The Case Against Performance Ratings and What to do Instead

THE CASE AGAINST PERFORMANCE RATINGS AND WHAT TO DO INSTEAD by Paul De Young, Ph.D. www.deyoungadvice.com

[email protected] Phone: +1 (213) 407-4712

Ratings Ratings

No Ratings! 1

¨  Objectives ¤  Raise awareness of the need to eliminate annual

performance appraisals in organizations ¤ Generate and discuss ideas about what to do instead for

your organizations

¨  Agenda ¤ Discuss our collective experience of performance appraisal ¤ Discuss the merits and demerits of performance appraisal ¤ Discuss what to do instead of performance appraisal

De Young Consulting www.deyoungadvice.com Phone +1 (213) 407-4712

Performance Appraisal Defined 2

The formal process of evaluating or judging the way in which an individual is functioning, and: ü  Employees’ work performance, behaviors, traits are rated, judged,

described by someone else ü  Ratings, judgments, and descriptions relate to a specific time period

rather than a product or service ü  Process is systematically applied to all employees or groups of

employees ü  Process is mandatory or induced by extrinsic motivators (e.g.,

eligibility for a pay raise) ü  The results are documented and kept by someone else in the

organization other than the rated employee Source: Coens & Jenkins. Abolishing Performance Appraisals, 2002


Exercise 1: What does your company’s performance appraisal intend to accomplish?

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1.  What are the objectives your organization’s performance appraisal system is intended to accomplish? What are the appraisals used for?

2.  Discuss with the person sitting next to you 3.  Be prepared to share your answers with the group


Typical purpose(s) of performance appraisal 4

¨  To determine pay

¨  To identify candidates for promotion or selection decisions

¨  To give employees feedback

¨  To provide communications between supervisor and employee

¨  To give direction and focus to employees

¨  To aid in career development

¨  To identify training needs

¨  Others? De Young Consulting www.deyoungadvice.com Phone +1 (213) 407-4712

Exercise 2: Rate Your Performance Appraisal Process

1.  Write down your overall rating of your current performance appraisal process in how it has improved your performance or your companies’ performance?

5 = Superior exceeds expectations (Exemplary) 4 = Exceeds expectations 3 = Meets expectations 2 = Needs improvement 1 = Unsatisfactory / Far below expectations (Possible termination)

2.  Discuss with a partner, why you rated your performance

appraisal system the way you did. What are some of the challenges?

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Top 10 Challenges of Performance Appraisals

1.  Undermines teamwork 2.  Create losers, cynics, and fear 3.  Disregard the existence of a system. They generally encourage

individuals to squeeze or circumvent the system for personal gain rather than improve it for collective gain.

4.  Disregard variability in the system and to some extent unnecessarily increases the variability

5.  Use a measurement system that is unreliable and inconsistent 6.  Encourage an approach to problem-solving that is superficial 7.  Tend to establish an aggregate of safe goals--a ceiling of mediocrity--in

an organization 8.  Seek to provide a means to administer multiple managerial functions

(pay, promotion, feedback communications, direction-setting, etc.), yet are inadequate to accomplish any one of them

9.  Creates reductions in productivity 10.  Institutionalizes existing values & biases Adapted from: Peter Scholtes. Total Quality or Performance Appraisal: Choose One, National Productivity Review 1993 and Harvard Management Update 2000

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The Roman Army would periodically “decimate” their workforce

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The military context of the word “decimate” can be traced back to the Romans, where the decimation of a military unit was a form of punishment and a way of enforcing discipline. The word decimate comes from the Latin word decimare meaning to take or destroy one-tenth (from the Latin word decem meaning ten). For a Roman legion deemed to have failed in its duties this meant that one in ten legionnaires would be selected, stripped of their armour and beaten to death.


Today we “Topgrade” our workforce 8

“Topgrading is the definitive manual for becoming an A player and for recognizing those traits in others.”

Larry Bossidy, former CEO Honeywell and coauthor of Execution

“Topgrading is a detailed how-to manual for packing one’s team with A players (the top 10 percent of talent available at all salary levels), clearing out the Cs (bottom 10%), and using expert coaching techniques to turn B players into As.”


The dark side of performance appraisal 9

Many companies in America have systems by which everyone in management or in research receives from his superiors a rating every year. . . . Management by objective leads to the same evil. Management by numbers likewise. Management by fear would be a better name. . . .The effect is devastating.

W. Edwards Deming, Out of the Crisis, 1982


Exercise 3: What to do instead? 10

1.  Imagine a world with no performance appraisals in organizations. Then reality hits and you realize that you still need to improve performance of your organization, pay people fairly, motivate them, etc. What might you do to accomplish these objectives without a performance appraisal process in your organization?

2.  Discuss with your partner.

Case Study – Glenroy Inc.

“In my 21 years at this company, not a day goes by that I don’t actually look forward to going to work.”

Nancy Seager, HR Director at Glenroy Inc.

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Case Study – Glenroy Inc. Flexible Packaging Manufacturer

¨  About the Company ¤  200 employees

¤  Non-unionized

¤  Low turnover

¤  All employees meet with CEO 1/month

¨  Situation ¤  HR, managers, employees disliked

performance appraisal process n  Costly, took too much time, did not produce

expected returns

n  Was considered painful to manage and painful to do

n  Performance ratings tied to incentives created competition and inhibited collaboration

¨  Response ¤  24 years ago, CEO decided it was time to

eliminate appraisals

¤  Removed pay for performance incentives (more on next slide)

¤  No sales quotas or sales incentives

¨  Result ¤  Feedback delivered more timely, frequently

n  Managers don’t wait for scheduled appraisal meeting

¤  Enhanced collaboration, info sharing

¤  More employee ownership of development

¤  Sales increase, no layoffs during downturn, joint investment in company success

¤  No unions in a heavy unionized environment

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Compensation at Glenroy

•  Hire Rate •  Learn about the company

•  Interim Rate •  Learn more about the job

•  Job Rate •  Up to Speed

~ 5%

~ 5%

l  Annual increases same across company based on market l  If change jobs, move into interim rate l  Also includes profit sharing of 3-4% on average

Start at ~60th percentile of pay range

What to do instead?

1.  Change the way you think 2.  Stop doing it 3.  Develop organic and sustainable alternatives

¤  De-bundle the multiple functions (e.g., pay, selection, promotions, development)

¤  Develop organizational measures that matter and connect the dots to key processes

¤  Focus on improving organizational performance ¤  Adopt a coaching model to improve individual performance ¤  Compensation – focus on critical segments and tailor

compensation to the culture, adopt gain-sharing ¤  Educate supervisors on origins of performance and motivation,

establish ways to document.

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Suggested reading 15

¨  Abolishing Performance Appraisals, Coens & Jenkins ¨  The Legal Case for Eliminating Performance

Appraisals, Judith Droz Keyes, HR Magazine ¨  The Leader’s Handbook, Peter Scholtes ¨  Out of the Crisis, W. Edwards Deming


When will we get it?

“The aim of reviewing the subordinate's performance is to increase his effectiveness, not to punish him. But apart from those few employees who receive the highest possible ratings, performance review interviews, as a rule, are seriously deflating to the employee's sense of worth ... not only is the conventional performance review failing to make a positive contribution, but in many executives' opinions it can do irreparable harm.”

Rensis Likert, Harvard Business Review, July 1959

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Thank You!
