Episode #126: Reappraising the Performance Appraisal

On this episode, we explored the recent developments in companies that have moved away from the annual performance appraisal.

We originally explored this issue, including our suggested three replacements to the performance appraisal: Key Predictive Indicators, Drucker’s Manager’s Letter, and the After Action Review.

You can listen to our Episode #5: Replacing the Annual Performance Agony, from August, 2014. Also, the show notes contain the books we recommend and other resources.

In 2013, Ron wrote a two-part LinkedIn series on the annual performance appraisal, which was read over 382,000 times, garnering some 650 comments. Here are Part 1, and Part 2.

Some six percent of Fortune 500 companies have eliminated their rankings. Here is a list of companies that have also eliminated the annual performance appraisal:

  • Accenture (as of 9/1/15)
  • Adobe
  • The Gap
  • Deloitte
  • Medtronic
  • Ernst & Young
  • Buffer
  • Procter & Gamble (which hasn’t done annual appraisals in decades)

Accenture

In big move, Accenture will get rid of annual performance reviews and rankings, published in The Washington Post, Lillian Cunningham, July 21, 2015 detailed that Accenture had 330,000 team members around world and 95% managers were dissatisfied with the annual performance appraisal process, even though each manager was spending approximately 200 hours per year doing them.

The CEB (Mgmt Research Firm) found: 90% HR managers doubt accuracy of the information contained in appraisals.

Also, the CEB estimates: companies with 10,000 employees, on average, spend $35 million on annual performance appraisals.

Accenture is not eliminating them for cost savings, but rather to improve the future performance of its workers.

Buffer

We Don’t Have Performance Reviews at Our Startup: Here’s What We Do Instead, January 19, 2016, by Courtney Seiter, published on Buffer Open (company blog).

Rather than annual appraisals, Buffer does ongoing, weekly feedback: one-on-one between team leader and member, lasting approximately one hour.

The team member sets the agenda. It’s a mentor-mentee relationship.

Also, there are optional Masterminds, lasting 1-2 hours, which are peer-to-peer conversations.

Deloitte

Harvard Business Review, April 2015, Cover Story:

Reinventing Performance Management, Marcus Buckingham and Ashley Goodall, Director of leader development.

Deloitte employs 65,000 people.

It was spending 2 million hours per year on annual performance appraisals, and 58% of its executives didn’t believe they drove engagement or high performance.

It eliminated cascading objectives, annual reviews, and 360-feedback.

The article cites research that assessing skills produces inconsistent data, and 62% of that variance are due to the rater’s peculiarities. Only 21% was related to actual performance.

3 Objectives of Deloitte’s New System

  • Recognize performance
  • See performance
  • Fuel future performance

The Team leader is in the best position to makes the assessment.

It asks the Team leader not about the skills of the team member, but rather their own future actions with respect to the team member.

Here are the four questions the team leader answers:

  1. Given what I know of this person’s performance, and if it were my money, I would award this person the highest possible compensation increase and bonus [1-5 scale, from “strongly agree” to “strongly disagree”].
  2. Given what I know of this person’s performance, I would always want him or her on my team [same five-point scale].
  3. This person is at risk for low performance [yes-or-no basis].
  4. This person is ready for promotion today [yes-no-basis].

One problem we discussed with this approach is the economist’s notion of revealed preference: watch what people do, not what they say. This can seriously distort surveys such as this.

In any event, this data is the starting point, not the end point, for compensation at Deloitte.

Of course, it still mentions performance metrics: hours and sales.

It does at least quarterly, or per-project, snapshots, and a weekly check-in with team leader.

Sports teams have a plethora of data on each player, while doctors have pages of blood work numbers.

But Deloitte found that having only one number was the problem.

Better understanding comes from conversations, not data.

McKinsey & Company Article

Ahead of the curve: the future of performance management,” May 2016, Boris Ewenstein, Bryan Hancock, and Asmus Komm.

An excellent article exploring the disadvantages of the annual performance appraisal process.

Other Resources

The Knowledge Matrix

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Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.