Performance Appraisals, there is light at the end of the tunnel
Performance appraisals
A curated Article on Performance Appraisals and why they are so hated and rapidly becoming yesterday’s news. I look at why so many of us are dissatisfied with the current traditional approach, its history and its problems. Next, I look at the new Coaching and Development model that the corporate world, led by companies like Deloitte, Adobe, and Microsoft, are moving to, along with case studies on two of these companies. Finally, I discuss what companies can do to make the change.
Introduction
Few institutional practices are as old or have been hated as long as the performance appraisal. Lately, though, the annual practice has been falling out of favour in some quarters. Performance appraisals have always been one of my pet hates. I remember the many occasions taking home piles of appraisals for adding of my comments either as the direct manager or one manager removed and the performance discussions where I tried to sum up a year’s work in one hour. I have always considered the appraisal process to be a professional insult to the person on the receiving end, an insult in the sense that summing up someone’s annual performance once a year and in a few lines with a one-hour chat is nothing short of a joke. The new approach to these reviews is to provide feedback far more often, or as in my case – nearly every time I spoke to one of my team members. I always provided an appraisal of their current performance in relation to current activities, even if it was something as simple as “I think your work performance at the moment is great”.
The annual appraisal teaches managers that it is ok to appraise and provide feedback only once; it is a typical traditional management approach that says to employees that you are only a unit of labour and not much more. However, a study American Psychological Association published in 1996 found that while job appraisals generally improved people’s performance, they negatively impacted performance more than a third of the time, notably in cases where the assessments focused on individuals rather than on their performance particular tasks. They are also good at making people less motivated and hurting relationships between manager and staff, with annual appraisals ending up as a source of anxiety and annoyance rather than a source of useful information.
Until recently, abandoning the traditional appraisal process and all that followed from it seemed heretical. But now, by some estimates, more than one-third of U.S. companies are doing just that. From Silicon Valley to New York and in offices across the world, firms are replacing annual reviews with frequent, informal check-ins between managers and employees.
Many of today’s employers understand that it is time to reassess their performance management systems. Fully 70 per cent of a Gallup survey stated that they are either “currently evaluating” or have recently “reviewed and updated” their performance management systems.
The history of performance appraisals
The history of performance appraisals has been a back-and-forth tug-of-war between accountability and development over the decades, with historical and economic context playing a large role in the evolution of performance management. For example, when human capital was plentiful, the focus was on which people to let go, which to keep, and which to reward, and for those purposes, traditional appraisals (with their emphasis on individual accountability) worked pretty well. But when talent was in shorter supply, as it is now, developing people became a greater concern—and organisations had to find new ways of meeting that need.
Appraisals go as far back as the third century in China, and in the early eighteen-hundreds, an owner of cotton mills in Scotland hung colour-coded wooden blocks over employees’ workstations to indicate their merit.
Under the old (traditional management) system, managers focussed on the most recent developments instead of looking at the entire year; they fixated on the past instead of considering what employees should do going forward; and, most important, they came across as antagonistic. These “forced curve” evaluations were originally conceived around the turn of that century—the turn of the 19th to the 20th century, that is. At that time, employees were viewed strictly as “workers” whose performance could be accurately measured by output: the number of railroad ties installed, hours worked, or other numeric measures.
More recently, appraisals can be traced back to the U.S. military’s “merit rating” system, created during World War I to identify poor performers for discharge or transfer. After World War II, about 60% of U.S. companies were using them (by the 1960s, it was closer to 90%). Though seniority rules determined pay increases and promotions for unionised workers, strong merit scores meant good advancement prospects for managers. At least initially, improving performance was an afterthought.
In the 1970s, however, a shift began. Inflation rates shot up, and merit-based pay took centre stage in the appraisal process. As a result, accountability became a higher priority than development for many organisations.
By the early 2000s, organisations were using performance appraisals mainly to hold employees accountable and allocate rewards. By some estimates, as many as one-third of U.S. corporations and 60% of the Fortune 500 had adopted a forced-ranking system. At the same time, other changes in corporate life made it harder for the appraisal process to advance the time-consuming goals of improving individual performance and developing skills for future roles.
