Performance Review 2.0

The Year-End Performance Review Process: It’s Time for a Change

Over the past 30 years, I have been the recipient of 30 annual performance reviews, at six different companies, in three different industries. Based on my experience, along with what I know about the performance management process at many other organizations, I have come to the conclusion that no company has perfected this process.

However, based on the recent Harvard Business Review article, “Reinventing Performance Management” (April, 2015), I am encouraged that some progressive thinking is beginning to take place to fix a broken process. In the article, Buckingham and Goodall describe how Deloitte came to the conclusion that their performance management process was both overly time consuming and ineffective.

Deloitte found that their performance management process (for 65,000 employees worldwide) consumed close to 2 million hours a year! Similar to that of other organizations, their process included completing evaluation forms, creating preliminary ratings, holding ratings calibration meetings, creating final ratings and communicating the ratings. At the same time, in a survey conducted by Deloitte, more than half the executives questioned (58%) said that their current performance management approach drives neither employee engagement nor high performance. This data prompted Deloitte to consider how they could generate more value from their process. To read about how they are simplifying their process and moving away from talking about performance ratings, click here to view the full HBR article.

I applaud what Deloitte is doing and hope that more companies follow suit in an effort to facilitate meaningful dialogue between manager and employee in year-end discussions. On the other hand, for an example of a company that appears to be moving in a different direction, I suggest you read “The Day Marissa Mayer’s Honeymoon at Yahoo Ended”.  The article describes Yahoo’s move to a forced ranking system and the backlash that has resulted.

While the forced ranking approach may have worked for Jack Welch and GE, its application can have some unattractive consequences. Given the constraints of a forced ranking system, managers can only provide a rating of “greatly exceeds expectations” to a critical few. This is appropriate because not everyone can be a top performer, and managers have to make difficult decisions with regard to differentiating performance. However, problems arise when managers are forced to give excellent performers a lower rating than they would if not otherwise constrained by the distribution guidelines. Given that the vast majority of employees are working hard and continually “doing more with less”, this is a recipe for disaster. Nobody wants to work their tail off for a year and be told at year-end that they simply “met expectations.” It’s disengaging and demotivating in an environment where, according to Gallup, 70% of the US workforce is already disengaged.

Not only do I not believe in forced rankings, I would suggest that companies eliminate performance ratings altogether. While this may sound drastic, I am convinced that managers can have more productive conversations when they are not placing a performance label on the employee. When they do so, employee resistance increases and real dialogue grinds to a halt.

In the absence of performance labels, and the anxiety and resistance that accompany them, manager and employee can have more effective dialogue as they:

  • Discuss the extent to which the associate met expectations during the past year
  • Describe what the associate should start, stop or continue doing, behaviorally, going forward
  • Clarify expectations for the upcoming year
  • Explore the employee’s career aspirations, potential and development

Without performance labels, this critical year-end conversation can focus on what is most important –future performance and the employee’s career development. If the manager approaches this conversation in a thoughtful way, and leverages concrete performance data that informs the discussion, the year-end review can leave the employee feeling energized and engaged. Shouldn’t that be one of the desired outcomes from these year-end conversations?

In sum, I admire what Deloitte is doing and hope they are successful. I hope that more organizations will follow suit and we move away from not only forced ratings distributions, but performance labels altogether. Until then, we will keep doing what we’ve been doing and live with a system that does not provide a good return on the investment of time required by all concerned.

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