Why the days of performance appraisals should be numbered

The feeling is mutual. Image sourced from www.shutterstock.com

We know the perils of performance appraisal almost instinctively. Parodies of the process are common – think UK comedy series, The Office. Now serious questions are being asked about its real value, as high-profile companies review their practices.

Adobe and Microsoft are well-known corporate examples of organisations that have overhauled their approach to performance management, eschewing backward-looking, form-filling processes in favour of real-time feedback.

A recent article in the journal Human Performance assessing variance of job performance ratings lays bare the subjective nature of performance evaluations and in particular points to the idiosyncracies of supervisors as the reason why job performance ratings vary widely.

This is particularly concerning when performance ratings are used to rank employees and decide on pay rises. The article explains that these results are not surprising given the ambiguity and complexity that characterises many performance-rating processes. It suggests that asking a supervisor to store, recall, and appraise behaviours of numerous workers over the course of a long period (typically between six months and one year), is unrealistic.

Other challenges with supervisor/line management involvement in performance evaluation are easy to identify and include efforts to juggle competing work priorities, and the absence of skills and knowledge. Supervisors often lack motivation and commitment to undertake people management activities, exacerbating an already fraught process.

These challenges give pause for thought. Add to them the hard costs associated with the performance management processes, as highlighted in this month’s Harvard Business Review and serious questions start to emerge about the business case for traditional performance management approaches.

The HBR article considers the case of Deloitte, in which it is estimated that 2 million hours were spent on filling in forms, holding meetings and collating data for ratings. While that figure reflects the scale of Deloitte’s global operations, it does bring into sharp relief the opportunity cost of performance management procedures. It also begs for a cost-benefit analysis to determine how much a focus on past performance contributes to future outcomes.

So do we need to re-evaluate the way we evaluate? Despite mixed success, the growing interest in various versions of “results only work environments” (ROWEs) demonstrates an increasing focus on outcomes over processes.

This seems to make intuitive sense in the context of our changing workforce, with around 25% of the Australian workforce in casual work and a significant proportion in contract or project-based work (or classified as independent contractors).

With companies needing to be more agile, the key to success is now focused on not just having the right strategy, but aligning people to that strategy (see Dave Ulrich and Wayne Brockbank’s book The HR Value Proposition). We need to strip out unnecessary complexity and bureaucracy of performance evaluation.

The lessons from Adobe and Deloitte point to a need to disrupt the process and consider new and innovative ways to evaluate performance. Although there is no silver bullet to the complexities faced, these examples suggest that developing a culture that is rich on feedback and providing regular and ongoing commentary, would be a good start.

Organisations would also be well placed to remember that most employees do not purposefully set out to be poor performers. Establishing why employees are not performing or why they are not achieving specified outcomes is central to performance evaluation. Furthermore, organisations should seek to eliminate, or at least be mindful of, mechanisms that may promote perverse behaviour by encouraging employees to focus on their own goals at the expense of the organisation - such as pay for performance plans.

This is something to be kept in mind, even with seemingly progressive approaches like ROWE. Further, a pure emphasis on outcomes could encourage unethical behaviours, distort risk preferences, corrode organisational culture and reduce intrinsic motivation.

While the global financial crisis graphically illustrated the importance of good governance, compliance with internal or external governance mechanisms should not be confused with effectively measuring performance for better organisational outcomes. Such confusion presents another danger for organisations. Namely, the ossification of bureaucratic processes that serve no positive organisational end but instead run the risk of alienating that most elusive of HR commodities – talent.

This is part of an ongoing series on ‘bad management’. Read more here.