At this time, organisations got much flatter, which dramatically increased the number of subordinates that supervisors had to manage. The new norm was 15 to 25 direct reports (up from six before the 1960s). While overseeing more employees, supervisors were also expected to be individual contributors.
The source of the problem
The annual process of rating employees’ performance and ranking them against their colleagues is an attribute of the traditional management model, which is widely considered to be broken along with performance reviews.
In the traditional model, business objectives and strategies cascaded down the organisation. First, all the units and all the individual employees were supposed to establish their goals to reflect and reinforce the direction set at the top. But this approach works only when business goals are easy to articulate and are held constant over the course of a year.
One Washington Post business writer described this approach as a “rite of corporate kabuki” that restricts creativity, generates mountains of paperwork, and serves no real purpose. Others have described annual appraisals as a last-century practice and blamed them for a lack of collaboration and innovation. Employers are also finally acknowledging that both supervisors and subordinates despise the appraisal process, a perennial problem that feels more urgent now that the labour market is picking up and concerns about retention have returned.
Perhaps the fundamental aspect of traditional performance management is grading by the curve or forced ranking of employees. This process, widely known as “rank and yank,” has been found in many companies to demoralise employees, create animosity, and spur good people to look elsewhere for work.
Though managers may assume they need appraisals to determine which employees aren’t doing their jobs well, the traditional process doesn’t help much. Plus, H.R. departments consistently complain that line managers don’t use the appraisal process to document poor performers. Even when they do, waiting until the end of the year to flag struggling employees allows failure to go on for too long without intervention.
Data shows that all kinds of personal quirks and biases, both conscious and not, influence our appraisals of other people. Individual prejudices influence how managers think about and describe their employees. Studies suggest that more than half of a given performance rating has to do with the traits of the person conducting the evaluation, not of the person being rated. Anyone who a mean-spirited or incompetent manager has given a negative performance review will be familiar with this effect, but its implications go beyond individual dispiritedness.
Studies confirm that managers hate doing appraisals, as survey after survey has made clear. Willis Towers Watson found that 45% did not see value in the systems they used. Deloitte found that 58% of H.R. executives considered reviews an ineffective use of supervisors’ time. In a study by the advisory service CEB, the average manager reported spending about 210 hours—close to five weeks—doing appraisals each year.
With traditional appraisals, the pendulum had swung too far toward a more transactional view of performance, which became hard to support in an era of low inflation and tiny merit-pay budgets. In a public survey Deloitte conducted recently, more than half the executives questioned believe that their current performance management approach drives neither employee engagement nor high performance. Instead, they wanted something nimbler, real-time, and more individualised, something squarely focused on fuelling performance in the future rather than assessing it in the past.
Many corporate executives acknowledge that their current performance systems are not working (figure 2). For example, more than half of executives surveyed believe their current performance process does not drive employee engagement and high performance and is not an effective use of anyone’s time. In addition, just under half say their performance processes are “weak” in improving development and driving business value.
A new approach
Companies worldwide are questioning their forced-ranking, rigid rating systems and once-a-year appraisal processes. This is the year a new model of performance management will likely sweep through H.R.
Today’s widespread ranking- and ratings-based performance management is damaging employee engagement, alienating high performers, and costing manager’s valuable time.
Only 8 per cent of companies report that their performance management process drives high levels of value, while 58 per cent said it is not an effective use of time.
Leading organisations are scrapping the annual evaluation cycle and replacing it with ongoing feedback and coaching designed to promote continuous employee development.
Perhaps most important, companies are overhauling performance management because their businesses require the change. That’s true whether they’re professional services firms that must develop people in order to compete, companies that need to deliver ongoing performance feedback to support rapid innovation, or retailers that need better coordination between the sales floor and the back office to serve their customers.
