Kill Them With a Performance Review

joe —  Sun 14-Nov-10 — 17 Comments
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Nothing can kill employee morale more than a corporate performance review. Nothing can kill leadership morale then having to give them. It doesn’t have to be this way and I have a very simple solution.

The critical mistake that most mid to large sized companies make is that they confuse dollars with performance. Dollars are an economic scarcity – there are only a limited amount of them available and they must me applied judiciously when it comes time to offer raises.

Performance is not. In great companies performance is in abundance – it has no limits. It is absolutely possible that everyone on your team has done an outstanding job this past year yet due to the economic of the situation you may be forced to declare 10% of them “underperformers.” Sound familiar?

Extended Bell Curve.png
The key problem with most corporate review systems is that they link the two together with the seemingly innocuous phrase “we pay for performance.” So in order to determine how much money to deliver for raises we must first determine how well everyone performed. This is done in a number of ways but ultimately ends up with putting people into segments and assigning the group a label like “does not meet expectations”, “meets expectations” or “exceeds expectations.” If you are going to pay for performance having groups like this is a necessary element. However the labels are not.

Keep in mind that we are dealing with a scarce resource, dollars, so we must find a way to equitably assign dollars to the various groups. That’s when the accountants and HR folks huddle and decide we are going to pay 7% for the top category, 4% for the middle and 1% for the bottom. In order to make that work they have to assume some distribution of employees to the various categories. If everyone was fantastic the company couldn’t afford to pay everyone 7%. That’s when companies impose the dreaded bell curve to the problem. As a result we now have decided that 10% of the population is in the top and bottom categories and that 80% of everyone else is in the middle.

There is absolutely nothing wrong with deciding you are going to pay the top 10% of the population different from the middle 80% or the bottom 10%. Every company has a top 10% – how they determine that might be in question but they still have a top 10%. What is absolutely wrong is putting performance labels like “does not meet expectations” to these forced distributions.

How do you design a system where 10% of your population every year will not meet expectations or better yet 90% of your company doesn’t exceed expectations? Yes I know all about the Law of Large Numbers and I get population distributions but these distributions happen naturally, they are not forced.

DIlbert Perf Review.jpg

The biggest problem that managers have in giving salary reviews is not ranking their employees nor is it in dividing money up based on these rankings, it is simply having to discuss an employees performance and giving them a label that does not fit the employee’s true contribution.

To that end, if I were King (it’s good to be the King), I would do things a bit differently during review time. It’s all based on a very simple premise:

Use numbers only where numbers are absolutely required – in all other places use words.

Recognizing that a total overhaul of the system would be a lot harder than modifications to the existing processes, I propose the following five steps as a practical alternative to the current flawed systems employed by most organizations.

  1. Spread the peanut butter. Separate the salary from the review – make these two separate processes. One is numbers based the other is not. I recommend having rankings done internally with the leadership teams at end of the year as the budgets for next year are set and the size of the peanut butter jar is known. PB Baby.jpgDetermine how to spread the peanut butter then throw away the knife, it has served its purpose.
  2. Talk money. Give each employee their raise information. This is just the amount of the raise and nothing else. When this is done is typically tied to when the fiscal year starts. I strongly recommend that raises be done at least a month in advance of the employee performance review. No mention is given to where they ranked as this is an economics issue and serves no benefit other than curiosity. It is just as dangerous to know a ranking as it is to know someone else’s salary.
  3. Companies: Throw away the categories! Now that the economic equation has been satisfied there is no need to continue the charade of forcing a label on to people. Educate and then trust that your leaders will get the necessary messages across. You don’t need categories, ranks, bins or statistics. This is about people, damn it! No employee should ever get a numerical Gong Show rating
  4. Write what you need to write. At this stage throw away the numbers, they are irrelevant. Write the words that you want the employee to hear to help her understand their contributions and your expectations. Stay focused on what to say, the language they respond to, what they need to hear and what you want them to take away. No longer fear having to match your words to some contrived category.
  5. Give the review in confidence. When you are not given statistical boundaries it is amazing how much more heartfelt your review will be. You are taking ownership for your words. You can defend your thoughts and not have to rely on saying, “That’s the formula the company uses.”

I truly believe that these simple changes would have made every single review process I have endured over my past 20 years as a leader much more effective for everyone involved.

What do you think about your company’s review process?

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  • Rich

    Cool ideas Joe! I have (yearly) struggled to fit my thoughts about work into a corporate form…. bah!

    I like the idea of disconnecting raises from the review.

  • http://www.TheStrandedStarfish.com joe

    Wow – I think I hit a nerve that people are a little scared to talk about publicly. Lots of private messages and emails about the subject but it seems y’all don’t want to talk about it here.

    Fair enough. Maybe I’ll summarize some of the salient points later (no names, no companies, no specifics that would indicate which company, etc.)

