OOPS!  Why Traditional Performance Appraisals Might Be A Big Mistake

Aubrey Daniels is a clinical psychologist who has spent more than thirty years dedicated to helping people and organizations apply the scientifically proven laws of human behavior to improving workplace performance. I first heard him speak at a conference several years ago and remember his ideas as being the most insightful and practical of all the speakers.

There were several key takeaways for me that day, but the one that had the biggest impact on me was his idea that annual performance appraisals are not only a big waste of time, but actually damaging to performance. This statement was both shocking and liberating to me. My background and experience up until then had been with very traditional, medium to large size companies, where I had been tasked with both giving and receiving many, many performance reviews over the years. We were always trying to improve the process, use a new form, make it easier and find a way to get them all done by a certain time. No matter what new flavor of performance review we tried, we still always dreaded them. We dreaded giving them and receiving them.

I think the one statement Daniels made that I remember most was that “the most recent trend is to take this universally despised, ineffective, time-wasting practice we dread doing once a year, and force everyone to do it quarterly.” OMG, that was exactly what we were talking about doing! We were stuck in the old paradigm of trying to fix a system that wasn’t just broken, but was fundamentally contrary to what we wanted to accomplish.

Daniels’ book OOPS! 13 Management Practices That Waste Time and Money finally set me free. He does a great job of outlining what we’re doing wrong, why it’s wrong, why we keep doing it anyway, and what we should do instead. In addition to Performance Appraisals, which is #3 out of the 13, he also points out the flaws of other popular ideas like Employee of the Month programs, Employee Rankings, Rewarding Things a Dead Man Can Do, and Overvaluing Smart Talented People. Fascinating stuff.

Here’s an outline of what he teaches us about Performance Appraisals.

How the concept is flawed to begin with:

• It’s a punishing process (and negative experience) for the rater and the ratee. Not only does no one enjoy this process, Daniel’s research shows that 80% of employees think they perform in the top 20% of the employee population. Not possible, right? So that means at least 60% of employees will be disappointed with their score. (Note: a key finding in Daniel’s research on human behavior is that positive reinforcement produces higher rates of desired behavior than negative reinforcement.)
• Its purpose is to separate top performers from underperformers. The basic assumption is that a certain percentage of your employees are not performing at acceptable levels. In other words, you have not hired well, some percentage of your people need improvement and you need this process to help you identify them. That may have been true at the beginning of industrial management studies, when hiring practices were much less sophisticated and an employee population could be plotted along a traditional bell curve. But with all the selection and hiring tools available today (our favorite is Topgrading) we should have every expectation that we’ve hired all A Players, and if we haven’t, we certainly don’t need an annual process to point that out to us.
• People cannot separate a performance appraisal from pay. No matter how hard you try to separate the two, no employee will enter into a structured performance appraisal, review, process or even conversation, without considering the impact it will have on their paycheck. People can be very emotional when it comes to pay, so by nature, the performance appraisal conversation will also be emotional. And of course, performance and pay should be related, but you’ll need to read chapter/mistake #6 in Oops! for more on that.
• Performance rating categories are poorly defined. Whether you’re using a scale of 1-10, 1-5, 1-3, strongly agree, strongly disagree, sometimes, always, or any other creative rating structure, these ratings are going to be somewhat arbitrary unless they are connected to observable behavior and measurable facts. Most are not.
• It has a lot more to do with the rater than the ratee. Since most performance reviews require the rater to share their opinion or make an assessment of the individual, the results are almost never 100% objective.

Why we continue to do it:

Daniels points out five reasons why companies say they continue with their traditional performance appraisal process: Employee Development, Motivation, Promotion, Pay, and Legal Termination. Legal termination is my favorite – we’re so sure we’ve hired poorly that we want to build a case that will hold up in court when we fire them and they sue us (see point 2 above – and spend your energy hiring A Players and taking good care of them rather than building systems to support your sloppy hiring and poor management.) Daniels does a good job pointing out how performance appraisals fail to accomplish any of these five.

 But honestly, I think the biggest reason companies continue with this old-school way of thinking is simply because it’s just what has always been done and they don’t know what the alternative is. In fact, I’ve seen very successful, growing, companies talk about this as a benchmark for proving they are becoming a mature, professionally run company. What a shame… they’re going to throw away the naturally developed, positive, culture-building ways that probably already exist to adopt this negative legacy process, just because it’s what they think successful companies should do.

 What to do instead:

 If what you are trying to accomplish is an environment where every employee does their best work every day, then you need a method for letting people know how they’re doing…. every day. Daniels surmises that “if all employees did outstanding work every day there would be no need for an appraisal system. Therefore, organizations need the knowledge, systems, and management practices to create such an organization, because it is possible.”

 I believe there are three key components needed to make this work:

• Robust Hiring Practices: You need to have confidence that the people you work with are both committed and capable. Click here for information on how we think Topgrading can help you with this.
• Clear Goals and Expectations: Everyone in the company needs to know exactly what their role is and what success looks like. Click here for information on how to create a Job Scorecard for each individual, and click here for how to create an “Execution Ready” plan that will set you up for success in this area.
• Constant and Visible Performance Feedback: The status of individual priorities and metrics that each individual is accountable for should be displayed publicly. Click here for information on using dashboards and Rhythm software to help you with this.

 It really is okay to walk away from this outdated management practice if you understand what you need to accomplish and create an environment where people can be accountable and successful. It still requires a lot of work, but you’ll be spending your time, energy and resources on very productive and positive forms of reinforcement instead of wasting them on this negative and unproductive legacy.