Before considering a new approach, agreement is needed to ditch the current one. The greatest resistance to abandoning appraisals, which is something of a revolution in human resources, comes from H.R. itself. The reason is simple: Many of the processes and systems that H.R. has built over the years revolve around those performance ratings. Experts in employment law had advised organisations to standardise practices, develop objective criteria to justify every employment decision, and document all relevant facts. Taking away appraisals flies in the face of that advice, and it doesn’t necessarily solve every problem that they failed to address.
It is extraordinarily difficult to have a serious, open discussion about problems while also dishing out consequences such as low pay increases. The end-of-year review was also an excuse for delaying feedback until then, at which point both the supervisor and the employee were likely to have forgotten what had happened months earlier. Both of those constraints disappear when you take away the annual review. Additionally, almost all companies that have dropped traditional appraisals have invested in training supervisors to talk more about development with their employees, and they are checking with subordinates to make sure that’s happening.
Today, more than 70 per cent of all employees work in service or knowledge-related jobs. Their performance is driven by their skills, attitude, customer empathy, and ability to innovate and drive change by working through teams. These skills must be built over time, and successful performance management must be focused on constantly developing these capabilities rather than ranking them at a moment in time.
In addition, today’s business climate and business priorities seldom follow the annual evaluation cycle. Goal’s shift, strategies evolve, and employees often switch between multiple projects under various team leaders.
As you might expect, technology companies such as Adobe, Juniper Systems, Dell, Microsoft, and IBM have led the way in moving to a new performance appraisals model. They have been joined by a number of professional services firms (Deloitte, Accenture, PwC) and early adopters in other industries (Gap, Lear, Oppenheimer Funds), and even General Electric, the long-time role model for traditional appraisals.
PwC reports that two-thirds of large companies in the U.K., for example, are in the process of changing their systems. Kelly Services was the first big professional services firm to drop appraisals in 2011. PwC tried it with a pilot group in 2013 and then discontinued annual reviews for all 200,000-plus employees, Deloitte followed in 2015. Given the sheer size of these firms and the fact that they offer management advice to thousands of organisations, their choices are having an enormous impact on other companies. Firms that scrap appraisals are also rethinking employee management much more broadly.
As dissatisfaction with the traditional process ushered in a new way of thinking about performance. The Agile Manifesto created by software developers in 2001 outlined several key values—favouring, for instance, “responding to change over following a plan.” In addition, it emphasised principles such as collaboration, self-organisation, self-direction, and regular reflection on how to work more effectively, with the aim of prototyping more quickly and responding in real-time to customer feedback and changes in requirements. Although not directed at performance per se, these principles changed the definition of effectiveness on the job, and they were at odds with the usual practice of cascading goals from the top down and assessing people against them once a year.
A new Coaching and Development model
The key reasons for dropping annual appraisals argue for a system that more closely follows the natural cycle of work.
When rapid innovation is a source of competitive advantage, as it is now in many companies and industries, that means future needs are continually changing. Because organisations won’t necessarily want employees to keep doing the same things, it doesn’t make sense to hang on to a system that’s built mainly to assess and hold people accountable for past or current practices.
As Susan Peters, GE’s head of human resources has pointed out; businesses no longer have clear annual cycles. Instead, projects are short-term and tend to change along the way, so employees’ goals and tasks can’t be plotted out a year in advance with much accuracy.
While employees need to be held accountable for their results, most people perform best when given tools to succeed and coaching to improve performance. Companies that have reengineered their process eliminated ratings and found substantial improvements in engagement and performance as a result.
Shifting away from annual performance appraisals toward a process of continuous coaching and development requires a new role for managers. Ideally, conversations between managers and employees occur when projects finish, milestones are reached, challenges pop up, and so forth, allowing people to solve problems in current performance while also developing skills for the future.
At most companies, managers take the lead in setting near-term goals, and employees drive career conversations throughout the year. In the words of one Deloitte manager: “The conversations are more holistic. They’re about goals and strengths, not just about past performance.” Trust people, not policies. Reward candour and throw away the standard playbook.
