Why Performance Reviews Don’t Work And What’s Replacing Them.

No, the traditional performance review isn’t really dead.

Quite a shocker, I know. But trust me.

Contrary to what the internet would have you believe, reviews and appraisals have been the cornerstone of performance management internationally for decades, and they’re not going to disappear overnight. But they ARE changing.

Which brings us to the question - what went wrong?

A simple Google search will show you that people DO seem to hate performance reviews with a vengeance, with endless articles morbidly predicting it’s inevitable demise.

Source: Dilbert

If they are so universally despised, what does the future hold?

The Problem With Performance Assessment

Even if you move past the tiring formalities, the numbers are out there for everyone to see.

In a survey run by Corporate Executive Board (CEB) on Fortune 1000 companies, it was noted that a whopping 95% of employees believe that performance reviews don’t actively measure or record their contributions.

Not just that, 9 out of 10 managers bemoaned the lack of an accurate appraisal system.

Employees weren’t too happy with the long winded processes and paperwork too, as it was recorded that 65% of them believed performance reviews actually hampered their productivity.

The final nail in the coffin was when GE scrapped its annual review system in mid 2015, along with companies like Microsoft, Adobe, Medtronic, Accenture and Deloitte. And, they replaced their traditional ranking systems (that evolved from the GE ‘rank and yank’ model) with simpler employee focussed alternatives.

Source: CEB Global

In my many years in the industry, I’ve noted a continuing conflict between how performance reviews are designed to work - analytical, empathetic, organized and most importantly holistic, and how they end up working because of managers who either think it is a HR tick in the box activity, or they make vague plans, and appraise their employees on even more ambiguous numbers.

During the peak of recession in 2008-09, we got untrained managers at a large Bank to arbitrarily rank their employees. The Bank's strategic plans were cascaded and calibrated from the top quite meticulously, keeping in mind the economic environment. But the end of the year employee performance rating scores had no semblance to the bank’s performance. Almost 73% of employees were rated as Top Performers, 20% as Average Performers, and only 7% as Non Performers.

However, the numbers changed to 50/40/10 when the managers were formally introduced to a ratings system, and taught to assess employees against existing metrics. So, is it the lack of a good system or is it the skills and will of managers who are involved in the performance management process? Or, is it a classic case of unfounded empathy and the absence of a ‘system’ painting the picture of a perfect working environment.

Scrapping Any System Overnight Is… Shortsighted

Even though around 84% of big companies are making drastic changes to their performance management systems, reports indicate that scrapping an existing ratings system contributes to a steep 10% drop in overall productivity.

In the absence of a rudimentary rating system, it’s been noted that managers often tend to drift and lose focus, with less than 5% of managers able to maintain employee engagement and performance consistently.

Letting managers take calls on appraisals and pay differentiation on a case-by-case basis carries a HUGE risk of potential ineffectiveness, and might dissuade top or mid level performers if they sense an inherent conscious or unconscious bias in the system. This has been measured too, and it’s been shown that employee perception of pay differentiation decreases by 8% when an existing system is scrapped and managers are given a free rein of assessment.

That doesn’t sound too promising, does it?

The core problem lies in the mindset - where managers look at performance reviews as one of the activities in their HR checklist, and are eager to de-prioritize or close the task with the least amount of effort possible.

Source: Andertoons

Back in 2004, I was approached by an employee who wanted feedback and a performance appraisal, especially when I was in the thick of pending tasks and overflowing commitments. It was the worst possible time for me to conduct an appraisal, but she insisted, and it resulted in a meeting where I was badly prepared - no notes, no data, and not even the right mindset for a constructive discussion. Predictably enough, the meeting went from bad to worse when my subjective evaluation of her skills clashed with her self assessment of her own achievements.

We were stuck in a deadlock that was eventually resolved by my immediate manager, but the employee was heavily demotivated by the entire episode, her performance dipped and she eventually moved on from the organization. Not my proudest moment, but the fact is that this happens far too often in corporates/startups across the world.

Another bad corporate practice I’ve noticed is when managers calibrate HR ratings for an employee and reduce them subjectively, but ultimately blame the HR department to save their face in front of the team. These, and a lot of other small factors, have contributed to a lack of trust within the current system.

So What’s The Way Forward?

Performance is always a derivative of great planning, seamless alignment, effective communication and fostering a dynamic and goal oriented work environment.

Source: www.propera.io

Performance development has to cascade down the from C Level to every single unit within the organization, with the objectives and goals of individual units in the organization being well planned out, and systematically executed. When aligned with a greater overarching business objective, this transforms the organization into one giant efficient powerhouse of talent and innovation.

Some of the top fortune 100 companies do this quite well, by sharing monthly and quarterly feedback with every single one of its 100,000+ employees and real time performance development plans.

But here’s what the future holds - continuous performance development. Where managers function not just as intermediaries, but strong leaders who take on the onus of developing and managing the skills of their immediate workforce.

What is continuous performance development, and what are the short term and long term strategies you can adopt to implement this in your organization?

I’ll be detailing my thoughts on these in a follow-up article. So, stay tuned!