Evaluating the Performance Evaluation

Is this that time of the year again when as an employee you are worried about filling your annual-performance-review (self-assessment form) and your first reaction is “Oh darn!!”? Then you may want to read this article.

Annual performance reviews are an essential part of an organization’s assessment process and most of us complete this ritual year after year, like filling the tax return. Many employees are anxious about this process, and it bothers them before and after completing the self-evaluation process, this is an ordeal not only for many appraisees but also for appraisers.

Some of the questions that naturally come to mind are:

1. In rapidly changing market scenarios how some KPIs decided at the start of the year can stand true for the entire year?
2. Organizations expect employees to be agile, adaptive, and collaborative, are these KPIs fair for all in that context?
3. Appraiser are human after all, so can we expect that all biases will be addressed from all appraisers in the annual review process?
4. Is there no alternative of this performance review process, what will happen if organizations jettison this process?
5. If 20:80 Pareto principle stands true for employee performance, then can organizations afford to de-motivate 80% average performance since they want to reward 20% top performers?  

If any of the above questions have bothered you, then you may want to read this article, my point of view is solely based on the perspective of an employee, the intention is not to question flaws in human resource policies, but to delve upon an alternate possibility.

Rethinking Performance-Management System:

Most of the performance-management system used today rooted in the century-old model suggested by Frederick W. Taylor, it has evolved with the business but fundamentally it evaluates discrete work tasks, no. of pins produced in a day, has now changed to the number of KPIs (5/7/18), individual goals are linked to organizational goals, but it has only become more complicated and once a rating is given, appraiser and HR struggle to describe and appraisees to decipher this. 

Some startling statistics:

• 72% of companies still, conduct an annual employee appraisal (SHRM study)
• 87% of both managers and employees believed annual reviews were ineffective and not useful (People IQ survey)
• 61% of performance rating is biased towards raters influence, rather than ratee (The Idiosyncratic Rater Effect)  

Story of Aircraft cockpit design: Design to the edges and not average 

Before I go to further details on the annual performance rating process, I would like you to watch this interesting video, in the year1952 air-force faced a problem of increasing plane crashes, multiple investigations revealed that fault was in the cockpit, cockpits were designed for the average size of pilots, and the rationale behind it was since all pilots are of different physical dimensions, so designing it for an average size, will make it useful for most of the pilots, this logic doesn’t stand true if the pilot is very tall, short, fat, or thin, and when the difference between success and failure is life and death, then average size cockpit will not help a non-average size pilot, air force demanded the plane manufacturing companies design the cockpit to the edges so that it is adjustable, today we have adjustable seats in our cars and we take it for granted, but this was a big problem in 1952.

Taking a clue from the above story, can we say that our performance-management system is also designed for the average? Many organizations have worked towards doing away the bell curves (Gaussian distribution curves), but the Pareto curve of 20:80 still works as a demotivating factor for 80% of employees.

Google pays outsized rewards to retain top performers, and it says that the difference between compensation could be as high as 500% for the employees working at the same level if one of them is a top-performer and need to be retained, paying to top-performer who are contributing to the major performance of organizations is totally justified, but organizations also need to consider power-law distributions, what about 80% average performers? How the rating system helps to determine if some of the average performers are a shade better than others in the same category, this type of benchmarking can only make employees ‘combative’ and ‘non-collaborative’, even if that is for a very small percentage of compensation. They will be more worried about faring better than other peers, and will not be experimental and expressive to make mistakes and learn.

So, going forward we are focusing on this 80% of ‘meets expectations’ group, which is a majority of the workforce since every organization would like to retain and reward merit-based top-performers who stand out in terms of result and no biases and fairness debate is pointed towards those performers. 

Why do Organizations need to rethink Annual Employee Evaluation? 

1. One-sided evaluation: No matter how fair a manager (appraiser) wants to be, there are some limitations as a human, no manager wants to be a ‘bad-boss’ but only good intentions are not enough, as per research only 33% of organizations provide excellent communication and leadership skills to managers, as per this research there are many well-intentioned but not properly guided bosses, that unintentionally hinder the progress of employees.
2. Evaluations are Subjective: No matter how many KPIs and metrics we decide, the human factor will always have an impact on evaluation, so different people can give a different rating to the same person for the same set of KPIs.
3. It is Combative and demotivating:  With the ‘stack-ranking’ system, employees will try to be in that 15% bracket which is rewarded most, and would be fearful to avoid the bottom 10-15% range of the curve, this pits employees against each other, as individual scoring takes precedence over a healthy collaborative environment.
4.  Reviews are a cost burden too: Usually HRs start sending annual review reminders 45 days in advance, in many organizations there are mid-year reviews also, so for employees it is a never ending cycle, going for the entire year, to fill this form in a meaningful way, employees take out time from their productive work schedule if one manager is doing review for 5 employees then, managers need to spend 5-hours in review meetings, twice in a year, managers will also appear for their own review meetings, now multiply it with all managers, employees spending time in these reviews, as per few researches per review cost can be as high as $1700-$1800, and do we have a quantifiable positive result from this investment ? Many times it ends up in employee-manager spat and leaves negative impact on employee’s motivation level. 
5. There are many biases:

When I was doing research for this article, this topic looks very interesting so I would like to expand this a bit. Even though managers try to eliminate visible biases during the review process and they are also being watched by big brother, but unconscious biases make their way in from different means.

