Annual Performance Reviews: Lose-Lose?


A recent lawsuit filed against Yahoo alleging unfair firing practices tied to a performance review system implemented back in 2013 has brought a decades-old debate back into focus. The suit claims that (in a similar vein to GE’s infamous annual house cleaning, made famous under Jack Welch) Yahoo’s methodology is more of a Draconian measure for making large staff cuts than a process for evaluating and enhancing human performance.

There is no doubt the annual review has become more of a check-the-box obligation that both managers and employees begrudgingly endure. The problem with the traditional performance review is that it is very backward looking, and encourages managers to defer conversations about performance until it’s too late.

So, this begs the question: What is the purpose of the annual (or quarterly for that matter) performance review, and what should be the purpose?

First let’s take a look at what the purpose IS.

The annual performance review is one of the oldest business processes in America and is rooted in the industrial age and the rise of unions, according to Jason Averbook, CEO of TMBC. Originally the annual review was about justifying adjustments in compensation and had little to do with enhancing performance. He argues that it’s an archaic method that has outlived its usefulness.

Mike Ettling, president HR Line of Business at SAP, agrees.

“I believe many executives are in a license to kill [the annual review] moment,” says Ettling, adding that many organizations are taking notice. 

And now we’ll focus on what the purpose should be.

Ettling says the performance review should be about facilitating “a quality dialogue between two people.” It should be a conversation about what went well, and where there are opportunities to enhance performance moving forward. And the experts agree this isn’t a conversation that can happen just once a year. As Averbook put it, “if you are trying to lose weight you don’t weigh yourself once a year.”

Listen with Purpose

Just last week IBM introduced a newly overhauled performance review system that has been in the works since last year -- the overhaul was heavily guided by listening to the company’s employees. I had the opportunity to speak to Carrie Altieri, IBM’s Vice President of Communications - HR Initiatives, about the move.

“Like every other company, we had a standard yearly appraisal with a single rating that defined your year,” Altieri said. “It just wasn’t helpful because people are too rich to be boiled down to a single number.”

The executive team felt that a dramatic change was in order, but it needed to come from the employees. So, the IBM human resources team reached out to employees to understand what they needed, so as to custom create a system that would work for them. The outreach included moderated online debates, virtual chats, polling, pulse surveys and social media.

Altieri points out that “it’s not enough that you give people a vehicle to voice opinions, you have to actually follow-through with action.” That action came last week with the unveiling of a new and deliberately fluid process that is employee driven. Employees have the ability to request feedback sessions as frequently as they feel needed (quarterly at a minimum), and also rate the quality and value of the feedback they receive, so as to help managers learn and grow as coaches. They are also providing training to managers based on this feedback.

The new program also includes an app that allows employees to solicit feedback from teammates. Just as for many companies today, much of IBM’s work is project and team based, so getting feedback from those who actually had the experience of working with you is highly valuable. Thus far, 70,000 employees have downloaded the app, according to Altieri.    

Moving From Check-the-Box to Quality Talks

Even with the best of intentions the purpose of evaluating performance often gets lost in the mechanics of the process. Consider that Deloitte discovered they were spending roughly two million hours a year on annual performance appraisals, an incredible burden on time and the bottom line.

Managers need to be coaches and they need to view managing performance as an ongoing process as opposed to a rare event. Effective coaches are constantly observing behavior and providing light touch suggestions for making positive change. Great coaches also spend time catching their people doing things right and letting them know it! Positive reinforcement is incredibly powerful when it is timely and authentic. Any system with the true purpose of enhancing and celebrating performance must run the gamut from light daily touches to regular formal conversations that focus on making positive change.

Merit Requires Measurement, Smart Measurement  

Ultimately performance must tie to pay. In a capitalist society you have to differentiate between the type and level of contributions people make otherwise you lapse into a socialist system of equal pay for showing up. As Altieri explained “we are a pay for performance company” so metrics are important, it’s a matter of having the right metrics around both the what and how of performance.

Averbook points out that “we live in a world where everything is rated.” Being rated is the norm in our culture. Whether it’s rating your Uber driver (they rate you too by the way), evaluating a restaurant on Yelp, or liking a post on Facebook -- we are a ratings-based society. It’s about the credibility of those ratings that realty matter. As Averbook notes, just as you wouldn’t use the Body Mass Index (BMI) as a single indictor of your health, you shouldn’t use a single manager rating as an indicator of employee performance.

Ettling believes the data has to be from a credible source and the ones doing the ratings and conducting the reviews need to be the ones who have the most exposure to their actual performance. Team leaders with direct responsibility, not managers who are separated by levels and locations, must be the ones to provide feedback, make the ratings and provide positive support. That feedback must be timely, authentic and constructive.