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Why CEOs need to scrap employee performance reviews

Why CEOs need to scrap employee performance reviews

On any given day in most organizations in North America, you'll find a manager informing an employee that it's time for their regular performance review. And usually, the news is neither delivered or received with joy. Second only to firing an employee, managers rate performance appraisals as the task they dislike the most. The reality is that the traditional performance appraisal as practiced in the majority of organizations today is fundamentally flawed, and incongruent with our values-based, vision-driven and collaborative work environments.

The practice of giving employees annual ratings or performance evaluations is widely accepted as an essential and valuable tool throughout the business world. Amazon offers over 200 titles focused on this topic, with more than 50 published since 1994. Most employee performance reviews are annual processes, where the manager annually assesses the work of subordinates. In some cases, the employees also participate in self-review. In many organizations, annual salary increases are tied to the performance appraisals, and often as well, according to one study, managers often delay completing them because they are not motivated to do it.

Jim Heskett, writing in the Harvard Business Review says employee performance reviews rank with root canals on the list of least favorite things to do both for employees and managers. Heskett argues that the debate over the utility of performance reviews centers around a "forced ranking" system, made popular by GE, which not only purports to identify the top performers, but also the underperformers who can subsequently be "advised" to leave the organization.

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Supporters of a forced ranking system, Heskett says, cite its effectiveness because it averts lawsuits when poorly performing employees are fired. The opponents of the system say the system hurts teamwork and innovation. What little research there is on forced ranking systems show they produce only short-term improvement. It also avoids the obvious question-is the employee performance review system's purpose only to weed out poor performers?

Robert Sutton, Stanford University professor, says that performance evaluations do more harm than good. A 1998 study by Development Dimensions Incorporated, found that employers themselves expressed overwhelming dissatisfaction with performance reviews. The consulting firm, People IQ, in a 2005 national survey, found that 87% of employees and managers felt performance reviews were neither useful nor effective. . In an article published in The Psychological Bulletin, psychologists A. Kluger and A. Denisi report completion of a meta-analysis of 607 studies of performance evaluations and concluded that at least 30% of the performance reviews ended up in decreased employee performance.

Tom Coens and Mary Jenkins, in their book, Abolishing Performance Appraisals: Why They Backfire and What To Do Instead, detail studies that clearly show performance appraisals do not work and outline what could replace them. Garold Markle, in his book, Catalytic Coaching: The End of The Performance Review, argues that performance reviews have reached the end of their utility and should be replaced with a manager-employee coaching system.

Aubrey Daniels, a world renowned management consultant, argues in his book, Oops! 13 Management Practices That Waste Time and Money, that performance appraisals don't work and are actually counter-productive. Daniels cites a study by the Society for Human Resource Management (SHRM), which found that 90% of performance appraisals are both painful and don't work; and further, produce an extremely low percentage of top performers.

Charles Jacobs, author of Management Rewired: Why Feedback Doesn't Work and Other Supervisory Lessons from Brain Science, says that the brain is wired to resist what is commonly termed as constructive feedback, but is usually negative criticism. Brain science has shown that when people encounter information that is in conflict with theirself-image their tendency is to change the information, rather than changing themselves. So when managers give critical performance appraisal feedback to employees, their brains' defense mechanisms are activated, and the motivation to change is improbable.

Samuel Culbert, a professor at the UCLA Anderson School of Management, and author of Get Rid of Performance Review: How Companies Can Stop Intimidating, Start Managing-and Focus on What Really Matters, argues that employee performance reviews are "destructive and fraudulent." He argues that "it's time to finally put the performance review out of its misery," adding, "this corporate sham is one of the most insidious, most damaging and yet most ubiquitous of corporate activities." Culbert argues that the performance reviews "instill feelings of being dominated. They send employees the message that the boss' opinion of their performance is the key ingredient of pay, assignment, and career progress." He contends that the use of performance reviews is about "power and subordination, making condor all but impossible," and causing employee defensiveness and stress. Culbert goes on to argue that the practice is more about intellectual laziness and ego-building for managers, and it avoids having to tackle the hard work of changing organizational processes. What should replace the performance review? Culbert argues that something called a "performance preview," a process that holds the manager and members of the manager's team equally responsible for results.

Clearly, the annual performance review was designed for a work environment where control of individual employee performance was a key function. In today's team and collaborative environment, that perspective no longer makes sense. Some key questions that need to be answered are: Why are we perpetuating a system that research (including recent brain research) shows is not only ineffective, but counterproductive; and what are better processes to replace the performance review? And managers need to look in the mirror and honestly answer whether they use the performance review as a way of dominating and controlling employees, rather than demonstrating a transformational style of leadership.

 

 

Ray Williams is the author of Breaking Bad Habits and The Leadership Edge.

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