Let’s Think Differently About Performance Evaluations

We should recognize that performance evaluations aren’t effective and instead develop a straightforward performance evaluation system that emphasizes employee development.

BY ED EVERETT, ICMA-CM (RETIRED) & MARY WELCH

A Call to Action

Let’s be honest. Performance evaluations haven’t helped in the past, are not helping now, and will not help organizations or employees in the future as they presently exist. Performance evaluations are hated equally by employees and supervisors, are an enormous waste of time and energy, and do not make organizations more productive.

So, let’s think differently about performance evaluations by jettisoning our present systems and creating new, meaningful, and effective systems.

History of Performance Evaluations and Appraisals

It is important to put any issue in context before deciding to change or eliminate it. Why were performance evaluation systems initiated? Where did they come from?

There is a basic human tendency to make judgements about others:

• In the third century, emperors of the Wei Dynasty rated the performance of family members.

• In the 1500s, the Jesuit Society developed a procedure to rate its members.

• In the late 18th century during the Industrial Revolution, workers were evaluated in order to pay them by piecework.

The concept of performance evaluations contined to evolve from there. The first significant federal legislation in the United States was the Pendleton Act of 1883, which was passed to develop a merit system to fight the spoil system. In 1920, the U.S. Civil Service Commission directed Congress to create a uniform rating system. There were continuous and frequent changes to the federal legislation (in 1923, 1949, 1950, 1954, 1962, 1978, ad nauseum) in a never-ending attempt to improve the performance evaluation system and to “get it right.”

Performance evaluations became more widespread as a formal management tool around World War II when the military used them to justify promotions during the war.

Hard Data

The vast majority of research shows that performance evaluations are predominantly ineffective, and as a result, do not increase job performance or productivity. The following research supports this conclusion.

• In 2003, the World Bank found that in the public sector, “performance evaluations demonstrate remarkably little influence on anything and in some cases produce negative effects.”

• One professor researching performance evaluations said in the world of business there aren’t many universal truths. Just one really: “Annual performance reviews are the worst.”

• A Cornell Institute of Public Affairs survey revealed general employee dissatisfaction with performance evaluations. The greatest concerns were in the public sector arena.

• A 2012 report that gathered more than 23,000 ratings from over 40 companies found that “personnel ratings had no significant effect on profits or losses.”

• Professor Herman Aquinis, distinguished scholar at George Washington University, said of performance reviews, “It’s a soul crushing enterprise. Employees don’t know what they are supposed to do, and managers don’t see any value of it. They are only doing it because HR told them to.”

• Many big-name corporations like Dell, Microsoft, IBM, Gap, Accenture, General Electric, and others have ditched their performance evaluation process. As of 2015, 51 major firms have moved to a “no rating” system.

• The accounting firm Deloitte stated that around 70 percent of companies are reconsidering their performance management systems.

• Market research from the Corporate Executive Board found 95 percent of all managers are dissatisfied with formal PE systems and 90 percent of HR professionals think the appraisals are inaccurate.

A summary of the above research is that employees and managers don’t like performance evaluations. Employees say that performance evaluations don’t reward high performance or deal with poor performance, are disrespectful, and are untimely. Managers say that performance evaluations are time consuming and do not motivate employees. Participating in performance evaluations is the job both managers and employees love to hate. It is time to ask ourselves: Why do we keep using these ineffective and generally hated systems?

What Have Been the Goals of Performance Evaluation Systems?

There has been significant “mission creep” in the many goals assigned to performance evaluation systems.

Performance evaluations can’t and won’t accomplish all these goals. In fact, one of the most common criticisms of performance evaluation systems in the literature is that they have too many goals and many of those goals conflict with one another. Such goals include:

• Assisting in decisions of promotion, transfer, or lay-off.

• Matching organizational expectations with employee objectives.

• Helping with job rotation decisions.

• Dealing with employees who have performance issues.

• Determining salary increases for individuals.

• Improving communication between managers and subordinates.

• Providing feedback and guidelines for employees for better performance.

• Instilling inspiration and higher goals in employees.

• Determining whether selected training and developing programs are effective.

• Determining training and development needs of employees.

In addition to the criticism that performance evaluations have too many and often conflicting goals, other major criticisms of performance evaluation systems are summarized below:

• They don’t improve behavior or increase productivity.

• They are universally disliked by managers and employees.

• They consume an enormous amount of time and energy and have little or no positive impact.

• Managers dislike giving feedback and employees hate receiving it.

• Eighty percent of managers, executives, and HR professionals report that performance evaluation systems in their organizations are failing.

• There is pervasive rating inflation, as most organizations report that 80 percent of employees receive ratings of “above average” or “excellent,” rendering them useless.

• They almost always lead to conflict if an employee is given an “average” or “below average” rating.

