Employee Performance Reviews Do More Harm Than Good
One of my favorite things about working at Jackson Fish Market is that we don’t have performance reviews. I suppose it’s easy cause there are three of us and we’re all founder/owners of the company. ;) But i believe that even once we do have more traditional employees we won’t have performance reviews. Mainly because I believe they do way more harm than good.
Ask yourselves these question: does my company set a budget in advance for how much money they’ll award in bonus, salary increase, other compensation (stock) they’ll give across all the employees?
If your company does this, then the performance review’s main objective is to figure out how to divide up a pre-defined limited amount of money. Let’s play it out.
If you have 10 employees, where 2 people are super stars, 7 people are solid contributors, and 1 person is flailing, then you may be able to distribute the money equitably. But what if you have 5 stars and 5 solid contributors. Essentially, everyone is doing a good job. And shouldn’t they be? After all, you took the time to screen them carefully in the interview process. So now you can either peanut butter the money across them making no distinctions or you can grade everyone on a curve. If you do the curve, then your least solid contributor, who may be quite a good solid contributor (cause after all, you are great at hiring) is now treated like they’re flailing. And after all, we’re a capitalist society, and competition is good. Right? It makes everyone try harder. Right? But guess what, it’s hard to find good people. Treat that least good solid contributor like they’re flailing and they may leave. Or even worse, they’ll stay and turn into a flailing employee. If you take the other tack and peanut butter the rewards across your employees, then you’ve told the superstars that there’s no incentive for being a superstar and they may start flailing. And the only reason you’re in that pickle is because you told the superstars that they’d be rewarded individually in the performance review process.
Essentially, the performance review process incentivizes managers to always have only a small handful of super stars and a steady stable of bottom of the rung performers who can take the shitty reviews. There’s no incentive for having a balanced team of good performers. As a manager it’ll just screw you at review time.
The worst part of performance reviews is the message you send overall — that work is an employee vs. employee competition. I can think of countless senior managers who lament how their employees don’t work well together and don’t collaborate. I can think of countless line employees (and senior managers) who complain about the brutal and vicious politics in their workplace. How surprising that people don’t work as a team when their personal compensation (and more importantly, their sense of self-worth) is impacted so directly by a system of employee vs. employee competition. One where the expectations are set in advance. There is a top, there is a middle, and there is a bottom. And believe me, no matter what spin your manager puts on it, you’ll know exactly where you are when you get that performance review. Disappointment is almost impossible to avoid except for those consistently landing on top.
(BTW… this is all assuming that the manager in charge of the review process has the ability to distinguish talent from good politicians and ass-kissers. Often they don’t. Frankly, I’m not sure I was always able to make the distinction.)
And for those of you who work in companies that have obfuscated the curve in your review process, I guarantee there is one. Unless your company has an incredibly elastic compensation budget every year, you’re being graded on a curve, competing with your fellow employees, and yet you’re expected to be a team player.
Here’s an idea — how about eliminating performance reviews altogether. Instead, how about firing poor performers in a timely fashion rather than waiting for the forcing function of an annual performance review. That way the remaining folks can all go on with their lives of contributing and feeling good without the specter of individual performance review. Every day an employee still has their job means they’re doing it well. And if it’s important to reward people, how about we reward them as a team since that’s how we expect them to operate.
I used to run a big corporate review process for as many as 135 people. Not only was it hugely destructive, but it wasted an enormous amount of time that could have been spent shipping software. It also created even more work trying to undo much of the damage that it would cause every year.
Ultimately, I believe that performance reviews are a blunt object by which large corporations compensate for poor hiring, terrible line managers, and ultimately bad firing (i.e. not often enough and not soon enough). Basically, the corporation doesn’t trust its own managers to make quality hiring and firing decisions. When companies can constrain their manager ranks to only those that have a talent for leadership and a compassion for employees, they’ll be able to jettison performance reviews in no time.
