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Time to Scrap Performance Appraisals
Times have changed. More and more companies have decided to radically change (read “scrap” or “re-engineer”) their performance appraisal process.
Last week at our research conference we spoke with Adobe, Juniper, Kelly Services, and a variety of other companies who have decided to do away with traditional performance ratings and dramatically change the annual appraisal process.
Our research shows that this is a strong and positive trend.
Why the process must change.
Why do companies have annual reviews in the first place? They are an artifact from traditional top-down organizations where we had to “weed out” the bottom performers every year. By forcing managers to rate people once per year we can have annual talent reviews and decide who gets more money, who to promote, and who to let go.
Coupled with the performance rating is the “potential” rating, which tries to capture an individual’s potential to move up two levels in the organization (the traditional definition).
This approach is based on a philosophy that “ we cant totally trust managers” so we’re going to force them to fit people into these rating scales. And in many companies (around 20%) there are forced distributions, which mandate that some percent of employees are rated at the bottom and only a limited percent can be rated at the top.
The well publicized problems with this process abound. These include:
Employees need and want regular feedback (daily, weekly), so a once-a-year review is not only too late but it’s often a surprise. Regular coaching is the key to alignment and performance.
Managers cannot typically “judge” an entire year of work from an individual at one time (imagine if your spouse gave you an annual review!), so the annual review is awkward and uncomfortable for both manager and employee.
Manager-employee relationships are not 1:1 like they used to be. We work with many leaders and peers during the year, so one person cannot adequately rate you without lots of peer input.
While some employees are a poor fit and likely are poor performers, these issues should be addressed immediately, not at the end of the year.
Some companies really do have a lot of high performers, so forced ranking eliminates great people and damages the culture.
People are inspired and motivated by positive, constructive feedback – and the “appraisal” process almost always works against this.
The most valuable part of an appraisal is the “development planning” conversation – what can one do to improve performance and engagement – and this is often left to a small box on the review form.
Companies are nervous about eliminating this process because:
We need a fair and validated way to distribute compensation increases (don’t we?)
We need a record of low performance when we let someone go
We need to capture performance data in an employee’s profile for future promotion and other talent reviews, development plans, and career migration
We need a way to make sure managers are doing their jobs well.
Well, I’ve probably discussed these issues with 100+ companies over the last five years and our research shows more and more that companies are ready to let this process go.
Organization structures have changed and companies need to be more agile. We have a shortage of key talent and the keys to success now focus on regular alignment, coaching, creating passion and engagement, and continuous employee development.
The new keys to success:
Develop a “feedback-rich” culture and set of tools (often online, sometimes formal, often informal) that encourages all employees to give each other feedback. Tools from companies like Achievers, Globoforce, and most HR software vendors now enable and make this easy.
Separate the discussions about performance from discussions about potential and future career plans. Yes we need to evaluate people when raise time comes, but that can be a totally different conversation from.
Talk about performance regularly and let employees create their own goals on a regular basis. Force managers to provide ongoing feedback and teach them how to have honest conversations.
Assume that employees already know something about their own performance, and force them to self-assess. People tend to have a good idea of their own strengths and weaknesses – give them an open and positive opportunity to share it. That starts the dialogue about expectations and the match between their self-assessment and that of the organization.
Enable managers to assess performance regularly. Software teams now use Agile tools which evaluate code on a weekly basis. Managers should be giving people feedback regularly. If they learn to do this on a regular basis it will get easier and employees will learn to appreciate it.
Focus managers on hiring the best, so they build a team which strives for 100% high performers. This is never possible of course, but rather than assuming that 20% of your employees will perform poorly, spend more time on assessment, culture, and fit to make sure very few low performers make it into the organization in the first place.
Remember that everyone wants to succeed. If they aren’t performing well it’s not necessarily their fault – the organization should take responsibility for helping them find a better fit if possible.
Set and reset goals frequently. Companies that set performance goals quarterly generate 31% greater returns from their performance process than those who do it annually, and those who do it monthly get even better results. This means employees get feedback on a continuous basis (most sales organizations work this way). Read our research for more details.
Beware of pay for performance plans. While many companies (particularly investment banking, sales) have large pay for performance plans, research showsthat these can create perverse behavior. People focus on their own goals at the expense of the organization. In sales related roles this process works well – when you move to customer service, engineering, and other “builder” roles they can create problems.
Give your leaders a cultural framework and set of values to work from. Companies like Juniper and Deckers (Uggs shoes) focus very heavily on corporate values, forcing managers to hire and manage to these values. This makes selection easier and enables us to evaluate and coach people against higher level frameworks.
Invest in leadership development. Being a manager is a tough job. Managers at all levels struggle with selection, hiring, training, coaching, and evaluation. Give them time and tools to learn, a framework for feedback, and a continuous development process so they learn how to become better.
Reward talent “production” not talent “hoarding.” If you pay your managers to “produce output,” they will focus heavily on talent performance and evaluation. This may be a good thing, but ultimately companies thrive by building skills – so in addition to encouraging managers to produce good work, incent them to produce good talent as well.
I’ve had the opportunity to study HR and performance management for almost 15 years now, and this topic has been controversial for a long time. In today’s globalized,talent constrained workplace it’s clear to me that the traditional appraisal has to change.
Businesses thrive on agility, speed, passion, and alignment. The process of driving and measuring performance has to do the same.
