide a way of measuring an employee s development over time
(it is odd that some of those who criticise annual feedback for being too slow
also criticise companies for being too short-term). They also provide a way of
measuring all a company s employees against each other rather than just their
immediate colleagues. Bill Clinton once said that the best approach to
affirmative action was mend it, don t end it . The same is true of annual
performance reviews.
The problem is that it is actually very very difficult to measure performance.
Once people face the facts about this, the idea of a performance review becomes
shakey at best.
Also, it is critical to consider how the performance process benefits the
employee and increases engagement/performance, not just its benefits for the
organisation.
It's too easy to point out what's wrong with somebody's performance, much
harder to make it better.