UPDATES (based on feedback):
- I don’t believe that employees shouldn’t get feedback from their managers. Of course they should, consistently, honestly, openly, specifically, and compassionately. My main point is that performance reviews are a poor (and damaging) substitute for regular quality feedback and discussion
- It’s been pointed out to me that the curve is a way to spread talent around a company. I have heard this rationale before. I think that’s also destructive. Should good leaders who attract a talented team be punished? Should talented folks be forced to work for a poor leader just to get a decent review? A salary cap may be a good thing in professional sports. I don’t think it has a place here.
- Many people have asked… so if you get rid of performance reviews, how do you give critical regular feedback to employees? Good question. I’ll cover that in a future post.
Join the discussion 21 Comments
Rob
May 21, 2009 at 7:43 am
Fantastic! I just emailed this to every manager I’ve ever worked for at my big faceless corporate entity.
Shadow_x99
May 21, 2009 at 7:58 am
I hear you… But tell the guys who MBAs to do just that… They just don’t understand that kind of stuff… All drones if you ask me.
Ran
May 21, 2009 at 8:04 am
I have to disagree on one point – performance reviews are crucial for less experienced developers. In my opinion (and from personal experience) there is nothing more rewarding than a “pat on the head”, nothing less motivating than “you’re inexperienced, you should do better next year”.
Hillel
May 21, 2009 at 8:13 am
@Ran Of course employees need feedback, especially less experienced employees. I’m not saying they don’t. I am saying that performance reviews are often used as a substitute for regular, open, and honest feedback. And as such, they are a failure.
I also agree with you that “do better next year” is not motivating. But I also find that the generic “good job”‘s positive effects are short-lived unless they’re accompanied by specifics.
Scott Berkun
May 21, 2009 at 8:24 am
The only flaw in your argument is the curve – there is no law that says performance reviews have to be done on a curve.
You could just as well have 10% bonus in reserve for every employee, instead of one pile all the employees compete over.
I’m also convinced at least half of the stupidity of big company review processes is litigation fodder – they need to make paper trails to insure against future lawsuits.
Ben
May 21, 2009 at 8:56 am
So do you give people raises? If not, you’ll be treating everyone as a flailing employee or send the message the company is flailing or greedy.
And what do you mean by “reward people as a team”? When you reward people in that way, does everyone on the team get the same bonus? If so, you’re back to the problem that you’re sending a message to the stars that they’re working too hard to get the same reward.
I think you started off with a faulty assumption, which is that you can only give a small amount of compensation. Why not vary compensation according to performance and compensate everyone fairly. There’s no need trade one off for the other. It’s rare that you see companies hiring stars and compensating them very well, but the few that do normally perform very well as a result.
anon
May 21, 2009 at 9:04 am
Staying anon for obvious reasons.
It depends *grin* For example in banking your base salary is set and your bonus each year is up to x% of that salary. That is taken into account in setting the departmental budget, and it’s assumed everyone gets 100% of their bonus (which can be 50%-100% of their salary).
So in that scenario performance reviews work as a way to decide how much, if any, of a bonus someone gets because their bonus does not affect anyone else’s, there’s no central pot from which all monies come from.
The other problem you have (certainly in the UK) is you cannot fire someone in a timely manner unless it’s gross misconduct. You generally have to go through a written warning process and that can take an age. Whereas you can use performance reviews as a way to push people out.
Yes it’s simple when there’s three of you. It’s not so simple when laws, regulations and HR get involved because you’re in a company of 100+ people.
Jeff
May 21, 2009 at 9:13 am
@Hillel you are exactly right. Performance reviews are an institutionalized crutch to prop up bad management. If you’re not meeting with your people 1:1 regularly to offer feedback, praise, and constructive criticism, you’re not doing a good job as a manager. Performance evaluation is a continuous process, and if you’re doing your job as a manager there is simply no need for a the formal review process.
Josh Maher
May 21, 2009 at 9:50 am
I agree that the eventual execution of reviews is poor and fits your analysis. Definitely an execution thing though.
The point of reviews is still solid. You did a good job, you deserve a raise/bonus/day off – or – you are not doing so hot in this area and we really need to figure out how to grow you so that you can do better.
