Appraising the Performance of Performance Appraisals

Appraisal is not the system that drives pay, careers, and status; it is an incidental effect of those dynamic systems. Appraisal is primarily the paper-shuffling that sanctifies decisions already made. ––Tom Coens and Mary Jenkins, Abolishing Performance Appraisals

Human capital determines the performance capacity of any organization. Today’s knowledge workers, unlike the factory workers of the Industrial Revolution, own the means of production. Ultimately, knowledge workers are volunteers, since whether they return to work is completely based on their volition.

Consequently, it is difficult to understand the continued reliance on the “annual agony”—the performance-appraisal apparatus. According to Tom Coens and Mary Jenkins, in their seminal book , over 50 years of academic studies reveal scant empirical evidence of the effectiveness of performance appraisals at actually improving performance.

Despite these facts, firms cling to it an uninformed belief that there is no suitable replacement. Where did this ritual come from?

The Origins of Performance Appraisals

The modern antecedent of the appraisal process was explained by Peter Drucker in his book, The Effective Executive:

The appraisal tends to focus on weaknesses, not strengths—what psychologists call the “presenting problem.” But good leaders—like good coaches—design performance processes and tasks around a person’s strengths, and ignore—or make irrelevant—their weaknesses.

What about the Law?

Two primary defenses for maintaining performance appraisals are that they are required by law, and that they are required documentation to terminate an employee. Both assertions are false. Most workers in the United States are employees at will; they can be fired for any reason, or no reason at all, with or without warning. There are exceptions to this doctrine, and they have grown over the years, yet there is no explicit legal reason to perform performance appraisals.

Tom Coens, coauthor of the definitive book, Abolishing Performance Appraisals, is a labor and employment lawyer with thirty years of experience. He dispels the myths surrounding the effectiveness of performance appraisals from a legal perspective.

Jay Shepherd is another unapologetic management-side lawyer who practiced for 17 years. In his indispensable book, Firing at Will: A Manager’s Guide, Jay explains why he, too, is a critic of performance appraisals, labeling them “the dumbest managerial tool,” and explains how they can actually hurt your chances in court.

Deleterious Effects of Performance Appraisals

Performance appraisals have become, to borrow a term from the medical profession, an iatrogenic illness—that is, a disease caused by the doctor. An estimated ten percent of all hospital patients suffer from this type of disease. We need to apply the Hippocratic principle of primum non nocere (“first, do no harm”) to the performance appraisal process.

The following are some of the more serious negative effects of the performance appraisal (PA):

• PAs are counterproductive to “driving out fear,” the one emotion that Dr. Edwards Deming believed needed to be eliminated to improve human performance;
• PAs focus on the weaknesses of the worker rather than his or her strengths;
• Learning is overshadowed by the evaluation and judgment inherent in the PA;
• Even if PAs convey both strengths and weaknesses, it is human nature for negative feedback to drown out positive feedback;
• Effective feedback should occur as needed, not on an arbitrary date on a calendar;
• PAs are a symbol of a paternalistic boss-subordinate relationship based on command and control rather than the knowledge worker being responsible for his or her own development;
• PAs impose a one-size-fits-all approach that impedes relevant, authentic feedback to different individuals;
• Too much “noise” surrounds the PA process: discipline or termination, pay raises, bonuses, promotions, and the like, lessening the focus on performance improvement;
• Ranking people against each other does not help them do a better job. Ranking people, also, by definition, creates “bottom performers,” regardless of the absolute value of their work;
• PAs devote far too much scarce leadership attention to underperforming employees rather than top performers;
• PAs are extremely costly to administer relative to their meager benefits;
• PAs provide no effective method for holding people accountable for future results, since they focus on the past;
• Any self-acknowledged weakness by a team member can be used against them, deterring learning and self-development;
• PAs confuse delivering effective feedback with filling out bureaucratic forms and check-the-box administrative activities that have no connection to strategic purpose or value creation;
• PAs reinforce a requirement for human-resources departments to keep KGB-like dossiers on team members;
• PAs create a false impression that a scientific and objective process is being applied to measure individual performance. Yet all PAs, in the final analysis, are subjective and based on judgment;
• PAs obscure the fact that a firm is an interdependent system, and what matters is the performance of the whole, which is not merely the sum of its components;
• PAs provide the illusion of protection from lawsuits and allegations of wrongful termination, when in fact they rarely offer that protection—and often backfire in litigation.
• According to author Daniel Pink in “Think Tank: Fix the workplace, not the workers” (November 6, 2010), "Performance reviews are rarely authentic conversations. More often, they are the West’s form of kabuki theatre—highly stylized rituals in which people recite predictable lines in a formulaic way and hope the experience ends very quickly."

Confronting People with Their Freedom

You can’t keep on doing things the old way and still get the benefits of the new way.

––Thomas Sowell

Because knowledge workers are volunteers, we could learn a lot from the not-for-profit sector. They know how to leverage people’s gifts, whereas performance appraisals are more concerned with people’s weaknesses.

Management thinker Charles Handy has spent his career arguing that organizations are living communities of individuals, not machines. He offers a splendid metaphor in his autobiography, Myself and Other More Important Matters, which I believe is applicable to knowledge workers and the performance appraisal process––the theater:

There’s no talk of 'human resources,' everyone is listed on the playbill, and managers are for things (stage, lighting, etc.), not people. The talent is directed, not managed, by someone who departs after the project commences. The audience feedback is immediate, not one year after the performance.

Author and consultant Peter Block says, “The real task of leadership is to confront people with their freedom.” Performance appraisals inhibit autonomy and responsibility; they are the buggy whip of the knowledge era—an example of yesterday holding tomorrow hostage. Do we have the courage to replace such an ineffective process?

Performance appraisals are, after all, an iatrogenic illness, which means: physician, heal thyself.

In my next post, I'll discuss the replacement for annual performance appraisals.