We continue our odyssey through the complex topic of performance management – a practice that is changing forcefully at the moment. The annual performance review, where employees’ performance is rated according to complex criteria and scales once a year, is increasingly being abandoned. To many’s joy, one should add: This practice is disliked by most stakeholders and has been accused of not adding any substantial value. So, that’s it? Ding dong, the witch is dead? Not really.
As noted last time, performance management serves at least three purposes in organizations: Motivating performance improvement; enabling analysis of performance patterns and trends; and serving as a decision basis for e.g. promotions, layoffs, talent nominations, and compensation. We also noted that the first function is actually the one where research can provide the most clear-cut answer with regards to ratings: In order to develop and motivate employees, ratings generally give little added value. When it comes to the second and third purposes of performance management, however, the issue becomes a lot more complicated.
Let’s say you are an executive, and want to identify those managers in your organization that continuously succeed at growing high-performing individuals. Or you want to investigate whether there is a pattern of where in the organization low-performers are located. Or, for that matter, you want to tie some aspect of compensation to performance. How are you going to do this? First thing, you need to be able to compare people to each other. That means you will need some kind of systematization and documentation of performance. And as soon as you start logging people’s performance in any standardized way, be it by a number or a qualitative judgment, you are indeed doing a performance evaluation. Bottom line: Even if you throw out the annual performance review and remove ratings from the coaching sessions with employees, you will arguably still need some kind of method for evaluating people’s performance.
In light of this, it should come as no surprise that the witch is not really dead. As pointed out by several scholars (Hunt, 2016; Ledford et al., 2016), most companies that claim they have gotten rid of performance ratings really only refer to the annual performance review. Most continue to rate their employees as part of e.g. their talent review, their compensation process, or their leadership audits. And then we are actually back at what is really the key issue here: Evaluating someone’s work performance is an incredibly difficult task. As noted by Adler et al. (2016), sports judges spend their entire careers specializing in this – in contrast to managers, who are supposed to handle performance judgments as a ”side task”. And yet, sports judges often disagree with each other…
To no surprise, substantial research has shown that supervisor ratings of employee performance are pretty far from being accurate or consistent (Levy & Williams, 2004; Murphy & Cleveland, 1995). A number of things besides performance tend to go into these ratings: Personal liking, politics, different kinds of cognitive biases, stereotypes, and chance. Unfortunately, there is no real reason to believe that the ratings would be any more accurate just because they are conducted in another format than the annual performance review.
What I am trying to say here is this: In the general excitement about scrapping the annual performance review, there is a risk that organizations speed through the issue of how to actually evaluate employees’ performance. Chances are, then, that we just move this daunting task from one place to another (e.g., from the annual review to the leadership audit), without having improved our methods. Instead, why not take this time of change as a perfect opportunity to actually try to improve performance evaluation in a broader sense? Like so often before, the most forward-thinking practitioners are already ahead of research on this matter. In the next blog post we will look closer at some of the concrete strategies that are now being used to try to make performance evaluations more fair, accurate, and fit to our knowledge-intensive, post-industrial era.