In most companies, performance reviews are a ridiculous process that does orders of magnitude more harm than it does good. If they’re an inconsequential formality, they waste everyone’s time. If they actually matter, they become touch-points for horse-trading and political activity that has nothing to do with work, instead creating enmities that divide the organization– managers vs. reports, managers vs. other managers, et cetera– and demolish efficiency. Good managers often ignore this “responsibility” by providing honest feedback verbally while putting nothing negative on paper (since doing so can cause a bilateral breakdown in loyalty) unless required to impose a forced distribution (i.e. some percentage must fail) on their employees, in which case the company just goes up in flames. Worst of all, performance reviews hinder internal mobility, because only people with extremely high scores are able to transfer, creating “warring departments” mentalities as team assignments become effectively permanent. (Those with good reviews want to keep getting promoted where they are; the rest are unwanted and can’t transfer.) Finally, review don’t work at their stated purpose, which is to punish the bad and reward the good. For the worst people– those who actively harm a team or company– one cannot afford to wait for an annual review to take action. The best people aren’t really motivated by reviews either– they want promotions, pay raises, and more autonomy, not mere confirmation that they “exceed expectations”. Give a top performer a rating of “exceeds expectations” with no improvement in pay, autonomy, or working conditions, and you’ll just piss her off.
If performance reviews are so terrible, then why do companies use them at all? My belief is that the architects of most of HR systems know that the best and worst performers can’t really be addressed through such bureaucratic systems. Reviews exist for the people in the middle, who are not in the running for promotion, but are basically competent and never going to do anything so wrong as to get themselves fired for cause. They still need, according to conventional HR theory, to be scared a little bit. The middling 90 percent are basically the forgotten children of an organization, and performance reviews are there to make them feel watched. Firing the “bottom” (often, the unluckiest) 5 percent is supposed to scare people into doing whatever they can to land above the blade, but what it actually does is make the environment needlessly more political. I’m not going to argue that this “scare the middle” approach works, but only that it is an existing motivation. It goes back to Jack Welch’s statement that “A players hire A players, B players hire C players”. B players are the competent but unexceptional people in the above-mentioned middle 90%; C players are the truly toxic ones who don’t get any work done, ruin morale, and can kill an organization. Yet another Welchian anxiety is around the idea that B players will become C players over time. The purpose (whether it succeeds would require another discussion) of the annual review is to prevent that.
This, all in all, is pretty fucked. Employees don’t like the intimidation angle; and good managers don’t like being on the other side of it, either. A manager who is honest and gives negative marks for poor performance will never garner real respect or loyalty from his reports, because he’s selling them out to HR. On the other hand, if a manager inflates grades on paper (which is the right thing to do, because it is unreasonable to demand loyalty without returning it; negative feedback should be private, verbal, and constructive) then he is rendering the whole process a waste of time. One might argue that positive reviews can help a good manager in supporting the people below him; the truth, however, is that good managers don’t need HR paper to support the people below them. Good managers in good companies can get resources, autonomy, and promotions for their people without having to write annual reviews.
One might think, then, that I’m suggesting that companies should do away with performance reviews entirely. To be honest, that would improve on what 90% (if not 99%) of companies already have. However, I think there is a way to preserve what little good there is in the process of performance reviews, which is to document a trajectory and present a case for promotion. The process needs to be revamped in a major way, however. Here’s how to do it: each person is reviewed at the next level. Instead of subjecting people to this humiliating reminder that they’re being watched for decline (from B into C-player status) there is a better goal to be sought, which is to try to convert some of those B-players into A-players. A fundamental problem with the HR way of thinking is that it assumes the worst of people, making progress (from a B- or even C-player status to A-player contribution) so far outside of its context that the only thing left is to watch for decline. But good organizations should be focused on making people better.
Here, I’m assuming (to start) a formal hierarchy or “ladder”. I’m not necessarily in support of that, but I’m assuming here that one exists. If someone is a Level 5 engineer, then he should only be reviewed for Level 6. It’s not part of his transfer packet, it doesn’t go on his record unless he wants it there. (I’m in favor of making work less like a prison, so putting things “on [someone's] HR file” doesn’t do it for me.) In other words, the purpose of the performance review is to answer the question: how far is she along to the next level?
See, this is a non-insulting way of handling performance assessment. People are assumed to be competent and “performing” at their jobs. (If they’re not, an annual review is far too late to work on that.) That’s not even to be on the table. Rather, the discussion centers on progress and the future, and whether a person is on track to get where he wants to be.
What if not everyone wants to be promoted in the same way? Or how would this work in a non-hierarchical corporation? Then it gets more interesting, and better. Each review cycle (which should be more often than annually, because if you’re going to do something like this, it should be done right) the person decides what he or she wants to be able to do, in the company, in the future; in the next cycle, the manager can assess whether that person’s efforts succeeded in taking him or her in the right direction. Reviews are in this context: whether the person is taking the right steps to get where he or she genuinely wants to go. If so, then things are running well. Good! If not, then it’s useful to discuss which efforts are leading the person in the desired direction, and which are less productive. This has managers acting more like talent agents than parole officers and, on the whole, I think that’s a major improvement.