The purpose of the reviews is like a parent – to grow good people with lots of potential into great people (unlike a parent you can fire the people who underperform and aren’t interested in performing). Obviously good to great is a strategy we’ve all heard and focus on the business, the goals to make the business work, and having the right people in the right positions is important. Parents commonly use positive/negative re-inforcement with kids because it works – people of all ages respond to it. If an organization were large and the corporate goals were not visible at a tactical level, more tactical level goals need to be defined and some way to re-inforce those goals created.
I’m not saying that bell curve style management is correct, or that the pool of positive re-inforcement should always be spent. I am saying that people should be rewarded for hard work and recognized for improving themselves within the context of the business. Reviews are intended to do this, even if most larger corporations forget this and execute them poorly.
Hillel
May 21, 2009 at 9:56 am
@Josh
Of course I agree that feedback is good. I’m not confused on that. What i’m saying is that formal annual performance reviews are not a substitute for regular, consistent, honest, and open feedback. And, I also contend, that this is exactly how they are being used in many cases – to the detriment of the employee and the team.
Dorian Taylor
May 21, 2009 at 10:09 am
I think another key component of this strategy is to expose it to the people involved, as it would presumably have the additional effect of dissipating, at least in part, the paternalistic nature of the employer-employee relationship to which so many organizations seem to revert.
So if you declare up front that the performance of the team is paramount, and you will be providing feedback in either direction as needed, a question arises in what constitutes clear and direct evidence of performance — perhaps repeat customers, or ratio of sales by referral of existing customers?
Another issue is the evidence of the opposite. Notwithstanding hazards common to all employees, there is one pernicious hazard to the software producer’s performance: accuracy of estimates.
Without systemic attention to gathering the data required to make accurate estimates (and making that data available to all), it will be those who cut the most corners and/or the most profligate in their padding who prevail over those who ultimately produce higher-quality work. Moreover, it’s not unheard of that a software manager, especially an ex-programmer, would goad a poorly-informed estimate (i.e. a guess) out of a subordinate, haggle it down to a figure they find the most convenient, and commit it into the schedule.
Any fire early, fire often strategy ought to take these notions into account.
Nate
May 21, 2009 at 10:12 am
@Ben–Carl Sewell basically suggests the same thing in his book. He puts everyone at his car dealerships on a performance-based pay system–commission for salesmen, pay per repair for mechanics, and so forth. If they perform well then they get paid more; if they don’t earn their pay then they quit.
The performance review system at most large companies is in place due to a schizophrenic combination of good intentions and laziness. Executives want to be able to say they measure their employees’ performance, but they don’t really want to spend the time necessary to measure it/reward it accurately. So they create a “measurement” system whose biggest virtue is its ability to process a large number of reviews very quickly. Nobody involved does anything good, but everyone gets to say they did.
Steve Romero, IT Governance Evangelist
May 21, 2009 at 10:36 am
I think this is a great post and you are absolutely on point with the travesty of most if not all approaches to performance reviews.
That being said, you actually highlight the necessity of this frequently damaging process in your last paragraph where you state, “that performance reviews are a blunt object by which large corporations compensate for poor hiring, terrible line managers, and ultimately bad firing.”
YES! Which is precisely why organizations have them! Do you have any idea how much blood is going to gush from the wound created by the circumstances you list above if we pull off the performance review band-aid?
So let’s say every Enterprise accepts your argument, which frankly few could rationally counter. What next? Set them on the path to correct the deficiencies you cite and watch some real “flailing.”
Which is precisely why I believe that organizations that advocate and foster good leadership and sound governance and their associated processes can create an environment that corrects all of the inadequacies you cite. Which means we have to convince Enterprises that they lack good leadership and sound governance and the associated work processes that enable their people to succeed and thrive.
I say “we” because this is what I try to do every day, and I am delighted by posts such as yours that I am not alone in my quest.
Steve Romero, IT Governance Evangelist
http://community.ca.com/blogs/theitgovernanceevangelist/
Andrew
May 22, 2009 at 4:12 pm
As you say it all comes down to money. How do you reconcile the desire to give higher rewards to people who contribute more with the desire to align the self-interests of the employees with your objectives as a business owner?
