Abolish those performance appraisals


Abolishing performance appraisals

Performance appraisal is one of the most widespread of HR techniques, yet all too often it doesn't get a good press. But while the performance appraisal process may well suffer some fundamental drawbacks, scrapping it is by no means a simple task. Such a move can be high-risk. US business publication Harvard Management Update looked at the experience of a string of companies that have already confronted this challenge.

Critics argue "persuasively" that reviews fail to deliver. All too often the ratings process is "coloured by personality, emotion and selective memory," says a report in a recent edition of the monthly newsletter Harvard Management Update. Rather than acting as a means to improve individual and organisational performance, performance appraisals are more likely to demoralise and demotivate employees.

So, it seems that many US organisations are sorely tempted to scrap this HR technique. Why? "Because people regard them with so much fear and loathing, they're postponed, gamed, glossed over and generally viewed as something to be survived rather than used," the report says.

But the big worry is that without performance appraisals managers will not give feedback, performance will decline and there will be no basis for awarding pay increases.

The case against performance appraisal

Harvard Management Update lists a selection of the critics' main charges:

1 Managers can't assess employees' performance accurately

Most people will tell you that it is a relatively straightforward exercise to recognise a true star performer or slacker when they see one. But it is no easy matter to accurately judge the performance of 10 or 20 direct reports, most of whom are in the broad middle range — and "who are probably doing as good a job as their tools, training and work environment allow".

2 Formal evaluations demotivate more than they motivate

Put simply, the losers may differ little in outlook or performance when compared with the winners, "but there's no doubt in anyone's mind that they have been dubbed losers."

3 Reviews don't improve company's performance

Individual performance is seldom the key to better organisational performance. The obvious fact is that most people want to do a good job, but are constrained in their efforts by poorly-designed systems and work environments, or so the argument goes.

The solution? Fix the system, not the people, says one management guru who has led the crusade against performance reviews. You need to judge performance by looking at the output of work groups and business units, not the efforts exerted by individuals.

The alternatives

According to the study, a handful of companies have done just what the critics recommend, "which is to unbundle these functions and create separate methods for achieving the desired results."

But there are some formidable stumbling blocks. As the report points out: "Managers have to change some fundamental assumptions about what really produces high performance." What's more, companies have to work with employees differently on a variety of fronts, from feedback via compensation, to training and career development. "These and other tasks ensure that eliminating reviews is a challenging undertaking," the report warns.

Company examples

  • SAS Institute, the software company, encourages each division to design its own feedback procedures, but expects some kind of discussion between employees and managers to take place at least monthly. There are no ratings.

  • Wheaton Franciscan Services, a healthcare and housing company, now holds feedback sessions that focus on "the working relationship between the employee and the system within which they work".

Want to know more?

Title: "Alternatives to the annual performance review", Harvard Management Update, February 2000.

Availability: contact Harvard Management Update in Boston, USA, tel: 001 617 783 7655 or for further information email the editor jcase@hbsp.harvard.edu

Jump to the web site . . . www.hbsp.harvard.edu