Jim Holincheck

Ok, I cover the market for solutions that help automate performance reviews.  So, if you think that makes me biased, so be it.  However, I thought it was important to post about a recent Wall Street Journal article called "Get Rid of the Performance Review!".  The author offers seven reasons why performance reviews are ill-advised and bogus.  I will offer commentary (and counterpoints) to each:

• Two People, Two Mind-Sets — The author believes the boss and subordinate have different motivations.  The boss wants to discuss where performance can be improved while the subordinate is concerned about compensation and career advancement.  I think this true, but not irreconcilable.  That is the whole point of pay for performance.  An employee should be concerned about improving performance if they are concerned about compensation.  Likewise, a manager should be concerned about development (including career development) if they want subordinates to improve performance.
• Performance Doesn’t Determine Pay — The author believes market forces are the primary determinant of pay.  Certainly, market forces do drive total compensation as well as the ability to pay bonuses.  However, most organizations (studies show nearly 80% in the US) have some sort of variable pay program.  Companies that truly differentiate performance (that is a pre-requisite — if there is grade inflation, all bets are off) can also differentiate that variable compensation.  This is also an important point.  Some companies that do differentiate performance do not always differentiate bonuses and stock allocation.  However, a well-conceived and administered pay-for-performance program can motivate employees to improve performance.  I do not buy the argument that a performance review is a "cover story" to justify pre-determined pay.  There are certainly boundaries placed on pay based on market forces, but in many organizations there is a lot of flexibility within those boundaries.
• Objectivity is Subjective — For some jobs, performance evaluation is actually quite objective.  There are easily quantified for metrics to evaluate performance in jobs like call centers and sales.  The challenge is that for many jobs there is going to be a subjective evaluation.  The author is correct to point out that there are always going to easy graders and hard graders.  However, that is why it is important to at least try to make sure that managers are using the same criteria for evaluation.  It is also why it is so important that organizations do calibration (are you listening vendors?) to minimize grading differences.  The author I think misses the point on the 360 reviews however.  360 assessments are typically used for development, not performance appraisals.  Some organizations certainly get feedback from multiple people in determining performance, but that is different (and certainly that feedback has to be taken with a grain of salt as the author points out).
• One Size Does Not Fit All — I do not know where to begin on this one.  Performance reviews have structure so that there is a consistency in terms of what is evaluated in each position.  However, what is actually put in the review and the subsequent conversation around can be individualized.  In addition, you do have to evaluate the right competencies and goals for the job and the individual.  I think the author and I agree on that point. I have often told clients (and others) that garbage in = garbage out.  If a reviewer enters boilerplate information into a review that is the same for everyone and does not take the employee conversation seriously, you will get poor results.  If the manager is not assessing the right competencies or the wrong goals are set, you are going to get sub-optimal results.  However, you would still get the same poor results even if you did not have performance reviews because the manager in question is a poor manager.  Performance reviews are not the problem.
• Personal Development is Impeded — I am sorry but I just do not get the justification on this one.  As I understand the author, subordinates will not turn to a boss for development advice because they do not understand them well-enough (I guess because the subordinate does not think the boss has captured reality in the performance review).  In addition, the author asserts subordinates do not want bosses to know their weaknesses because it could come back to haunt them in a future performance review.  There is certainly plenty of research that shows that the relationship between subordinate and boss is the important factor in employee engagement (and ultimately productivity and performance).  There are plenty of bosses who do performance reviews and have good relationships with their employees.  They are not mutually exclusive.  If a subordinate does not trust the boss, regardless of whether or not there is a performance review, there are going to be issues.
• Disruption to Teamwork –  The author contends that the performance review is one sided and gives all of the power to the boss and creates a "conflict of interest" in effective teaming.  This certainly can happen.  However, it does not have to happen.  I know one professional services firm that allows any person at any level to provide performance feedback for any other person regardless of level.  It works in their culture.  360 assessments and employee climate surveys can also be useful in identifying managers that are too one-sided.  To look at the performance review alone is does not paint the full picture.
• Immorality of Justifying Corporate Improvement — The author thinks it is immoral to maintain the facade that annual pay and performance reviews lead to corporate improvement (leading to more bogus than valid activities).  The author cites no authority for this assertion.  There is ample research including the annual Watson Wyatt Human Capital Index studies that show companies that utilize best practices in "Total Rewards and Accountability" have significantly higher total return to shareholders than those who do not.  Obviously, there are companies that "talk the talk", but do not "walk the walk".  There is plenty of other research that show employees do not feel performance reviews are fair, consistent, etc..  It does not mean that performance reviews are not worthwhile, it just means that you have to have a healthy performance-based culture to make it work.  If you try to do pay for performance and align it with corporate objectives without the right culture, it is probably doomed to failure.
• The Alternative — Performance Previews — The performance preview is future-oriented.  It focuses on what supervisors expect from subordinates and how they can work together to accomplish what both want to see happen.  It is not an annual process.  Rather, it takes place anytime boss and subordinate are not working well together.  I do not see this as a wholly new idea.  It groups some good practices together under a single banner (which is not a bad thing).  Many organizations do goal setting at the beginning of the year to level set expectations of supervisors with subordinates.  If there is training or other resources required to meet those objectives, those issues can be identified up front and addressed.  However, the author makes a good point.  Sometimes, this is the only time these issues are discussed.  They are not discussed again until the end of year performance appraisal (or maybe in a mid-year conversation).  However, the performance appraisal should not be the be all end all of the performance conversation between managers and employees.  Informal feedback and discussion are important and supplement the more formal performance appraisal process.  I do not think you have to throw out performance appraisals to get the benefit from informal performance discussions.

Even though I am speaking up for performance reviews, I do recognize that they can cause more problems than they solve.  I also realize that many organizations do not have the right culture, systems, structures, and trust (between line employees and management) to get good results from performance appraisals.  However, I do not think that means we need to throw out the performance reviews.  It just means there is room for improvement.  I do believe accountability is important.  I do believe compensation and rewards can drive specific actions and behaviors (you just have to be careful they are the ones intended).  So, it would be a mistake to get rid of performance reviews entirely.

What do you think?  Are performance reviews a good thing?  Do you think the idea of performance previews is a better approach?