Deloitte implemented a more informal “check-in” process that takes place throughout the year, with employees receiving feedback on what they’re working on at any given moment. Supervisors were giving people instant feedback, tying it to individuals’ own goals.
Regular conversations about performance and development change the focus to building the workforce your organisation needs to be competitive both today and years from now. Business researcher Josh Bersin estimates that about 70% of multinational companies are moving toward this model, even if they haven’t arrived quite yet.
Of course, many H.R. managers worry: If we can’t get supervisors to have good conversations with subordinates once a year, how can we expect them to do so more frequently, without the support of the usual appraisal process? It’s a valid question—but we see reasons to be optimistic.
A critical feature of the new “coaching and development” model of performance management is separating feedback provided to employees from compensation decisions.
Moving away from the traditional focus on individual accountability makes it easier to foster and evaluate teamwork especially given that the move toward team-based work often conflicted with individual appraisals and rewards. Now that the labour market has tightened and keeping good people is once again critical, many companies have been trying to eliminate “dissatisfiers” that drive employees away. Naturally, annual reviews are on that list since the process is so widely reviled, and the focus on numerical ratings interferes with the learning that people want and need to do. Replacing this system with feedback that’s delivered right after client engagements and project completions helps managers do a better job of coaching and allows subordinates to process and apply the advice more effectively.
Companies are under competitive pressure to upgrade their talent management efforts. This is especially true at consulting and other professional services firms, where knowledge work is the offering and where inexperienced graduates are turned into skilled advisers through structured training. Such firms are doubling down on development, often by putting their employees (who are deeply motivated by the potential for learning and advancement) in charge of their own growth. This approach requires rich feedback from supervisors, a need that’s better met by frequent, informal check-ins than by annual reviews
Adobe
Adobe, a company of 11,000 employees, 54 per cent of whom work in North America, tried for five years to modify the traditional performance management system before abandoning it as inconsistent with Adobe’s strong culture of teamwork and collaboration. They became the first significant departure from traditional reviews, which happened at Adobe in 2012 after its senior vice-president of people and places, Donna Morris, concluded that employees hated them, and they weren’t very useful. The company was already using the agile method, breaking down projects into “sprints” that were immediately followed by debriefing sessions. Adobe explicitly brought this notion of constant assessment and feedback into performance management, with frequent check-ins replacing annual appraisals. Juniper Systems, Dell, and Microsoft were the prominent followers.
Today, Adobe has a far simpler but far more effective system, a continual and collaborative approach to performance development.
Either an employee or a manager may request a “check-in” every three months. Before the actual meeting occurs, a group of employees provides feedback on the employee’s performance. The results form the basis of a conversation about performance improvement rather than a zero-sum dispute about compensation or ranking. The goal is to make coaching and developing a continuous, collaborative process between managers and employees, a far more motivating outcome.
Importantly, Adobe’s new system focuses on both ends of the performance curve keeping high performers happy and offering practical advice for lower performers looking to improve. Group performance is also evaluated, leading to a more rational determination of group compensation. The results have been profound: Since rolling out the new approach worldwide, Adobe experienced a 30 percent reduction in voluntary turnover in a highly competitive talent environment.
Moving to an informal system requires a culture that will keep the continuous feedback going. As Megan Taylor, Adobe’s director of business partnering, pointed out at a recent conference, it’s difficult to sustain that if it’s not happening organically. Adobe, which has gone totally numberless but still gives merit increases based on informal assessments, reports that regular conversations between managers and their employees are now occurring without H.R.’s prompting.
Prior to radically reforming its performance management system, managers at Adobe spent over 80,000 hours per year on traditional performance evaluations, a process one manager described as “soul-crushing.”
