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Why Performance Appraisals Don't Improve Performance

Performance appraisal systems and the Bell Curve need to be scrapped

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. There is compelling new research that shows performance reviews actually don’t improve performance, and may actually cause a decline in performance. Also, performance reviews are tied to the Bell or Normal Curve, which is now being seriously questioned.

Performance reviews have been around for ages, apparently as far back as third-century China, but were popularized during the Industrial Revolution. Certainly by the l980’s performance appraisals in the form of GE’s CEO Jack Welsh’s “rank-and-yank” system were widely used in organizations.

New research by psychologists at Kansas State University, Eastern Kentucky University and Texas A&M University examined how people respond to negative feedback they receive in performance reviews. Conventional wisdom is that people who are really motivated to improve their performance would respond well to getting critical feedback in a performance review. The research demonstrated this wisdom is wrong. Those employees who have a desire to learn and grow—presumably the best employees—were significantly bothered by the negative feedback they received. One of the authors of the study argues that if negative feedback has the potential to discourage even the best performers, then managers need to be aware that what was meant as praise doesn’t get misconstrued as criticism.

These conclusions are echoed by Stanford University Professor Bob Sutton comments that doing performance evaluations well is like doing “blood-letting well—it is a bad practice that does more harm than good in all or nearly all cases.” Sutton argues in his book, with co-author, psychologist Jeffrey Pfeffer, Hard Facts, Dangerous Half-Truths And Total Nonsense, “performance rankings can lead to destructive internal competition, which can make it tough to build a culture of knowledge sharing….In addition, there seems to be a self-fulfilling prophecy at work, in which a person who receives a poor evaluation does even worse in the subsequent rating period.” 

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. Many specialists in the field have written about ineffective performance reviews. Tom Coens and Mary Jenkins, in Abolishing Performance Appraisals: Why They Backfire and What To Do Instead, cite studies that clearly show performance appraisals do not work and suggest a replacement; and Aubrey Daniels, author of Oops! 13 Management Practices That Waste Time and Money, argues that performance appraisals are actually counter-productive. Daniels cites a study by the Society for Human Resource Management that found 90% of performance appraisals are painful and don’t work; and they produce an extremely low percentage of top performers.

Brain research shows that when a person’s status is threatened—which often happens in performance reviews that contain “constructive feedback”—activity diminishes in certain regions of the brain. David Rock, author of Your Brain At Work, and director of the Neuroleadership Institute, says that when that occurs, “people’s fields of view actually constrict, they can take in a narrow stream of data, and there’s a restriction in creativity. 

Performance reviews are tied to our belief in the Bell Curve, or “normal curve” a system first developed by Abraham de Moivre in 1733. Its use moved from the observation of planets to the use in population statistics in the 19th century and finally used in an evaluation of the performance and intelligence of individuals.

Josh Bersin in his article in Forbes on the myth of the Bell Curve says the curve “does not accurately reflect the way people perform. As a result, HR departments and business leaders inadvertently create agonizing problems with employee performance and happiness.” Bersin cites how Microsoft has decided to disband its performance management process, --“after decades of use the company realized it was encouraging many of its top people to leave.” Bersin cites the research by Ernest O’Boyle Jr. and Herman Aguinis who found that 94% of researchers, entertainers, politicians and athletes did not follow a normal distribution but rather a “Power Law” or “long tail” distribution, in which there are a small number of “hyper high performers,” a large number of “good performers,” and a smaller number of “low performers.”

So what is the alternative to performance appraisal systems? If you want to develop the good performers and hyper high performers, companies need to focus very heavily on “collaboration, professional development, coaching and empowering people to do great things,” says Bersin.

Clearly, the annual performance review was designed for a work environment where control of individual employee performance was a key function. In today’s 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?

 

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

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