What to Do?

It is time to stop rearranging the deck chairs on the Titanic. We need to ditch our present ineffective performance evaluation systems. So, what should we do?

1. Let’s start with a basic belief that managers should be primarily coaches, not critics. (General Electric has taken this approach and found it has had a positive impact.)

2. Let’s agree that the only valid and widely accepted purpose of performance evaluations should be to develop our employees.

3. Acknowledge that our present performance evaluation system does not help improve performance problems, and more often, makes it harder to fire employees.

4. Let’s also agree that our present merit/civil service systems all but guarantee automatic merit step increases for employees. Salary increases are generally granted based on formal negotiations. Hence, performance evaluation systems do not pay a significant role in our compensation system. Based on the above four statements, we should start experimenting and beta testing alternative methods for managers and supervisors to help employees develop their skills and talents. Employee development is a crucially important role of any organization and, if done well, will improve an organization. Any performance evaluation system that has a chance of working and being effective must have the acceptance of management and employees.

Getting Started: Recognize the Challenge and Learn from Others

It is important to recognize that making such a counterculture change like dumping your performance evaluation system will not be easy for the following reasons:

• Performance evaluation systems have been embedded in public sector organizations for decades and it will be argued they are needed for approval of merit pay increases and to document performance issues.

• Making such a change is relatively new and not widespread. According to the Corporate Executive Board, in 2015, nearly 12 percent of Fortune 1000 companies were ditching annual reviews—up from one percent in 2011 and two percent in 2012.

• Any change in the performance evaluation system, even a pilot program or beta test, could be subject to the meetand-confer process in some organizations.

• The public sector is risk averse, slow to change, and most often is “status quo” oriented.

What we have learned from those corporations that have ditched their traditional performance evaluations systems is that they have replaced them with systems that have similar characteristics, including the following:

• Companies recognize managers as coaches and employee development is considered one of their most important jobs. Some companies have developed resources focused on coaching and growth to equip managers to become better coaches.

• Some companies have eliminated their “strengths” and “weaknesses” categories. Instead, employees are given behaviors to “continue” and “consider changing.” This changes the focus from looking back to looking forward.

• Companies that have abandoned their traditional annual appraisal have adopted regular checkins, whether bi-weekly, monthly, bi-monthly, or quarterly. Some companies document “check-in” discussions and others do not. During the checkins, expectations are set, feedback is provided, and the future development of the individual is discussed. For example, Microsoft now holds bi-monthly performance reviews. These check-ins are formal, structured conversations between managers and direct reports, in which they discuss goal progress, skill development, and more—so employees know if they’re moving in the right direction.

• Some companies have instituted ongoing discussions between managers and employees to set expectations, offer feedback on performance, and recognize strong work. Adobe reports that this saved 80,000 hours of managers’ time in annual review processes and is attributed to a 30 percent decrease in voluntary turnover.

Most importantly, many companies that have replaced performance evaluations with a culture of collaboration, continuous communication, and shared accountability report that it led to an increase in creative problem solving, teamwork, engagement, and morale, while decreasing defensiveness, conflict, and frustration.

Develop a New System and Conduct Beta Tests

We recommend convening a small group of volunteer stakeholders from a department or division who are willing to design a pilot program and beta test that program to meet the unique needs of their organization. All members involved need to be open to changing the current performance evaluation system.

Once an experimental program is designed, the volunteer department or division will beta test the new system. After an agreed amount of time, an evaluation of the beta test will be conducted. It is critical to learn from the test and make adjustments or changes to improve the original design. Remember these are small, experimental beta tests so they don’t have to be perfect the first time.

Summary

The old adage applies here: If you find yourself in a hole, stop digging. Based on the research and the authors combined 75 years of experience in local government, it is clear that our profession needs to discard our current performance evaluation systems. We need to focus on one positive purpose for any performance evaluation system: employee development.

of performance evaluations. This process will enable us to learn from small experiments, to improve upon our original idea, and to get acceptance by supervisors, managers, executives, and employees. We also need to learn from each other. We will be working to develop a system whereby organizations can share their experiences in this area in order to learn from each other.

Good luck! We stand ready to assist and consult (free of charge) with anyone trying something new. Let’s figure out a way to rid our organizations of an ineffective system and replace it with something that will add value to the organization and be embraced by employees and supervisors.

Future articles of “Let’s Think Differently About…” will deal

with: (1) the practice and principles of beta testing, and (2) why our profession is terrible at disciplining and firing employees. Stay tuned!

ED EVERETT, ICMA-CM (RETIRED), is a retired city manager (everetted@comcast.net).

MARY WELCH served as the human resources director for both San Mateo and Alameda counties in California for a total of 25 years. She also served as a human resources consultant for Management Partners for 10 years.