Dear Manager, performance reviews do not work

By Line Bloch, 10. January 2016

In most cases useless – but in most downright demotivating!

You are doing it with the very best intentions, and I guess that you are doing them right now, if you didn’t finalise them just before Christmas. Performance reviews.

You probably do it to provide feedback, to appreciate and acknowledge the employees and their contribution, and to make employees improve their performance. You use it as a fair tool to distribute compensations, to evaluate and keep track of talents, and less positive: you may also do it to collect a paper trail in case you need to fire someone.

The secret – which your HR organisation very likely have discussed internally for some time – is this: It does not work (perhaps except for the paper trail-thing). In best case it is useless, but in most cases it downright demotivates your employees.

This is part 1 of 2, where I point out the problem. In part 2, I suggest a solution.

The problems about performance reviews

As I see it, there are three main problems with performance reviews:

The ratings
The timing
The managers

Lest go through them, one by one.

1. The ratings are demotivating

Most companies uses a 1-5 scale to evaluate the employees once a year. Since the distribution of ratings tend to skew against the higher performance and hence devalues the rates (and we don’t trust the middle managers to be objective), some companies uses forced or ‘guided’ bell shaped distributions, like the one to the right.

In this example, 2% of the employees get the 1-score. We don’t want low performers, and if you get a 1-score, you are already on your way out. Sorry. Bye.

20% gets a 2 – usually called “approaches expectations”. This is of course not good enough, so these employees typically gets a performance improvement plan. We haven’t given up on them, but if they don’t improve, they could expect to get a 1-score next year. Are these employees demotivated beforehand, or will they be, when they realize that what they did, is not good enough? What is the egg and what is the hen?

Luckily,53% is doing fine and gets a 3. Management calls it: ‘meeting expectations’, and gives a little speak on how high the expectations are in this company, and how great it is to be able to meet them. But it is a 3 out of 5. It is average. Average sucks. Nobody wants to be average.

The last 25% quintile of the people is where you would want to be – getting ‘exceeding expectations’ (4) and ‘outstanding’ (5), but if you sum it up: you demotivate 75% of our employees by giving them ratings from 1-3. 75%. Can you run your company with only 25% of the employees being motivated?

One central problem is that since someone decided to force (or guide) the distribution into a bell curve, majority will get the average 3-score, and the manager have to take the difficult decision on who to give their 4’s and 5’s to and who not – even if they truly believe that most of the team is doing really good. Sorry, not your turn this year, even if you did a good job. Motivation killed instantly. Why try, if it is not formally recognized?

Quite many analysis and studies around the world actually document that the performance drops after the annual performance reviews. Even with those employees that you rated high. Not really what was intended, right?

2. The timing: It is too late and too little

In many organizations, performance reviews is an annual backwards-looking event. You probably defined the targets you evaluate during the first two months of 2015, and you probably aligned or added a few new targets during the mid-term evaluation, because you realized that quite much have changed since the beginning of the year – and the targets aligned in august, probably looks different now. But you still have to evaluate them.

Feedback is good, but giving feedback on targets set one year ago is useless, and you are missing the value the feedback could have imposed on the next task. Instead: You have do it regularly throughout the year, both when assignments conclude and during projects and operations. If you already do that, why even have the annual performance reviews? What does it add? Nothing.

3. The manager is subjective and does not know enough

In an organization where people work in projects, in self-managing teams or are empowered to take responsibility; the manager does not know enough to give proper rating without a structured process in place to collect feedback on the employees during the entire year. Do you have such process?

If not, any feedback – and even praise – gets hollow and useless to the employee:

How can you praise me, if you don’t have a clue about what I work with?

It also may leave the employee with a strong feeling of not being important enough for you to care.

In addition, managers are always subjective. Even when you try not to. You rate things different than your peer, of the simple reason, that both of you are humans with different perspective of the world. “That is why we calibrate”, you might say. Sure, but I don’t think that even a group of managers can avoid being subjective.

If performance ratings are used as input to track talent, and they are subjective evaluations based on sketchy data, calibrated to meet a bell shaped norm, where the employee have no right to appeal, then the result is given, it will for sure both damage company culture and never improve anything, least of all people performance.