About the closest I’ve ever seen in actual practical use to resolve this dilemma is to still give variable individual merit increases based on individual performance but also to pay an identical bonus to every person on a team that meets predefined certain project criteria.
By the way, a team in and of itself does nothing. The concept of a team is a useful abstraction to managers who use it as a work estimation and scheduling tool but at the end of the day it’s individuals that do the work. It’s when those individuals coordinate their efforts towards a common goal that all the good things associated with the term teamwork occur.
Jamie Resker
May 25, 2009 at 3:15 am
It’s safe to say that from the perspective of most managers, employees, company management and HR folks that the performance evaluation process falls short of everyone’s expectations. It is a process that is stuck in the 1950’s! Sure there are “new” web based performance evaluation tools that seem to have all the bells and whistles, but they’ve largely taken an old fashioned process and automated it (and made it a lot more costly). People need helpful honest regular feedback on what they do well (and should continue doing) and one or two areas for development. Areas for development should be translated into goals and milestones designed to help the employee achieve developmental objectives. An annual performance review is like receiving a report card. It’s just not all that helpful, particularly if the manager uses it as a replacement for feedback that should have happened in the moment. The WORST is when the manager uses the performance evaluation crutch to present negative comments for the first time. Such was the case with me when I was in my early 20’s. I’ll never forget how blind sided I felt when my boss presented this new information to me during the performance meeting. I thought, “wow, what a jerk!” Then of course there was the boss who had me write my own review. I thought, “you can’t even take a half hour to formulate your thoughts about my performance, wow, what a jerk!”. We’ve all been on the receiving end of this type of experience- it’s probably why we’re all so opinionated on this topic. I recently worked with a Boston based company that was implementing this process for the first time in their organization. We made the form 1 page and called it The Performance Feedback Discussion and Planning Map. Here were the sections:
1. Strengths (examples and how they add value)
2. 1 – 3 Areas for Development/Growth- notice it’s not “Weaknesses”. Who wants to hear that?
3. Goals (areas for Development/Growth are translated into objectives in this section
4. NO RATINGS: The focus is on having a collaborative discussion and not on “you’re a 2.75.” Any way you slice it no one wants to be assigned a number and raters hate doing this. It gets in the way of having a good discussion.
5. Compensation is separated from this process – won’t get into the formula in this post, but know that this organization has a way of calculating increases based on overall performance effectiveness.
6. This process occurs 2 times per year
7. Employees were given the skills/tools to allow them to collect feedback in between the formal process.
Personally I’ve seen 15 page evals with everything but the kitchen sink in the document. The most important information may not find its way into the appraisal form or any in between conversations. Most employees agree that the annual performance evaluation process does little to provide the key insights and direction they want.
Check out Rypple.com which seems to be the only new approach to this dilemma in decades! Unlike typical organizational designed processes Rypple let’s the employee gather the information they need to develop. It’s a light weight web based tool that has the look and feel of a social networking site and allows employees to ask what they want, when they want, of who they want and how often they want. Personally I use Rypple all the time to get feedback from people I trust. It’s about time we throw the tired, old fashioned, out of date traditional review process overboard.
Apolinaras "Apollo" Sinkevicius | LeanStartups.com
May 31, 2009 at 2:20 pm
Performance reviews are very reactive in nature. It is just another paper-pushing activity. Now I am not sure how it works in the big company world, but in the startup world (where I spent most of my 12-year career) being reactive mostly leads you to the demise of the company. Feedback from managers and line employees should be a continuous circle to ensure proactive behavior. Without continuous communication, we simply get turn into fat, lazy, wasteful organizations. If managers can’t deal with that constant loop of communication, than they should be fired, just like any line employee who is not capable of the same.
Another point to bring up, sometimes we hold onto our poor performers out of pity – a behavior that hurts the entire company. Rip the bandaid off and get it over with!
