Make Performance Reviews Work For Your Team

Traditional annual performance reviews are confusing, dated, messy, time-consuming, and sometimes just plain inaccurate to what’s really going on in your team. As organizational psychologist Bob Sutton said, “If performance evaluations were a drug, they would not receive FDA approval. They have so many side effects, and so often fail.” According to a survey of 837 companies across the globe only about 1 in 4 companies in North America said their performance management systems were effective. And only-third of companies surveyed said their employees were evaluated fairly.

The employees and the employers have spoken.

The workplace, and work itself, has gone through some radical transformations in the past few years. It’s time performance reviews do the same. Managers don’t like evaluations because they can get confusing. It’s a hassle, and it feels like extra work on top of their existing work

Employees feel the pressure of being graded through a system that is confusing because typically it has the potential to make or break a potential raise for them. The intent of the review process—to fix problem areas, develop skills and set people up for success—breaks down into debates about what rating scales mean and the semantics of every definition.

And then there’s the time involved. On both sides of the review process, it just takes a long, long time. Adobe found that managers spent about 17 hours per employee on their performance reviews. You can interpret that amount of time two ways:

1) either managers are taking their time to thoughtfully reflect and analyze an individual's performance and contributions over the course of a year, or 2) it’s an audacious amount of time that goes on top of regular meetings and check-ins about performance that happen naturally throughout the year.

But if you’re leaning toward the latter, trust your instincts.

How did performance reviews become so painful?

The Ranking Method, or stack ranking, or “rank and yank” was popularized by Jack Welch, the CEO of General Electric from 1981 to 2001. If you didn’t already know him as a very influential figure in corporate America, then you might recognize him as the mentor of Jack Donaguey on 30 Rock.

GE went through a massive hot streak through most of his tenure as CEO, and a lot of that success was attributed to his popularized ranking method of his employees. It worked like this:

The manager will have a list of all employees and will first choose the most valuable employee and put that name at the top. Then he or she will choose the least valuable employee and put that name at the bottom of the list. With the remaining employees, this process would be repeated.

In addition, there is a bell curve at play here. Not everyone is going to get a top rating or perfect marks, even if theoretically everyone on a team is a superstar and exceeds expectations. Under Jack Welch, in a team of 10, everyone knew only two of them would get a great rating, and at least one would get a negative rating, and possibly be…yanked.

This method or some variation of it became a norm at a lot of companies until about 2012 when more research started to come out and leaders were questioning whether the method was doing more harm than good.

Managers reported that people became obsessed with the rankings, and that it also created unhealthy, siloed competition between everyone, especially top performers. Great employees would distance themselves from other great employees out of fear they might fall in the rankings.

Great employees should be collaborating, not competing

Microsoft recently overhauled their performance review system after realizing how damaging rank-and-yank was to performance and morale. From 2000 to 2012, Microsoft’s market cap had declined from $510 billion to half of that value. Employees pointed their finger at one big reason for the nose-dive: Stack Ranking.

Turns out pitting your individual employees against one another created a culture where innovative ideas were killed, and fast. It was all about the rankings, and not about the actual work. Top performers were even ditching the company where more value was placed on the work and not just a metric.

So, Microsoft ditched the stack rankings. And a handful of other Fortune 500 companies quickly followed suit after finding the same negative effects. Motorola, Expedia, and Adobe were all yanking their rating methods in favor of more frequent, informal, focused conversations with individuals throughout the year.

Performance reviews should be an ongoing conversation

Removing the annual ritual of performance reviews and replacing them with more targeted sessions throughout the year may sound like more work, but it actually saves time. At least it did for Motorola which reported saving 50-70 percent of time spent on review processes after they ditched their once-a-year ranking method.

These check-ins don’t have to be grueling, high stakes sessions—in fact, they should be very informal. Just like the name suggests. A check-in. Schedule it sometime at the end of the month with your direct report and…check-in. The best check-ins hit on three topics: expectations, feedback, and professional growth. Don’t confuse this with just another stand-up, progress check that you usually do with your whole team.

And if you’re reading this as an individual manager, with no authority to ditch annual reviews, remember that nothing is stopping you from doing more frequent check-ins with your team. That will leave you better prepared when the annual performance review season comes up, and it will make them more willing to accept your feedback. The annual review becomes just another check-in.

Use AI, but sparingly

There is a lot of enthusiasm for AI and what it can do to make work easier. But as a leader, you should remain highly skeptical and cautious if you’re considering using AI tools in your performance review process. Pew Research came out with some recent data finding, not surprisingly, people are mixed on AI being used to monitor them in the workplace. Tracking especially.

Have AI help you figure out where to look, where to find problem areas. But AI shouldn’t be making decisions in the evaluations. Great teams are made up of humans, and when we evaluate others, we need to look them in the eye and come prepared to back up whatever we have to say, person to person. It can be an intensely vulnerable process, for both sides of the conversation. If you’re looking to bring in AI to make it easier on yourself as a manager, to take away the awkwardness you might feel when you have these conversations…you might not be cut out for being a manager.

Conclusion

The evolution from the rigid, competitive ranking systems of the past to the more flexible and supportive frameworks of today marks a significant shift in how companies view and value their employees. By focusing on development, continuous feedback, and a collaborative environment, modern businesses are paving the way for a more engaged and innovative workforce. This transformation not only enhances individual performance but also drives collective success, ensuring that the workplace remains becomes one where everyone can do their best work ever.

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Originally published at https://davidburkus.com on August 26, 2024.