One of the critical resources of any business, often the most critical, is human capital. People build the products, provide the services, process financial transactions, help customers, and managers supervise these individuals to make sure the work is done. Just as non-human resources are managed and monitored, performance evaluations arose from the need to quantifiably manage and evaluate the performance of individuals as compared with others. The execution of performance evaluations are often dysfunctional, or some would say diabolical, as currently practiced. This paper examines the value of performance evaluations and suggestions for improving the practice.
Most employees are familiar with the annual performance review and numerical rating systems. According to Rock, Davis, & Jones (2014), a weakness in the systems common in the 1970s was managers rating everyone in the middle to avoid problems, which led to the forced ranking system, popularized in the 1980’s, requiring managers to rank some employees high and others low. Kwoh (2012) reports that the forced ranking system, though often called by different names, is still used by about 60% of Fortune 500 companies and some companies, like AIG, use forced ranking to grant proportional bonuses based on scores and identify the lowest performers who must improve performance or be dismissed. Other programs, such as 360 degree feedback programs, solicit information from supervisors and peers to provide analysis of employee performance (Jackson, 2012).
Emotionally charged meeting
Performance evaluations are generally unpopular with managers and employees. Some view it as an “empty process, an HR requirement” and companies consistently give low marks to the value it provides to the organization (Becom & Insler, 2013, p. 43). “Studies show between 6o percent and 90 percent of employees, including managers, dislike the performance evaluation” (Noguchi, 2014, para. 1).
The evaluation setting creates a high-stakes interaction as the employee knows that he or she is being judged by the manager and, in 360 degree evaluations, fellow workers. Without adequate managerial training or safeguards, performance evaluation systems can result in poor employee analysis or mean-spirited bias to the detriment of the employee’s morale and advancement since the ranking will be part of the human resources record. Rock, Davis, & Jones (2014) cite research by the firm i4cp that 75% surveyed thought their performance system was unfair. Buckingham & Goodall (2015) observe “ratings reveal more about the rater than they do about the ratee” (p.44). Culbert (2008) notes that a weakness of 360 degree evaluation system is that peers can use evaluation to settle scores with employees and managers who have wronged them. Workers can also use the 360 degree feedback to discredit fellow employees to increase their chance for a higher bonus. A Microsoft programmer confessed that in a rating system, which Microsoft has since abandoned, the “employees [were] focusing on competing with each other rather than competing with other companies” (Rock, Davis, & Jones, 2014, para. 19).
Creating distrust instead of cooperation
The performance evaluation should provide an opportunity for the manager and employee to cooperate for mutual and organizational success. In reality, the manager often enters the discussion to address uncomfortable issues and justify compensation decisions while dreading the emotionally charged response of the employee who may cry foul and debate the manager’s observations (Culbert 2008). Since most performance evaluations are tied to compensation adjustments and bonuses, the employee may tune out feedback or spend time trying to decide whether the feedback is leading to a positive or negative pay result (Noguchi, 2014). Instead of a constructive relation-building exercise, the performance evaluation can drive a wedge into the manager-employee relationship and create tension and distrust.
Reforming the review
Some companies are trying to reform their performance evaluation process by decoupling the performance management and compensation discussions and using the performance review to provide mentoring and feedback. Effective systems hold both the manager and employee accountable for engagement (Markos & Sridevi, 2010) and allow leaders to encourage performance, act as role models, and celebrate the average performer who still provides a valuable service to the organization (Becom & Insler, 2013). By taking pay confrontations out of the discussion, the manager and employee can focus on professional development and achieving corporate and departmental objectives. Many companies are reforming the process by moving from an uncomfortable annual review to a periodic, or continual, feedback approach. Deloitte has retired the annual review, which consumed almost 2 million hours per year, with employee observations by managers and peers shared when a project ends or, for long projects, quarterly (Buckingham &Goodall, 2015). Some companies, like Juniper Networks, hold special conversation days that are not documented and credit the practice with success in retaining top performing employees (Noguchi, 2014). Deloitte describes their changes as “a continual focus on the future, through regular evaluations and frequent check-ins” (Buckingham & Goodall, 2015, p. 50). Continual conversations about the employee’s performance allow for course corrections in the present rather than identifying weaknesses in the past.
All companies evaluate employee performance, whether formally or informally, and so the process should be fair to the employee, empowering, and build up the relationship between the manager and employee. A dysfunctional process is disruptive and ineffective and should be reformed or replaced. Performance evaluation systems that help managers develop and retain talented workers will provide a strategic advantage over companies who will not change.
NOTE: This was taken from a research paper I wrote for a business class.
- Becom, A. & Insler, D. (2013). Performance management – a bad process or a broken promise: Transforming annual appraisals to an effective business process. People & Strategy, 36(2), 42-44.
- Buckingham, M. & Goodall, A. (2015). Reinventing performance management. Harvard Business Review, 93(4), 40-50.
- Culbert, S. (2008, Oct 20). Get rid of the performance review! Wall Street Journal. Retrieved from http://www.wsj.com/articles/SB122426318874844933
- Jackson, E. (2012, Aug 17). The 7 reasons why 360 degree feedback programs fail. Forbes. Retrieved from http://www.forbes.com/sites/ericjackson/2012/08/17/the-7-reasons-why-360-degree-feedback-programs-fail/
- Kwoh, L. (2012, Jan 31). “Rank and yank” retains vocal fans. Wall Street Journal. Retrieved from http://www.wsj.com/articles/SB10001424052970203363504577186970064375222
- Markos, S. & Sridevi, M. (2010). Employee engagement: The key to improving performance. International Journal of Business and Management, 5(12), 89-96.
- Noguchi, Y. (2014). Behold the entrenched – and reviled – annual review. National Public Radio, transcript. Retrieved from http://www.npr.org/2014/10/28/358636126/behold-the-entrenched-and-reviled-annual-review
- Rock, D., Davis, J. & Jones, B. (2014, Aug 8). Kill your performance ratings. strategy+business. Retrieved from http://www.strategy-business.com/article/00275?pg=all
- Wright, P. (2013). Some practical thoughts on annual performance management process. People & Strategy, 36(2), 54-57.