The Dangers of Following the Herd: Is the Performance Review Really the Problem?

Deloitte did it, and so did Microsoft and Accenture. They're the vanguards of a growing coterie of organizations choosing to ditch their yearly performance review and ratings in favor of more continuous feedback.

The club of performance review ditchers is expanding rapidly. According to a recent international study by insight and technology firm CEB, 21 percent of organizations have either dumped or plan to dump their performance management rating systems and another 28 percent are considering it.

The bandwagon for ditching performance ratings seems as unstoppable as the bandwagon for adopting performance ratings once was. But is getting rid of reviews not a case of "out of the frying pan into the fire" — or at least into another frying pan? In a decade's time, will we be shaking our heads in disbelief that our HR elders thought this was a good idea?

The case against ratings is certainly a strong one. Ratings are pretty much despised by employees, managers and the HR staff who have to chase managers for appraisals.

Insights from research show that being rated has a negative impact on employees, demotivating them and reducing productivity — both those who do well in ratings and those falling below par react negatively to being ranked.

Research also suggests that we all display what's called the idiosyncratic rater effect, which means rating systems say more about the views of the manager than the performance of the employee. What we think of as objective measurement is actually highly subjective.

The alternative is often presented as more continuous feedback — but I think it might be bigger than that. Companies like Deloitte who have switched to this second strategy have shown is that it's not that ratings are inherently bad — it's that putting a lot more time, thought and effort into performance management as a whole is good.

There's a danger in the rush to get away from the canker of ratings. Not enough effort is put into thinking about how its replacement will work. Because it's not just a new system that's required, it's a change of behavior and culture. That's a much trickier beast to manage.

Indeed, the CEB report found that when there wasn't enough support given to changing the behavior of managers and employees, performance and engagement fell up to 10 percent. More employees (8 percent) felt that their pay rises were unfairly allocated and fewer than 5 percent of managers felt able to manage employees without ratings in place.

It's all very well saying that yearly appraisals should be replaced by informal regular "check-ins," but there has to be a mechanism in place to ensure that happens, and managers need the support to be able to change their behavior.

If a yearly performance review is swapped for a monthly or weekly check-in where managers aren't clear of the purpose of that chat, then this is not going to work any better than a ratings system.

Perhaps the problem lies not so much in having a ratings system itself, but in what's rated and measured. There's too much focus on past mastery or failure of a task and not enough on how to improve future performance. Those reaping the success of ditching the yearly appraisal review still measure performance success, but they have changed what they value and how they evaluate that.

Ousting performance ratings may well be the right answer for some companies, but that is not a given. Continuous feedback and yearly performance ratings are not mutually exclusive – there may be situations where the two can and should coexist.

The key is to keep an eye on the end goal of what this should all be about: driving better employee performance. Ratings may prove to be a symptom rather than a cause of poor performance management.

Photo: Twenty20