Are performance review systems a waste of time?

Most companies’ current performance review systems are broken, bureaucratic and a waste of valuable time. Further, the annual process of setting goals, holding mid-year meetings (which often do not take place) and rating people is often demeaning and damaging to employee engagement[1].

Companies need to start thinking about performance reviews differently and use the time in a more effective way to motivate employees and drive performance. Systems should be adaptable so as to remain relevant in an ever changing and evolving business environment.

What should performance management systems involve?

1.      Avoid forced rankings. “Forced curve” evaluations and comparisons to other employees became popular in the 19th century and are based on an old-fashioned view of employment. In today’s organisations, this “rank and yank” process has been found to demoralise employees and lead good people to look elsewhere for work[2].

Further, the distribution of employee performance in high performing companies often follows a “long tail” rather than the traditional “bell curve,” where there are ultra-high achievers and many others at the middle level of performance[3]. In this case, a forced bell curve inadequately recognises top performers and demotivates many mid-level performers by pushing them into the bottom of the curve.

2.      Avoid ratings. No one wants to be rated on a five point scale. Research[4] shows that reducing a year of work to a single number is degrading. It creates a defensive reaction and doesn’t inspire improvement. When we set up a process that includes a big box with “rating” at the end, we essentially put the focus on the “appraisal” and not the feedback, recognition, and coaching. Further, studies[5] have found that when we receive a “rating” our brain shifts into “fear or flight” mode and shifts to our limbic brain. This shift, which takes place when feeling threatened, reduces our ability to learn or create, and instead makes us defensive.

3.      Continuous development and feedback. Performance evaluation systems should be continuous, “developmental” and focus on ongoing improvement. Emphasis should be on development plans, career mapping and what employees need to do to get to the next stage or to reach an outcome. Today, more than 70 percent of all employees work in service or knowledge-related jobs where performance is driven by their skills and knowledge which must be built over time[6] – successful performance management must be focused on constantly developing these capabilities rather than ranking them at a moment in time.

Further, business activities seldom follow the annual performance review cycle. Goals and priorities change, strategies evolve, and employees often switch between different projects and teams under various managers. In fact, Adobe have abandoned formal performance reviews altogether – instead managers decide when they will discuss goals and performance with their team.

4.      Separate out performance and pay discussions. Compensation decisions should be based on the financial performance of the company, the importance and value of an employee’s skills, the cost of replacing them and the general labour market rather than directly linking employee ratings with salary increases or bonuses. The performance management process is often relied on as the core tool to develop compensation, development, leadership potential, and every other activity in a person’s career. This process should be “unlinked” as this makes it too onerous and shifts focus away from coaching and development.

5.      Provide training / skills: Managers need training on how to have meaningful, valuable and honest conversations with their employees and not just go through the motions avoiding the ‘important stuff’. Training should be quick, easy and embrace technology to ensure information is readily accessible (e.g. two minute video clips to people’s phones).

6.      Support and belief in the system from managers: Once trained, Managers need to be shown the value that the process can bring so that they can share their belief and set an example to others. Managers should actively work to achieve results for the system and take action against those who don’t, rather than just aiming for compliance or thinking of it as a ‘box ticking’ exercise. If there is not support at the top, there is going to be no accountability at the bottom.

7.      Simple, adaptable and useable systems:  Companies need to provide the right systems and environment to make performance management systems work and (symbolically) throw away the old forms. Performance management systems should embrace technology as there are many platforms out there which save time, are simple, easy to use, help track performance and promote continuous feedback. Here at Checkside, we use an online platform called Small Improvements – get in touch if you would like more information or help setting up a similar system at your workplace.

It is time organisations transform their current process and start doing something different – something that brings value out of the process – especially given the large amount of time allocated towards performance reviews.