In the Wall Street Journal Sam Culbert, author and professor of management at UCLA, argues that annual performance and pay reviews are at best dysfunctional. He sees their primary purpose as "intimidation aimed at preserving the boss's authority and power advantage".
Sam gives a number of reasons that performance reviews have this effect:
- Different Agendas - the boss is focused on improving an employee's performance, while the employee is interested in compensation and career advancement. Each ends up talking past the other.
- Performance isn't linked to Pay - pay is really determined by market forces and budget. The performance review is just used as a story to justify changes in pay.
- People aren't Objective - the performance review is supposed to an objective measure of performance. Yet given the same employee two bosses will often give wildly different reviews. He goes on to suggest that 360 reviews are often used for anonymous ax grinding.
- One Performance Review doesn't fit all Employees - many performance reviews come with predetermined checklists. However the items on these lists often don't match what the role the person plays.
- Personal Development is hindered - performance reviews can damage the trust that a employee and manager require to effectively plan for growth.
- Disrupts Teams Performance - with the focus on the performance of the individual the needs of the team go unnoticed.
Related to the problem of objectivity Linda Rising, author of Fearless Change Patterns, notes that people will categorize or stereotype others in a very short period of time. "In many cases, a supervisor “determines” the ability of a worker in about three weeks, labeling them as either “can do” or “can’t do” workers. Once a prejudice has been formed, the supervisor views all the actions of that worker through this filter. If two workers make the same mistake, in the case of the “Can’t do” worker, the supervisor will think, “There he/she goes again, making the same mistakes,” while in the case of the “Can do” worker the supervisor will think, “Maybe he/she wasn’t feeling well.” Eventually, the supervisor can only recognize actions that affirm their prejudice."
There are a number of different solutions proposed. Jeff Sutherland (with more detail from Christophe Louvion), co-creator of Scrum, provides five areas of contribution to measure individual team members: Product Delivery, Process Improvement, Organizational Flexibility, Group Learning and Product. For Managers: Organizational Flexibility and Product are replaced by Team building and Enterprise Collaboration. Jeff uses a scale from 1-10, gathering feedback from both the Manager and team mates (averaged). There are two key differences between this and traditional approaches: for ratings outside the range of 4-6 the manager must provide evidence in writing supporting the claim and if the rating from the manager and team differ the higher rating wins. Finally the manager and employee collaborate to determine career goals that the person is passionate about. Jeff recommends conducting reviews on a quarterly basis.
Sam recommends a different approach, he calls them performance previews. He suggests that managers and their employees be held jointly accountable for their results (and their quality). With previews the manager will be focused on what needs to happen in the future. The format: "Bosses should be asking all the questions that occur to them in inquiring about how a subordinate thinks he or she can best perform the job. Then, after they have exhausted their questions, they should ask the subordinate for what else they need to know." Finally Sam says that these previews should happen whenever the employee and manager don't think they're working well together.
Mary Poppendieck's advice is to abandon schemes based on individual measurement and compensation. Instead she offers:
- tell people directly what’s important and why. it is cheaper and easier than financial incentive systems signaling what is important
- base pay differentials on job complexity, avoid individual performance bonuses because they extinguish collaboration
- base collective rewards on broad measures — the larger the group that is measured, the more reliably performance can be accessed. Use profit sharing schemes instead of bonuses to tie people to the organisation goals.
- keep in mind the norm of reciprocity — if people feel that they are being treated generously, they will reciprocate it with increased discretionary effort.
Finally Esther Derby just recommends having a conversation, discussing how the quarter/year has gone.