How Deloitte built a radically simple Performance Measure
Deloittes began by doing their own study and by stating as clearly as they could what performance management is actually for. The study built on previous research. Starting in the late 1990s, Gallup conducted a multiyear examination of high-performing teams that eventually involved more than 1.4 million employees, 50,000 teams, and 192 organisations. Gallup asked both high- and lower-performing teams questions on numerous subjects, from mission and purpose to pay and career opportunities, and isolated the questions on which the high-performing teams strongly agreed, and the rest did not. It found at the beginning of the study that a very small group of items explained almost all the variation between high- and lower-performing teams. The most powerful one proved to be, “At work, I have the opportunity to do what I do best every day.” Business units whose employees chose “strongly agree” for this item were 44% more likely to earn high customer satisfaction scores, 50% more likely to have low employee turnover, and 38% more likely to be productive.
They then set out to see whether those results held at Deloitte. First, they identified 60 high-performing teams, which involved 1,287 employees and represented all parts of the organisation. For the control group, they chose a representative sample of 1,954 employees. To measure the conditions within a team, they employed a six-item survey. When the results were in and tallied, three items correlated best with high performance for a team: “My co-workers are committed to doing quality work,” “The mission of our company inspires me, and “I have the chance to use my strengths every day.” Of these, the third was the most powerful across the organisation.
All this evidence helped bring into focus the problem they were trying to solve with a new design. They wanted to spend more time helping their people use their strengths in teams characterised by great clarity of purpose and expectations, and they wanted a quick way to collect reliable and differentiated performance data.
Deloitte’s new system has no cascading objectives, no once-a-year reviews, and no 360-degree-feedback tools. Its hallmarks are speed, agility, one-size-fits-one, and constant learning, and it’s underpinned by a new way of collecting reliable performance data.
Their next discovery was that assessing someone’s skills produces inconsistent data. Objective as I may try to be in evaluating you on, say, strategic thinking, it turns out that how much strategic thinking I do, or how valuable I think strategic thinking is, or how tough a rater I am significantly affects my assessment of your strategic thinking.
They also learned that the defining characteristic of the very best teams at Deloitte is that they are strengths oriented. Their members feel that they are called upon to do their best work every day. This discovery was not based on intuitive judgment or gleaned from anecdotes and hearsay; rather, it was derived from an empirical study of their own high-performing teams.
Deloitte then articulated three objectives for a new system.
How to recognise performance.
How to recognise each person’s performance.
How to fuel performance.
We have three interlocking rituals to support these objectives:
The annual compensation decision
The quarterly or per-project performance snapshot
The weekly check-in.
And we’ve shifted from a batched focus on the past to a continual focus on the future through regular evaluations and frequent check-ins. At the end of every project (or once every quarter for long-term projects), we will ask team leaders to respond to four future-focused statements about each team member. We’ve refined the wording of these statements through successive tests, and we know that at Deloitte, they clearly highlight differences among individuals and reliably measure performance. Here are the four:
Given what I know of this person’s performance, and if it were my money, I would award this person the highest possible compensation increases and bonus [measures overall performance and unique value to the organisation on a five-point scale from “strongly agree” to “strongly disagree”].
Given what I know of this person’s performance, I would always want him or her on my team [measures ability to work well with others on the same five-point scale].
This person is at risk for low performance [identifies problems that might harm the customer or the team on a yes-or-no basis].
This person is ready for promotion today [measures potential on a yes-or-no basis].
In effect, we are asking our team leaders what they would do with each team member rather than what they think of that individual.
One of the most important tools in our redesigned performance management system is the “performance snapshot.” In the first version of our design, we kept the results of performance snapshots from the team member. We did this because we knew from the past that when an evaluation is to be shared, the responses skew high, that is, they are sugar-coated. Because we wanted to capture unfiltered assessments, we made the responses private.
We worried that otherwise, we might end up destroying the very truth we sought to reveal. Research into the practices of the best team leaders reveals that they conduct regular check-ins with each team member about near-term work. These brief conversations allow leaders to set expectations for the upcoming week, review priorities, comment on recent work and provide course correction, coaching, or important new information. The conversations provide clarity regarding what is expected of each team member and why, what great work looks like, and how each can do his or her best work in the upcoming days—in other words, exactly the trinity of purpose, expectations, and strengths that characterises our best teams.
