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The Scourge of Performance Reviews

While the purpose of employee assessments is well founded, in practice they invite mismanagement and should be replaced with different performance-enhancement tools.
David McCann, CFO.com | US
August 16, 2012

I don't like performance reviews, and I'm not alone. Not that they can't be done well. It's just that, owing to human nature, they rarely are.

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Let me count the ways they fall short: (1) Many people, including otherwise good managers, shy away from difficult discussions. (2) The typical numerical grading scheme is so subjective that getting a new manager only to receive a higher or lower grade than before is commonplace. (3) Some managers use reviews as a tool to bully, intimidate, get even with, or stifle the development of their reports. (4) Reviews create much stress in the organization, as managers don't like giving them any more than employees like getting them. (5) These days, employees are often required to assess not only themselves but also their managers, though it's anyone's guess how honest one can be without suffering ill repercussions.

To draw a line that's as arbitrary as most performance reviews, I guess I'll stop there.

I'm aware that my opinions are not shared by CFO's audience of senior finance executives. In a study by Robert Half released in July, 94% of 1,400-plus participating CFOs said performance reviews are effective in helping employees improve performance. On the other side, among 422 workers employed in office environments, only 62% said the same.

Here is the rationale of a finance chief who says she is passionate about the topic, Kelly Battles of 200-employee software firm Host Analytics:

"I'm not surprised that 94% of CFOs support reviews, because good CFOs are fact-driven. They don't want to just pay out a bonus or give a good raise on 'oh, I think this guy is doing great.' They want a fact base to drive those payouts. A CFO tends to value a metrics orientation, a results orientation, and a focus on creating a meritocracy more than the average executive.

"A performance review is not a natural conversation," continues Battles, "and it's one of those things about being a leader that is not easy or fun, but it's critical to driving better performance. In an ideal world, managers would sit down with their employees weekly, but in the practical world it happens infrequently. Even managers that are good at one-on-ones are typically fire-fighting the problem of the day. But how can you improve an employee's performance without having a regular discussion? Reviews force managers to have important discussions that don't come naturally."

Host Analytics gives two performance reviews per year. Battles says the company holds its managers accountable for their reviews by getting them together in a room where they show their grades and rankings across their teams. They keep talking until everyone is confident that, for example, two employees performing at the same level in different areas of the company are ranked the same.

Employees are graded on core competencies such as being a team player, a leader, a problem solver, and a communicator. But half of their grade, and half of their twice-annual bonus, is based on their performance on three specific performance goals established before every quarter. "It's important that everyone can leverage a piece of their compensation," says Battles.

That kind of review process does sound good, in several respects. Still, there are all kinds of crazy performance-review practices out there. One that drives me nuts is when companies insist that only a certain percentage of workers can get the highest grades. It basically says there is no way managers can hire and train a lot of people to be highly valuable employees. At a high-performing company, wouldn't you expect the opposite to be true?

This week I spoke with a relatively high-ranking official at a large, well-known organization in the Eastern United States that issued just such a directive this past spring. Speaking on condition of anonymity for both himself and his organization, he put forth these views:

"[My bosses] said that last year there were too many of the highest grades. That became a problem for the current year, because they had decided to link the rating to the percentage pay increase. So if too many people received the most favorable rating, there would have been a budget problem.

"But I don't think you should encourage rating people lower because of financial concerns. If there are such concerns, you should structure the compensation program so that you're living within your means.

"I acknowledge that there is a natural tendency, except in the case of a problem employee, to inflate the grades and say as many great things as you can. But in this case, the difference between the highest grade and the second-highest generated only a quarter of a percent higher pay increase. Here is a process where you are maximizing the downside, and the upside is only a quarter of a point?

"The absurdity of it! Just the fact that I'm engaged in broad, high-level meetings to have this discussion at all, and wasting all the time associated with it. When you consider the possible impact on the relationship, previously strong, between the supervisor and the employee, it doesn't hold together.


"I do believe there's value in a structured check-in point, but I think the typical homogenized forms and artificially numerical ratings do more harm than good. They depersonalize the process to a point where it takes away whatever value is there. And it's a way out for a poor manager to just default to the form — fill it out, check the box, I did my thing and I'm done."

Both viewpoints are legitimate and rationally stated. But while performance reviews are still pervasive in the business world, they are under heavy fire. The web is littered with articles by human-resources experts, psychologists, seasoned journalists, and others advocating that reviews as we've known them be abolished. I am in their camp, even though my work at CFO has instilled in me significant appreciation for many strong views held by finance executives. We should find a better way, and it starts with teaching managers how to give continuous feedback to the staff and making that one of their highest priorities.




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