The annual performance review: it’s probably the most dreaded activity in the workplace, one that has long been satirized in television sitcoms such as The Office, in our favorite Dilbert cartoons and in YouTube videos. I wondered, recently, what brought about the rise of the performance review as the integral component of organizational life we all know it to be today?
My initial thought was that someone such as Elton Mayo — the famous psychologist whose groundbreaking organizational research provided data that drove widespread change in management theory in the early 1900s — might have had a hand in introducing performance reviews as a motivational management practice.
Imagine my surprise to learn it was the U.S. government — yes, our government — who got the ball rolling in 1950 by passing The Performance Rating Act, which required annual reviews for federal employees. The law established three rating levels: Outstanding, Satisfactory and Unsatisfactory. Soon after, in 1954, The Incentive Awards Act authorized recognition and cash for outstanding accomplishments, inventions and other special performance by government workers. And, in 1962, The Salary Reform Act introduced the practice known today as “pay for performance”, a compensation philosophy commonly believed to have originated in the H.R. department.
In the 1960s-1980s Peter Drucker’s Management by Objectives (MBO) became popularized as a best practice and performance against objectives became a key element in performance evaluation. Eventually, though, surveys began to surface dissatisfaction among employees and managers with the review process:
- 1997: The Society for Human Resource Management (SHRM) found a mere 5% of companies rated themselves “very satisfied” with the review process
- 2009: Reuters determined 4 out of 5 U.S. employees were dissatisfied with performance reviews
In the past 5+ years, arguments to eliminate the performance review have gained momentum, pushing the subject to the forefront of many of our discussions. UCLA Professor and management guru Sam Culbert was an early champion of change, with other experts such as Dr. Tim Baker more recently entering the fray; their books and articles outline the pitfalls of performance reviews and recommend alternatives to traditional reviews.
Experience and research have shown us that some of the foundational components of the performance review processes we use today are flawed. Following are the top three deficiencies in today’s practices:
- Obtaining performance feedback on an employee from other people including co-workers, peers and managers is generally unreliable. The feedback they provide tells us more about them than about the employee who is the subject. People have different goals, perspectives, agendas, and political alliances, as well as personal needs and biases, that make their feedback subjective and incomplete and, therefore, inaccurate.
- Managers collecting the feedback often have their own opinions about the employee and tend to hear and consider primarily the feedback that agrees with their own, viewing it as corroboration of their perceptions. This is human nature.
- Employees need to receive corrective or improvement-oriented feedback and to be given enough time to make associated changes. Managers need to communicate often enough to be aware of performance problems as well as to provide the feedback and information the employee needs to correct such problems. Timely communication and feedback are areas needing improvement in most organizations and this impacts trust as well as performance.
I, too, am convinced it’s time for a dramatic disruption in the performance review process that’s been entrenched in most organizations for years. The good news is that change is already under way in some well-known, successful corners:
- Zappos has refocused their performance review away from the traditional results-based structure to one that assesses cultural contributions based on the company’s ten core values.
- Adobe has abolished their long-standing annual review process, replacing it with Check-ins including expectation setting, feedback, and a written quarterly recap of employee strengths and opportunities for development.
- Deloitte is eliminating cascading goals, 360s and annual reviews. Their new performance management process is being designed to Recognize, See and Fuel performance. The new process will have three interlocking rituals to support them: the annual compensation decision, the quarterly or per-project performance snapshot, and the weekly check-in. Deloitte is shifting from focusing discussions on the past to driving a continuous focus on the future, through regular evaluations and frequent check-ins.
Now is a good time to ask yourself three critical questions:
- Is your company’s performance review process effectively driving employee engagement and performance?
- Is it designed to avoid pitfalls inherent in traditional performance review processes such as those listed above?
- Does it yield valid performance information and data that can be relied on for succession planning, workforce planning, employee development, and retention initiatives?
Will the same performance processes used by Zappos, Adobe or Deloitte be right for your business? Probably not. Your performance review process needs to be tailored to fit your company’s unique business strategy, desired culture, and organizational needs.
Each of these companies has leaders who dare to make a disruption, to reap the benefits of not only updating, but moving to a new way of managing performance and all of the functions associated with it. Are you ready to lead the way for your organization? What challenges will you need to overcome? Please share your thoughts.
Rosanna Nadeau is the Principal/Consultant with Prism Perspectives Group, LLC. We provide expertise in the following three specialties to improve performance in your organization:
- Manufacturing performance improvement for sites/organizations/companies with 200-2000 employees
- Human Resources Management for small businesses of 15-200 employees
- Training & Development for supervisors, managers, leaders and employees for any size organization
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