Should You or Shouldn't You Do Performance Evaluations?

Much has been said in recent years about the value of performance reviews. Some companies divorce the evaluation system from pay entirely. Others base their pay purely on the merits of the employee's annual evaluation. All companies should have some type of performance management system, but the type of system depends largely on what the employer seeks to accomplish. Many managers do evaluations only because HR says they have to. This frequently results in ratings that are plumped up to get the most compensation for their employees or, conversely, or downgraded to hustle an underperforming employee out of their department. In the Jackson Fish Market's blog, author Hillel Cooperman states that he doesn't intend to have performance reviews at all at his new company, because he believes they do more harm than good. Really? Mr. Cooperman contends that if a company sets a payroll budget in advance, then it follows that any performance review's main objective is to figure out how to divvy up a pre-defined limited amount of money. To Mr. Cooperman I say, "It ain't necessarily so." First and foremost, a performance evaluation should be based on an employee's work results compared to a pre-defined set of goals or expectations for the job. The secondary objective of a performance evaluation program should be to help determine the employee's base pay for the coming year. Notice I didn't say it should be the sole determinant. A company may also want to factor in years of experience, effort, and work behaviors, etc. Mr. Cooperman goes on to point out what I agree are flaws in a forced-ranking performance review system, in which employees are compared to one another to determine their "share" of the compensation pot. In a forced ranking process, if you have a team of good to excellent employees, some good employees must get a low ranking (and a comparably low salary increase). How long would you expect these good employees to stay, when they're treated as though they are sub-standard? Do companies that use this process always assume that the lowest 20% in ranking are the bottom of the potential employee barrel? I would dare to suggest that, rather than motivating those good, solid (but not top of the heap) employees to try harder to be number one, they would be demoralized by mediocre rankings. With current unemployment so high, they may not quit today. But in a department of good performers who are achieving their objectives, how many of these mediocre rankings do employers think workers will tolerate before they find a company that rewards their accomplishments fairly. Until they do jump ship, you're likely to have a department of mostly fine employees who show up every day but are disengaged. What happens to productivity and quality then? Do you want to spend weeks or months after every review cycle interviewing candidates to finding  replacement who is at least as solid as the ones who left? Not only are you short-handed, you don't have enough time to do your own job. Seems like a definition of "counter-intuitive." As the blog author points out, you have probably heard managers complain that their employees don't work well together and don't collaborate, as well as employees and managers both who gnash their teeth over the "b.s. politics" where they work.  As Mr. Cooperman notes, how is it that companies using forced ranking masquerading as performance reviews are surprised when their people don't work as a team? Their personal compensation and sense of self-worth are hard hit  by a system of employee vs. employee competition. Disappointment is all but guaranteed except for those who consistently come out at the top of the scale. Mr. Cooperman goes on to say that the corporate review process he ran was "hugely destructive" and a waste of time. It's a shame that so many companies get it wrong, because he's right - poorly structured performance management systems are worse than no system at all. Sure, you may feel protected from claims of wrongful discharge because you have a paper trail, but how long will you be in business with lackluster productivity and quality, and poor retention of perfectly good talent? Rather than eliminating performance reviews altogether, how about instituting a well-rounded performance evaluation system that gives employees continuous feedback, and rewards them for meeting and exceeding the expectations set by the supervisor from day one. While we're at it, stop making managers out of people who know their job well but have no people skills? (After receiving several comments on his blog, Mr. Cooperman issued an update, saying that his main point was that performance reviews are a poor (and damaging) substitute for regular quality feedback and discussion. Hear, hear!) 2009-05-23T01:26:12Z