  • http://chriscarpinello.com/ Chris Carpinello

    The Gong Show comparison is so apt, I love it! Nice find with the very young Danny Elfman…

    I’ve never understood the yearly evaluation approach. Reinforcing or changing behavior should be more iterative than every twelve months. More frequent feedback also eliminates those uncomfortable moments in reviews where there’s an obvious disconnect between managers and their reports.

    So I have to ask: After 20 years, what are you doing to change the status quo with performance reviews? Have you been successful in adopting any of the five steps you’ve proposed? If you’re looking for more ways to change behavior in your organization, I recommend reading Chip and Dan Heath’s excellent book “Switch: How to Change Things When Change Is Hard”.

    • http://www.TheStrandedStarfish.com joe

      Loved the Switch book. Many of the ideas he presented were developed a while back by John Kotter in his seminal work called The Heart of Change. Chip and Dan’s book was much more entertaining though.

      Actually my company had been researching this topic for a while. Being new here I was very heartened to see that they recognize these are problems, are listening to the research and internal pressures and are truly looking to improve things. With an org this size you have to have a tipping point before you can make the big changes like this. So yes – I am trying to actively get involved in that part of our business.

      There was an excellent interview with Samuel Culbert (author of Get Rid of the Performance Review) that may be of interest to you. http://n.pr/cfngvF

  • lia

    perf reviews is one of the things I hate about the job. however I learned from a great mentor some time ago to focus on people’s strengths and how to utilize them to do even better on the job. that approach helps in showing people that are very much appreciated for what they’re good at instead of being seen as a number to be compared to another. I agree, separate the salary discussion from the actual performance. talking about money makes everyone tense and worried, especially when there’s not really much to go around…

    • http://www.TheStrandedStarfish.com joe

      :)
      It’s amazing the difference in employee interaction when you are forced to combine raise and review at the same. If you tell them the amount at the end they will hang on every word you say trying to figure out what that means for their raise. If you tell them the number first and then give them their review, they settle into a more constructive comment.
      But your point is best – separate them altogether. Different time, different place.

      BTW – where do you hold your reviews – your office, their office or a neutral site?

  • Morey

    Great ideas Joe! So why do we have this crazy system? I’ll say it’s mostly a lowest common denominator problem. Most (probably more than we’d like to know) managers can’t/won’t spend the time developing their employees. The current system gives them “an easy way out” forcing them to identify who needs help… and in some cases building a plan to address the issues. Unfortunately, good managers are burdened with a system built to ensure the LCD’s do their job. Wouldn’t it be nice if people thought of management as an opportunity to share what has made them successful vs. a path to more money.

    • http://www.TheStrandedStarfish.com joe

      Amen my friend.

  • http://user-assistance.blogspot.com/ Mike Hughes

    Actually, I dislike separating reviews and raises. They are linked and should be delivered in a cohesive way. I prefer the review coming a month ahead of the raise, so that manager and employee can try to reach some consensus about performance, and then that consensus can be applied to determine the raise. I agree that forcing low evaluation categorical language to make the raise seem appropriate is wrong.

    Lastly, I don’t want to sound like a corporate apologist, but some of this institutionalized bell curving is a reaction to every manager having above average workers. Shades of Lake Wobegone 😉

    • http://www.TheStrandedStarfish.com joe

      I don’t disagree with the bell curve or whatever distribution tool that a company chooses in determining how to distribute the wealth. That is necessary when dealing with a scarce resource. My issue is that bell curves and categories serve no purpose when it comes to discussing an employee’s performance. What value is gained telling someone where they sit in the ranking curve? No better than having everyone see each others’ salaries. Look what that has done for professional sports.

      To force a distribution curve on an organization just because you have managers that can’t adequately assess their team’s talent seems to be using the wrong tool for the real problem. The problem is assessment then not performance. Work on a process to improve their assessing skills if needed.

      But let’s talk about the fact that managers all think they have above average teams. I think they have to, that is if they have been in their role for a while. The only time I have ever seen a manager think he has a sub-standard team is when he has a new team or a new job. Typically a manager is trying to raise a high performance team. To think that after a year of leading the team they are not exceptional is an indictment of his own talents. Therefore for him to say to his boss that “my team is just average” is pretty much and indication that he is just an average manager (or less).
      A leader also has to believe in his team. He often believes in them to a point that he thinks they are more capable than they individually think (see http://bit.ly/9sXjPK). A true leader sees in time elements that are not of today – they are of tomorrow, partially because that is where he spends a lot of his time thinking and because that is where he is leading his team. Leaders see tomorrow in spades.

      Therefore I believe that leaders will always think they have better teams because of the possibilities ahead and poor managers will think they have better teams because of their own internal ego and self-appraisal.