Tim Smith
June 27, 2009 at 5:16 am
This is a good thread and it makes me think about how I treat and view performance and capabilities of our small group of people. It is hard to figure the pay issue sometimes and feel like you are treating all with due respect. I view my employees like a baseball team. We have a somewhat superstar, a solid batter who goes in slumps periodically and a few decent hitters, sometimes close to the trading table due to erratic performance. I don’t feel any companies get superstars and great performers only as their would be too much ego involved. I think most teams our made up kind of like ours if you really look close. My take on pay is we keep raises consistent for all yearly, then we look at our bottom line for the year and if their is spare change we sit down and figure a disbursement that is based on employee performance and attitude. We don’t have a formal review process but we are lucky that we are small and can see what and how each one is performing. The superstar does get the most, the solid performer second and the day to day sometimes erratic players get the least but still a decent portion. One thing, we do not pay on income brought in but look at the whole picture of quality, attitude, then income. We do not have a formula, we have a feeling which drives what we do. A little old school but it seems to work for us. By the way, we are in a much different field than most or all of you.
charley matera
August 31, 2009 at 10:23 am
Ed Deming, father of modern quality initiatives, abhorred performance appraisals. He advocated their abolition more than 50 years ago! His argument: 1. they are more demotivating than motivating on balance, 2. what is more important is the performance of the organization, not the individual (hence his success in Japan and failure in the US)
This second consideration is, I believe, the reason we still do performance appraisals: the individual remains paramount despite the declaration by Peter Senge in 1991 The Fifth Discipline that “teams, not individuals will be the basic work unit of the future….because there is too much information relevant to any (significant organizational)endeavor for any one person to be able to hold and manage.”
The point is by continuing to evaluate individuals and not teams or work groups we will perpetuate a paradigm of a business age we no longer live in. Evaluate both instead: balanced appraisal, rewarding in balance accordingly but with primary emphasis on the team’s performance and the individual’s fate tied to it. Complaints about lesser performers? This was Deming’s point: it is everyone’s job to be responsible for the performance of everyone. By doing so, the performance of all was elevated over time. Then again, maybe we just aren’t ready for this paradigm shift.
Consider the alternative, that the Wall Street debacle of recent times was the product of individual(dare I say rogue?), not team performance and suffered from just the reason Senge said the individual as basic work unit is now history. But the real issue of individual v team performance appraisal is deeply rooted in our egoistic, obsessively competitive self-images. That change is far, far more difficult. Without it, performance appraisal will remain in the old paradigm and at best only marginally serve assessment in organizations.
SickoftheBS
September 21, 2009 at 7:27 am
Can’t agree with this topic more.
The faceless worldwide entity I work for is abysmal for PR’s. First off, every year we need to fill out the same forms as the managers as a self evaluation, and then we need to sit with the managers as they fill out their copies of the form with what we filled out right beside them. Talk about wasting everyone’s time here. And they don’t even pay attention to what you wrote and fill it in with what they want anyways so whats the point of the self evaluation?
The rating system is 4 out of 5, but you can never ever reach a 5. Excuse is “You can always do better”. I have a flawless attendance record, am never late or leave early, and yet I can do better?! How is that employee motivation when you can never be good enough? And then they want short term and long term goals and tell you what they expect of you with very little to absolutely no follow-up or training. All this for a 1/4 of 1% (or less) pay raise for a grand annual increase of under $100.
After 4 years of this B.S. I just rate myself a 5 in everything and my goals are all “To make money to pay my bills”. Saves me the headache of wasting my time.
And I really do wish that I worked for a company that even remotely thought of giving out bonus’s.
Columbus OH Homes for sale
May 21, 2010 at 2:14 pm
You are so DEAD ON when it comes to peer competition being in direct conflict with the goals of the company. Employees are so busy with the CYA process and buck passing that they aren’t really driven toward the managers/co.s most important objectives. Sure would like to make it different. Hope future posts answer this problem cuz it seems impossible.
Columbus Self Storage
July 16, 2010 at 6:53 am
all i know is employees hate when someone is always critiquing them. the thinking is …as long as im doing my job, LEAVE ME ALONE! no need to examine every aspect of how i do it. Don’t “sleep under the blanket of freedom that i provide and then question the manner in which i provide it!”