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Annual performance reviews: the Good, the Bad and the Unknown

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History

Annual performance reviews! Whether you like them or hate them, they have been around for quite some time and for, many people, they pose a significant life question: “Which came first, the rating or the pay decision?” (Paul Rubinstein).

Performance reviews have been a part of our formal and professional lives since Elton Moyo, professor at Harvard Business School, and others released, in the 1930, a series of studies on this topic. Moyo in particular found that “happiness and productivity were directly related to the social structure of the workplace. Suddenly it wasn’t enough to just hire someone to do a job; bosses had to manage and mentor people, too. They did that, usually, with formal meetings.”

Having settled that, performance reviews were set in stone in the 1950s Performance Rating Act, which mandated an annual review of federal workers. Other details of this act tethered bonuses and salaries to the grades received by employees in these yearly evaluative meetings. As such, a nationwide precedent of annual performance reviews had become established.

The Good

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It is a daunting task to approach such a subject, due to the fact that it’s been around for so long that people see it as tradition, since most of them have lived most of their professional lives with this system. This makes changing it double the trouble, since traditions tend to create a safe-space for people; they offer purpose and direction, with this particular one giving employees the opportunity and structure to fight for their salaries, bonuses or spot in the company.

“If you get rid of the performance ratings, how are you going to get rid of a fair and equitable and measurable system to blame the distribution of pay on? […] Because why did performance ratings come into existence? So there’s some mechanism to force pay decisions,” Defensively admits Paul Rubinstein

Even more so, many consider it a good system since it is predictable and because it promotes a culture of differentiation and promotion of outperformers.

The Bad

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“It’s a process that looks in the rear view mirror, that’s focused on what you’ve done a year ago. That just isn’t current with how I think we’re working and how many of the employees that we’re looking to attract or grow have been raised,” says Donna Morris, Head of Human Resources at Adobe.

What’s more so, there have been brain research studies which have shown that whether the review is negative or positive, there is very little difference – employees still experience disengagement and feel that their openness towards innovation is hindered.

On top of that, CEB discovered that your average manager spends more than 200 hours/year on performance review-related activities. Add to this the cost of the technology itself and you get a pretty rough image: a company of about 10.000 employees spends anywhere between 35 million to 47 million dollars per annum just to run these reviews, CEB estimates.

Many companies, like General Electric, Accenture, Deloitte, Microsoft, Adobe, Medtronic and Gap have already started altering their performance review system. GE were among the first to champion an app-based approach to act as a substitute. Their employees have near-term goals, which are afterwards revised by their managers via continuous discussions and feedback. The app only gives one the option of choosing between two forms of feedback: to either continue doing something or to consider changing it.

Other companies have embraced this possibility, saying that technology could help with getting rid of the excessive paperwork pileup; other champion the idea that a more tech-friendly solution will give employees an even greater degree of legal defensibility regarding personnel decisions, since these apps would update their status in real-time.

Another good argument for such an alternative would be the fact that it would correct for some of the biases managers experience, since many people consider performance ratings and reviews to be plagued with judgement calls and not objective analysis. This viewpoint is reinforced by the findings of Michael Mount, Steven Scullen and Maynard Goff’s study, which revealed that when the managers themselves were rated by 2 bosses, 2 peers and 2 subordinates, around 62% of the variance in ratings could be accounted for by the individual rater’s peculiarities of perception, with only about 21% relating to actual unbiased performance measurement.

The Unknown

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For the time being, it is encouraging to see that companies are finally moving on from such a damning system of ranking and rating employees and their performance. Many are still quite cautious and wary of these changes, experimenting in small steps, with various tools and tricks. Deloitte now has only 4 questions in their review, two out of which simply require a “yes/no” answer. Accenture is trying out a more streamlined system, in which employees receive feedback in a timely fashion, on an ongoing basis, after each assignment. GE have their app, “PD@GE” (performance development at GE), to measure their staff’s performance.

The fact that we are changing our mentality, from measuring the value of an employee on a year-by-year basis, to a more day-by-day or even assignment-centered strategy is indicative of this new generation’s impact on altering the work environment and is a good omen that we are heading in the right direction.

In the end, it’s all about keeping up with the present times. As Donna Morris explains, “it’s a process that looks in the rear view mirror, that’s focused on what you’ve done a year ago. That just isn’t current with how I think we’re working and how many of the employees that we’re looking to attract or grow have been raised.”

Image source: Pixabay

Image source: Pixabay

Image source: Pixabay

Image source: Pixabay

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