VideoWorking as a senior finance executive at Boeing would be a pretty great job, right?
Before you answer, consider what would happen during your annual review: CFO Michael Sears would gather all your direct reports in a room, where they would discuss your strengths and weaknesses. Then he would confront you with their opinions, citing examples to back him up.
Few finance executives — or anybody, for that matter — would be completely comfortable with such a review process. But Sears swears by it. As far as he knows, it hasn't scared anybody off, he says, and he's used the approach for more than 10 years.
"Some people look good from the top down," says Sears, "but they don't look so good from the bottom up. And if you just gather paper data on a person, it's hard to get at some of the real issues."
Sears isn't the only one complaining about the limitations of traditional paper-based evaluations. What's wrong with older processes, many HR experts say, is that they tend to quantify what employees do, rather than how they do it. At best, traditional reviews identify and grade skills, while offering little real qualitative insight into performance. At worst, they deal with irrelevant skill sets, and burden managers with rafts of evaluation forms that lack correlation to company goals. Such failings might explain why, according to a study conducted by the Society for Human Resource Management, only 61 percent of HR managers are satisfied with their overall evaluation systems. Indeed, many managers have been scrapping their old systems altogether.
It's no surprise, then, that alternative performance-evaluation techniques have been gaining ground. In addition to Sears's technique — a particularly intense version of the 360-degree peer review — some companies have adopted ranking schemes, employee-driven appraisals, various hybrid skills assessments, and an approach that might be called the enlightened nonreview.
HR experts suggest that despite employee fears, and, in some cases, controversy over their use, alternative techniques can be worth considering. Even though the methods take more time, management energy, and interpersonal communication than do traditional reviews, they can effectively identify true competencies.
The 360 Terror
Competency-based performance management, in fact, is the backbone of most of the alternative approaches. Competencies, associated with the "how" of an employee's style, are "a set of personal traits or habits that are related to superior job performance," says Michael Schwalberg, a Scarsdale, New York- based clinical psychologist and co-author of Leverage Competencies, published last year by the Financial Executives Research Foundation. In contrast, the far-narrower "skill" elements describe what an employee can do: negotiate a contract or prepare a budget, for instance.
Particularly in vogue these days is the "360," through which employees are evaluated by their direct manager, their own direct reports, departmental peers, and others within the organization — as well as customers and suppliers, perhaps. A William M. Mercer study indicates that last year, 26 percent of companies used such "multirater performance management," up from 11 percent in 1995, and that another 20 percent are considering it.
"You can be the best salesperson in the world, but if you're alienating your internal or external customers, you're not our best employee," says Kathy Baum, HR director for Glacier Hills Retirement Community, in Ann Arbor, Michigan. She became familiar with the 360 a few years ago as HR manager at the National Center for Manufacturing Sciences (NCMS), a nonprofit Ann Arbor research-and-development organization. To identify and evaluate employee behavioral competencies, the NCMS included a 360 element in its evaluation process in 1995. Supervisors selected reviewers for their subordinates, although they allowed the subjects to suggest some changes to the list. Reviewers then rated employees on a one-to-five scale in various categories, and results were presented to subjects in a graphic format.
In line for her first review, "I was terrified," says Baum. "But when I finished panicking, I became converted to the entire process." For one thing, she explains, the review carries far more weight if it includes peer opinions. "If you were my supervisor and you were always saying that I needed to do something better, eventually I'd write that off as being picked on. But if my peers were saying the same thing, I'd realize that it's not just my boss."
NCMS employees' merit increases were based 20 percent on the results of the 360 review and 80 percent on direct performance criteria, such as meeting budget or accomplishing a previously stated job goal. In the last two years, the NCMS has stopped doing 360s, citing workforce shrinkage from 120 to 34 employees — a size that made it "hard to keep the personal feelings out" of a 360 review, according to current HR director Sue Cruden. "A hundred people is breakpoint for a truly objective, anonymous 360," says Cruden. "Any less and it doesn't really work."
In a way, Cruden's concerns mirror those of the critics of 360s, some of whom claim the reviews are basically popularity contests. While Baum concedes that can be the case, she says companies can prevent this by developing a consistent, repeatable, and fully anonymous system.
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