Our design calls for every team leader to check in with each team member once a week. For us, these check-ins are not in addition to the work of a team leader; they are the work of a team leader. If a leader checks in less often than once a week, the team member’s priorities may become vague and aspirational, and the leader can’t be as helpful—and the conversation will shift from coaching for near-term work to giving feedback about past performance. In other words, the content of these conversations will be a direct outcome of their frequency: If you want people to talk about how to do their best work in the near future, they need to talk often. And so far, we have found in our testing a direct and measurable correlation between the frequency of these conversations and the engagement of team members. Very frequent check-ins (we might say radically frequent check-ins) are a team leader’s killer app.
That said, team leaders have many demands on their time. We’ve learned that the best way to ensure frequency is to have check-ins be initiated by the team member who, more often than not, is eager for the guidance and attention they provide rather than by the team leader. We have found that its new model of frequent, informal check-ins has led to more meaningful discussions, deeper insights, and greater employee satisfaction.
Where companies can start
A successful shift to leading-edge performance management, replacing annual ranking and yanking with continuous feedback, coaching, and development, begins with a frank determination of whether rigid performance evaluation systems are advancing a company’s business priorities. If not, as many organisations increasingly recognise, it is time to take action. Potential starting points include:
Get senior leaders involved and keep them involved: Hold a senior executive-level conversation about the strategy and philosophy for employee performance in the company. What does the organisation hope to achieve as a result of performance management activities? What system will best reinforce the organisation’s talent management strategy?
Use performance management to build skills: Switch from rigid performance reviews to flexible performance conversations aimed at providing employees at all levels with practical steps they can take and the skills necessary to reach the next level of achievement within the organisation.
Teach managers to give better feedback: Boost the skills of managers to enable them to have productive yet less formal conversations about performance that will drive improvement rather than drive employees to look outside the organisation.
Simplify the process: Separate the performance coaching and evaluation process from determinations of compensation. Reduce the number of forms and make them very simple and easy to use. Ignore the advanced features in performance management software.
De-link performance scores and compensation: Consider revising compensation structures to include broader considerations, such as how the outside talent market would compensate an employee or how difficult the employee would be to replace. Analyse the extent to which the organisation can take a broader approach to total rewards by offering growth opportunities to employees who have outperformed their peers.
Coach everyone: Search for opportunities for employees in the “broad middle” of the performance distribution to see themselves as valued contributors to organisational success, rather than merely looking up to the perceived superstars. Hold everyone accountable, but give everyone coaching, development planning, and training to improve.
Conclusion
The days when managers could lead from a position of command and control are over. In today’s high-performing teams, employees must take ownership of their performance and act on their own to improve their capabilities. Managers need to become coaches rather than evaluators.
Today’s workers expect to be held accountable for results, but they also expect coaching, development, and regular feedback. Look carefully at the performance management process to see if it truly drives performance today or is merely an artifact of the past. In many cases, a shift from “evaluation” to “development and performance improvement” will drive appreciable results.
In a world where employee retention and workforce capability are significant indicators of business success, the performance management process should focus on continuous coaching and development, rather than competitive evaluation. Managers who provide regular feedback and opportunities to improve are far more likely to field high-performing teams than those who retain once-a-year rankings.
Sources
The Push Against Performance Reviews | The New Yorker.
https://www.newyorker.com/business/currency/the-push-against-performance-reviews
The Future of Performance Reviews - HBR.
https://hbr.org/2016/10/the-performance-management-revolution
Performance management is broken: Replace “rank and yank .... https://www2.deloitte.com/us/en/insights/focus/human-capital-trends/2014/hc-trends-2014-performance-management.html
Performance Management Revolution - Academicscope.
https://www.academicscope.com/performance-management-revolution/
The end of year review was also an excuse for delaying ....
https://www.coursehero.com/file/p7jkoj6/The-end-of-year-review-was-also-an-excuse-for-delaying-feedback-until-then-at/
BBC Design Sprint | WaseemUX.
https://www.waseemux.com/project-1
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