Should Performance Reviews Be Fired?

Many observers have suggested that performance reviews cause too much stress (for the benefit generated). Even when reviews work as advertised, R&D managers do not have the right tools to use performance evaluations. There are no easy ways to reward good performance, as neither financial incentives nor stock options may be very effective. Furthermore, R&D managers do not often have the right approach to address poor performance. A new article from the Wharton School of Business provides some useful information about performance reviews (Should Performance Reviews Be Fired? - Knowledge@Wharton):

Performance reviews typically are not done often enough and all too often are done poorly. A good performance review gives employees constructive, unbiased feedback on their work. A bad one demonstrates supervisor bias and undermines employee confidence and motivation.

Clearly, a vast majority of companies use performance reviews

Cappelli cites studies showing that 97.2% of U.S. companies have performance appraisals, as do 91% of companies worldwide.

So, what are the main problems with performance reviews and what can we do about it?

1. Frequency: Annual feedback on performance is just not enough in today's fast paced world.
   

   In addition, reviews encourage employees not to speak out about problems they observe because it could adversely affect their career paths and compensation, Culbert states. As examples, he points to "employees at Toyota, BP and the nuclear reactor site in Japan who knew about defects" in their companies' products, but failed to report them because of a lack of trust between employees and management.

   It might be better to have a project / task based continuous evaluation, a quarterly or semiannual development reviews followed by annual incentive / raise review.
2. Competing Agendas: Most organizations have two completely different goals for reviews. One is to help employees improve performance and the other is to rank them to decide who gets what rewards. Combining the two in one review ensures neither objectives are satisfied.
   

   Performance reviews "are rarely authentic conversations," writes Daniel Pink in "Think Tank." More often, "they are the West's form of Kabuki theatre — highly stylized rituals in which people recite predictable lines in a formulaic way and hope the experience ends quickly."

   As discussed above, it is probably better to separate performance, development and reward reviews from each other.
3. Performance Metrics: In many cases, especially in R&D, it is not clear how to measure performance and compare it.

4. "Companies are concerned that if it isn't a quantifiable, very objective measure, then it's not a good measure."However, if we do 1 and 2 above, it is possible to make performance reviews more quantitative:
   

   But in recent years, with the explosion of knowledge-based companies, "the ability to assess performance in a subjective and qualitative way" requires a process that looks at "first, what are the key performance criteria that are important, and second, how do you measure them when they are qualitative." He suggests asking employees during the assessment process "how they do their job, what [competencies] they have developed and whether they are continuously improving their knowledge skills."

5. Checking the box: Many managers do reviews just to check the box. This actually is the worst of both worlds - neither do employees know how to improve performance, nor do they feel rewarded for their work.
   

   Finally, some performance reviews under the auspices of human resources departments focus only on getting reviews completed — "100 percent compliance" — not on their quality. A Sibson Consulting/WorldatWork survey found that 58% of HR executives give their performance management systems a "C" or below, in part because managers don't receive the training they need to deliver effective appraisals.

   Points 1, 2 and 3 above might help managers move away from checking the box.
   

The article shares a case study about SAS which saw improvement when they moved from annual performance reviews to more frequent appraisals. The article also talks about a new performance management tool (for software companies):

Indeed, the importance of frequent feedback crops up in almost every discussion of how to improve performance reviews. Daniel Debow is co-CEO of Rypple, a Toronto-based social software company that creates products designed to help people share continuous real-time feedback and provide coaching. Rypple's target market is the 50- to 1,000-person knowledge worker firm focused on creative collaboration "where the model of a social network describes what is going on."

Finally, here are some more ways to improve performance reviews.