While I’ve only just returned from Better Software West (which was a great conference with some amazing presenters and conversations), I’ve been mulling over what to write about this week. A recent Forbes article provided the impetus I needed to talk about something that’s been bugging me for years – annual performance reviews. This practice dates back centuries (at least) but it’s perhaps the worst practice we continue to practice. The worst part is that we’ve known for centuries that it’s a bad idea. So why is it so bad?
The Annual Performance Review
For many decades, businesses have created processes to review their employees’ performance over the past year and establish goals to accomplish for the upcoming year. In some cases, this resulted in what was called “stacked ranking” where everyone in the organization was ranked against their peers (usually in the same pay or rating band) in a “one to N” list. At some companies, like Hewlett-Packard, a bell curve was applied to the ranked list with so many “high performers”, slightly more “exceeds expectations”, many “meets expectations”, and so on. And in some companies – but not Hewlett-Packard, at least when I was a manager there – they took Jack Welch’s advice and would release/fire the bottom 10%. Jack’s advice was so bad it probably warrants a separate article, but just know that I would be hard-pressed to disagree more vehemently with his idea.
Part of the reason for this annual ritual was to determine how any bonuses would be paid, how much salaries would be increased, and how managers would guide their employees. It also allowed the manager and the employee set the employee’s goals for the upcoming year. What kinds of things would that employee do to demonstrate personal and professional growth? What’s next for the employee’s career? Those kinds of things.
One Actual Benefit
One final reason is succession planning, usually at the prompting of HR. The HR team needs to understand who is being considered as an “up-and-coming” employee and how to get that person the training they need so they can make the transition to management. I may have concerns with how HR operates in general, but in this case, they’re on the right track. Provided that the company is looking at appropriate skills and talents to become a manager, this can be beneficial. The challenge is when we only look at our “top performers” in any particular role. Those people tend to make very bad managers. Alan Weiss, in his book The Consulting Bible, said that companies doing this destroy two jobs simultaneously. More on that later.
What’s So Bad About Performance Reviews?
There are several problems with this approach. Let’s tackle each one separately with the realization that this is not going to be a comprehensive list.
Once a Year
The main issue is that this is an annual check-in. In the absence of some other meetings set up by the employee and manager, this is the only time an employee’s performance is discussed. Imagine spending an entire year working on something and then getting “dinged” on your review because you didn’t meet your manager’s uncommunicated expectations? (And yes, I’ve had that happen to me.) But the fact that this is only happening annually leaves a lot of time for an employee and manager to get out of sync regarding expectations and deliverables.
Annual Goal Setting
Another challenge of the performance review is goal setting. I’ve personally experienced many years where what I thought I was going to do at the beginning of the year ended up changing by the second quarter (or earlier!). Most of our processes only allow changes during the review process. So if something changes in the business, the original goals are often ignored during the following review period. It’s just a waste of time to establish goals on an annual basis.
Promotions to Management
As I mentioned earlier, Alan Weiss said that promoting your top performers to management destroys two jobs simultaneously. Because you’re taking someone who is a very good individual contributor – your best one, in fact – and you’re moving them from that diminishes your team’s capacity in that area. And many times, these top performers may not be suited to be managers in a 21st-century sense. Management 3.0 recommends we consider our managers as “people gardeners” and not everyone who is a good technician has the soft skills necessary to succeed as a “people gardener”. People can absolutely acquire those skills – and this is where the HR succession plan work comes into play. But lacking that understanding, we sometimes do the wrong thing for the right reasons.
360 Degree Feedback (or Lack Thereof)
And sadly, in many companies, the feedback during a performance review is unidirectional. Managers talk with their employees. There’s no opportunity for employees to provide feedback on their managers. This further establishes the “superior/inferior” statuses that businesses have been cultivating for centuries. And I see that many HR groups actively work to dissuade feedback from the employees. At a former employer, if I wanted to provide a counterclaim to something my manager wrote that I disagreed with, I would have to get my manager’s approval to add it to my review. Talk about the fox being in charge of the hen-house…
Okay, So What Do We Do Differently?
I mentioned it earlier, but Management 3.0 combines a lot of different ideas into a coherent set of philosophies. Managers as “people gardeners” means – in some cases – radical changes to how organizations operate.
Stop Promoting Top Performers Because They’re Top Performers
Identify the people who can move to management and move away from the individual contributor mindset. My first six months at Hewlett-Packard after becoming a manager were hellish for me. I thought that I wasn’t being productive if I wasn’t in a meeting, on a conference call, or writing up a PowerPoint or report. Thankfully, HP had a philosophy of training new managers and, through that, I found my path as a manager. It took time and it took a lot of “unlearning” to get to where I could help my team, but I got there.
Start Regular Check-ins
Move away from annual performance reviews and have many more conversations with your employees. Adobe did this with something they call the Check-in Process. (Adobe is being awesome by making this publicly available via that link.) By meeting often – at least weekly – the manager and employee can set goals and expectations on much shorter timescales. It allows everyone to adjust if assignments or business needs change. It allows for faster feedback – before things go too far astray – and maintains a good running conversation.
Allow for 360 Degree Feedback
One thing I think is missing from most organizations is the ability for employees to provide feedback to their managers. In some environments, this is easy because the managers are very accepting. But having policies like the one I described earlier only serve to protect the company from the employee. There’s no opportunity to coach and grow your managers if no one can provide feedback. This is easy to do, but it can be uncomfortable for managers unused to it. But if your managers think it’s uncomfortable getting feedback, imagine how your employees feel when it’s unidirectional. It’s not a good thing.
Find Alternative Pay and Reward Structures
Knowledge workers, as we know from Dan Pink, have internal motivators beyond pay: autonomy, mastery, and purpose. Rather than looking at financial rewards (“I’ll give you $1,000 if you do this”) look to find other ways the employee can express themselves and feel motivated. Perhaps it’s time to work on a personal project. Perhaps it’s the opportunity to lead a small team. Finding what motivates your employees can open up a number of non-monetary rewards. A great tool for this is moving motivators. Many of us here have used it to great success with our employees.
Changing how our companies work is a long and arduous process. It requires commitment. It requires leadership. And it requires a willingness to change. If all you’re doing is putting different lipstick on the pig, nothing is going to really change. But if you and your management team commit and follow-through on doing away with annual performance reviews, your employees will be happier, you’ll be more connected to what’s happening, and you’re going to see far more productivity. Happy workers are productive workers. Let’s help make them happy!
Feliz entrenamiento, mis amigos! (Happy coaching, my friends!)