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Friday, December 04, 2009

Things to Blow Up I: Performance Reviews

In an industrial era where supervisors were "bosses" rather than coaches, where jobs were relatively unskilled manipulating things vs. information, and where the talent needed for these jobs was in ample supply was born the performance appraisal. The purpose was two-fold: force the occasion at least annually for the boss to speak to the worker about their performance and how they could do their jobs better, and provide a documented history of the worker's performance. That history, housed usually in the Personnel department, was primarily used for (1) review of the worker's history for purposes of promotion or reassignment, and in later years after the development of discrimination laws (2) documentation for the company to support its termination decision and defend against lawsuits.

W. Edwards Demming, the most progressive-minded and talented of all management gurus, advised American industry to end this practice in the 1950's. As is well-documented, his ideas were laughed out of the U.S. and promptly adopted in Japan whose industries recovered to outperform American companies for a generation.

The changes in how we supervise, how we work, the talent supply, and how we document have changed dramatically since the first performance reviews.

The mode of supervision has morphed from "boss" to "coach" with frequent and candid on-going communication happening throughout the year. No longer do you need to force an occasion for supervisor and staff member to talk.

The nature of the work performed in most jobs is now information-based. It is trackable and measurable and poor work is evident more quickly than in the industrial era, if not immediately evident. It is also evident to both employee, co-workers and the supervisor. A formal meeting is not required to point out opportunities for improvement.

The talent supply of information workers is not infinite. Yes, we have 15+ million people unemployed right now, but we simultaneously have highly skilled jobs open on all the major job boards like Monster and Career Builder. Thanks in no small part of the demise of public schools and nuclear families, we have lots of people and not so much educated talent. To keep this talent requires a softer, coaching-based supervisory mode that is antithetical to formal top-down performance reviews.

As Christian supervisors, we suck at performance documentation and constructive conflict. Rating inflation occurs in almost every workplace, but its a pandemic in Christian cultures. Most employees feel that they are above average and are insulted by an average rating, and supervisors don't want to insult their people. We find that comments on the appraisals are generally accurate ("Janie should not steal the company van to go line dancing during lunch hour") but are immediately followed by ratings of "Commendable" or "Outstanding". As such, this documented rating not only fails to help HR in defending against wrongful termination actions, it is actually a barrier that must be overcome in litigation preparation.

The review process does not build alignment. Reviews come at different times throughout the year. At different stages in the business cycle we have different needs and points of emphasis. Everything from the supervisor's mood to the department's budget-to-actual performance is different at each employee's review. The context is never the same for each review, and the review itself does not build alignment amongst and between the different jobs in the department and the department's role in the organization's goals and objectives. That's done informally by the coaching supervisor.

Because each employee feels they are above average, and is rated so by their supervisor, there is no meaningful link between rating and salary increases. In a 3% or 4% increase pool, if we rated based upon above average ratings, everyone would get 5-6%. To stay within budget managers typically disregard the ratings and give increases based upon other factors such as budget, position in market range, etc...

The review process is time consuming. It starts in HR where one of our staff members queries the payroll system monthly for a list of reviews due that month, and overview reviews from prior months. Next we send out an email list, and we follow up on supervisors with late reviews from prior months. The supervisors typically read last year's review to see if there's been progress made and then completes the review form, a process that takes all-together about an hour. The review meeting takes 30 - 45 minutes and involves at least two people, the supervisor and employee. The review form may or may not be sent to the second level supervisor for prior approval. It is always sent to HR for filing. All told, every review is the culmination of about 4 man hours. Multiply that by 500 people and you have the equivalent of one full-time employee's work for a year.

In summary, employees dread their annual reviews almost as much as their supervisors dread giving them. The vast majority of people leaving a review haven't learned anything new during the review meeting because they talk to their supervisor regularly throughout the year. The documented record, both in terms of how the employee is doing and the historical rating, are of limited value. The meeting does little to drive alignment between and within departments. The rating has little if anything to do with the eventual salary increase. The energy expended is significant for a process that adds little or not value.

So what should we do instead? We've discussed this with the ELT and will discuss it with all SVPs later in the month. Until then I'll reserve comment on what should replace the current system. Once we have SVP input I'll feel it appropriate to say more.

Question: What's your opinion of performance appraisals and how happy or sorry would you be to see them go?

1 comment:

Scott D. Winter said...

Excellent observations, Jim.

I've been on both sides of the review fence (giving and receiving), and no matter how you look at it, it just doesn't make sense. For many, the annual review has become a vehicle for getting extra cash, regardless of performance - i.e., the "cost of living" increase.

The best way I've heard it expressed is this - I (the company) am not going to give you a raise simply because you have been here for another year. Compensation needs to be tied to performance all through the year, not just at review time.