  • Robbi Chrzanowski

    I think that linking performance with money is not, in and of itself, a mistake; however, forcing managers to apply pre-conceived specific titles to different performance levels is a big mistake. Years ago when companies were more heavily staffed, with perhaps more “dead weight” at the bottom, the idea was to encourage low performers to shape up or ship out. However, nowadays companies are commonly leaner, with each employee carrying a heavier load and with less “dead weight”. It would be most ideal to give each department a “budget” of increases to dole out as the manager sees fit, based on relative merit – some groups might have a smaller talent disparity from top to bottom, and this would allow the manager(s) to fit the raises to people as appropriate. However, this could prove complex, hence the pre-conceived raise-levels that have to be determined by management behind-the-scenes.

    Secondly, I believe performance reviews SHOULD be performed at least twice a year (more often would be great, but usually impractical). And thirdly, the performance review process should include a Developmental Review of each employee, a time when the manager discusses with each employee what additional training and/or opportunities the employee needs to seek out in order to enhance his/her short-term and long-term career growth. This would be the time to discuss whether the employee might be well-suited or interested in taking on more (management or technical) leadership opportunities in the future, and if so how best to prepare for that. With this type of focus, the employee sees the performance review process as being very beneficial for him/herself, and the manager ensures always having people capable of stepping up to the next level when required.

    • http://www.TheStrandedStarfish.com joe

      Well said Robbi.

  • Tim Dodd

    Good observations, Joe. The performance evaluation system at my employer has been broken in the way you describe for a long time. It’s broken in other ways, too. I will list just a couple here.

    1. It’s a one-way fiat system. I have had two blatantly unfair and inaccurate reviews in the past 10 years, and there is no recourse except to write some comments on the copy that I sign and submit. I don’t even know if these comments are read. They certainly seem to have no effect.

    2. This observation includes problems outside the performance evaluation system itself. I often feel as though I’ve been deliberately put in a straitjacket, and then evaluated without taking that into account. My work environment includes many artificially erected barriers to productivity. I do my best to hurdle them (AND call attention to their existence). But this is not taken into account at review time.

    I could go on at length, but I think that will suffice for now.

    • http://www.TheStrandedStarfish.com joe

      Tim, I think you are expressing a common theme I have heard over the years. I am sure that the rest of your list will also ring true with others as well.

      Wouldn’t it be an interesting (although impossible) exercise to let any employee that thought their review was unfair to have their manager read it aloud to the team and then let the teammates correct the inaccuracies? I know a lot of companies do 360’s before the reviews, but I have seen much of that information ignored when the review was actually assembled.

      One thing to keep in mind is that you have your straitjackets in your job and I bet most managers would call the corporate rules around performance reviews their straitjacket.

  • Brain21

    I agree. Applying a bell curve for say a department is really a poor way of doling out the money and tieing in raises to performance. For example, lets say you have a department, and when its created the manager is given the mandate “assemble a team of the best performers in the company in the areas that you need” Now you have a team of best performers. At review time you have to put at least 1 person in the bottom 10%. Odds are that this person could very well be the TOP performer on ANY other team in the company, and get that 7% raise, and now suddenly he or she is the bottom performer. Its not exactly a fair distribution and could lead to resentment. If the employee realizes that this is the case, they could leave that team and join another just to get that 7% raise and “feel appreciated” Thats not the optimal way to manage people.

    And I completely agree with Robbi’s comments. Too often a manager will say “you did this well, but you lacked in this area, and therefore you are not in the 10%” but there is NO discussion or feedback system to explore WHY the person did not perform well in that area, not is there any discussion to discuss how the employee can improve in that area other than the simplistic view of “do more of that”. And worse, in some scenarios, employees may have an extremely good reason for not performing well in a specific area, and are too intimidated to mention those things, or the manager may view the person as being defensive, or may be insulted that the employee would question the managers judgment, and not want to hear any excuses, even if they are completely valid. Without the ability to have an open discussion these things can’t be discovered. Often it results in an employee that is upset and disgruntled or resentful in a small way rather than motivated with a plan of action for improvement. It doesn’t exactly foster the improvement that it is supposedly designed to do (as an afterthought to dishing out raises).

  • DMW

    Finally, I have found someone who eloquently articulated what I have been thinking for years.  Salary and performance reviews are two separate entities, and should be treated as such.  Thank you, sir, for an excellent article.  Now can I get you to anonymously send that to my VP of HR?  As a first-line manager, I have been told many times to “not rock the boat”, “pick your fights, but don’t pick this one”, and “leave well enough alone”.  I LOVE the dinosaur graphic, that is exactly how I feel.

    • http://thestrandedstarfish.com Joe Kleinwaechter

      Thank you DMW.
      You are not alone – your problems are shared by a significant portion of the population.

      It’s funny, I’ve met very few HR personnel that like their review
      systems either. Many seem to feel trapped as the system was foisted upon
      them with little choice on their part.