• Forced/stack ranking: As managers have to give some ranking, and they can’t give the same ranking to all employees, so they are forced to stack this ranking, even if they do not have any valid reason to differentiate between two employees, HBR research suggests that forced-ranking dips the performance and motivation level of employees.
• Central tendency bias: In order to become nicer to some poor performers, or to avoid the situation of conflict, managers try to postpone the hard conversation, but eventually when they had to let go of those employees, this blindside strategy doesn’t work, instead of giving bad news at the end of the year, having a regular conversation, and suggesting course-correction is always a better solution.
• Similarity bias: This bias is very common and highlights the human aspect of managers, “You’re more like me, so I like you more, so I will give you better rating, and more opportunities.” Research suggest that this unconscious bias is very difficult to remove and depends on the manager’s conscious attempt to not let this make a way in evaluating your employees, the first step is to acknowledge that this exists, there can be employees who are not like you, but they can bring diversity in your team by challenging your thinking process. In today’s YouTube tutorial world, there are many self-proclaimed gurus, who give tips on how to manipulate the decision making of reviewer unconsciously by various methods, if the manager is not alert about these tactics then there are chances to get influenced inappropriately.

There are few other biases like recency bias which is about evaluating employee based on one recent great performance of a recent poor performance, Spillover bias making perception about one employee ‘he/she was not good in the past so can’t improve in the present’; Halo/Horn bias: evaluating based on one past incidence positive or negative. 

Is there an alternative? 

Many companies, such as GE, the Gap, and Adobe Systems have dropped ratings, rankings, and annual reviews, these companies want to build—objectives that are more fluid and changeable than annual goals, frequent feedback discussions rather than annual or bi-annual, forward-looking coaching for development rather than backward-focused rating and ranking, and a greater emphasis on team rather than individuals. 

Crowd-sourcing feedback 

Rather than filling the KPI sheet for the entire year, organizations are collecting data throughout the year after every meeting, project, campaigns, and launches. By ‘crowd-sourcing’ real-time data, employees can have a 360-degree review, peer feedback, course-correction suggestions. This can be done through apps, or online feedback forms, to make this interactive for respondents, gamification can be added, GE now use a similar tool, called PD@GE. 

Now one question might come, what if employees try to game this tool to get a favorable result for them and give negative feedback to peers so that they can come in the top 15%, answer to that is anomalies can be tracked by evaluating a pattern, and feedback giver will be conscious while given feedback on a visible platform, and can’t trick the tool every time.

Removing the compensation anxiety

Researchers suggest that things which really motivate people to perform well are feelings like autonomy, mastery, and purpose. On the contrary to this, evaluation system ratings are linked with compensation, employees may worry excessively about the pay implications of even small differences in ratings, so that the fear of potential losses, however small, should influence behavior twice as much as potential gains do (the research of Nobel laureate Daniel Kahneman).

Effective Coaching for Managers: 

I briefly touched on this topic earlier too, well-intentioned but not so well-guided may not help in employee’s overall growth, so coaching of managers is very important, this should cover the points like:

• How to address 3 feelings that motivate employees to perform well: autonomy, mastery, and purpose
• Changing the language of the feedback and providing constant crowd-sourced feedback and collecting data points
• Focus performance discussions more on what’s needed for the future than what happened in the past

Conclusion:

Year on year employees and managers face the annual performance review, in these challenging times organizations are expecting employees to be adaptive, agile, and practical. In some cases the expectation is to bear the pay cuts, surrender leaves, be more flexible in working; mostly all these expectations are fair in a competitive scenario, to win the confidence of employees leaders can also take feedback from their employees, who have a pretty good idea about what fair looks like, it is very simple “Just show us the link between what we do and what the company needs, and how it will impact organizations goal, make sure that my manager gives me coaching on how to reach there”. In the year 2020 many KPIs would have designed in pre-covid time, but employees saw unprecedented disruption and demonstrated unmatched agility and adaptability, did you revisit your KPIs in this agile environment? Do share your thoughts in the comment box.

References and further readings:

• Ahead of the curve: The future of performance management: MckinseyResearch
• The fairness factor in performance management: Mckinsey Research
• 9 Research-Backed Reasons to Rethink Your Annual Employee Evaluation