Avoiding the Pitfalls of Performance Evaluation

Many companies have implemented some kind of performance evaluation system. Traditionally, the main reason for using such systems was to determine the size of bonuses, but performance evaluation is increasingly used as a management tool and a development tool for the individual employee.

Illustration by Xavi Ramiro, Barcelona, Spain

Companies implementing performance evaluation for bonus allocation discovered that it actually had an impact on employees’ focus on work. Most energy and focus would be directed where the money was. This should not necessarily be a huge surprise, but it leads to one important overall learning point: be careful what you measure, as you might get it! Choosing performance metrics for evaluation is the key to a successful system because it will guide people’s energy and focus. When you choose some metrics, you also decide not to include others. These may not be as important as the ones you do include in the performance evaluation, but they may still be things that need to be done in everyday work. Performance evaluation is one of those challenges in which the complexity just continues to grow the more you dive into it. The more detailed and customized you make the evaluation for each employee, the more management control you lose across the organization and the more the possibility to consolidate data for company-wide analysis is reduced. When everyone has individual performance metrics, it is difficult to benchmark employees, and top managers have difficulties steering the focus of employees from the management level. The value of a performance evaluation system also depends on the level of trust in the organization and to what extent people provide honest feedback. Performance evaluation systems will often collect feedback from co-workers, direct reports and managers, and this should not end up as either a back-slapping or a back-stabbing exercise.

Performance reviews are often criticized for “sugar coating” – that people (in particular co-workers) paint an overly positive picture of performance. People may do so in order to avoid conflict or with the strategic rationale that “If I provide positive feedback on my co-workers, they may give me positive feedback too and we will all look good in front of management.” A recent survey by Globoforce and the Society for Human Resource Management showed that 45 percent of HR leaders don’t think annual performance reviews are an accurate appraisal of employees’ work, and 42 percent don’t think employees are rewarded fairly for their job performance. This is obviously a significant challenge, when close to half the HR leaders, who are responsible for these performance evaluation processes, do not think they are a good tool. Take into account as well that it can be a massive investment of time and energy when 8 to 12 people in an organization are asked to evaluate a single person. In an organization with 500 people, this is an investment of more than 1,600 hours if an average of ten people spend 20 minutes for each person. This is just taking into account the time spent on filling out the feedback surveys and not all the other time spent on giving instructions and providing feedback and the energy devoted to speculating about the results. In low-trust organizations, the latter can be significant and a performance review process can add to the gossiping and back-stabbing taking place. That does not mean that performance review cannot be valuable for low-trust organizations; on the contrary, it may be a fresh new way of engaging with employees and giving them direction if management understands how to carry out the process in a constructive way. But in these cases it is important to be cautious with the data quality, in particular in the beginning, when people in low-trust organizations tend to respond more tactically than honestly. If the performance evaluation process turns out to be trust-building, data quality should improve over time as people provide more honest feedback. Performance evaluation can go from a simple quantitative metric that may be applied for large groups in the organization to more customized metrics with significant qualitative input. The quantitative metrics are often easy and cheap to collect but are sometimes considered inaccurate and somewhat “half the story” about performance. On the other hand, customized metrics based on qualitative input, such as peer assessments, are much more cumbersome to develop and manage and the subjectivity of the data can be questioned.

Maxim Sytch and D. Scott DeRue, in the article “Ditch Performance Reviews? How About Learn to do Them Well?”, offer three tips to improve the value of performance reviews:

  • Reduce subjectivity by incorporating several viewpoints from peers, direct reports and senior managers.
  • Give constant feedback so it does not come as a big surprise.
  • Separate evaluation and development so a heated discussion or reaction to feedback does not impact negatively on a more forward-looking development discussion.

The second recommendation, which relates to the frequency of feedback, is essential for the outcome of the performance evaluation process and how it fits within the culture of the organization. Developing a culture in which it is normal and widely accepted to give and receive honest feedback is important in order to have real conversations about performance and how the development of each individual in the organization can support the goals of the company. Honest and constructive feedback requires, though, good management and communication skills and a culture in which it is acceptable to make mistakes. This can be developed through training and by removing punishment for making mistakes, instead seeing them as opportunities for improvement.

Manuel London and Edward Mone describe in their book chapter “Performance Management: Processes that reflect and shape organizational culture and climate” how performance management processes, including performance evaluations, have different dimensions for the individual employee, the team and the organization. Management needs to consider all three dimensions when designing a performance evaluation system. The researchers stress that it is important to understand performance within the cultural context of the organization and to be aware how performance management impacts the organizational climate. Too much focus on individual performance can have a negative impact on the employee’s energy and focus on the team and how that fits with the culture and goals of the organization. Given the complexity of performance evaluation, it is essential that companies keep in mind what the goal of the whole exercise is. If there is an element of bonus allocation based on the evaluation, it will put a strong focus on fairness – exactly what is measured and how. If it is mainly a development tool to support and build conversations on individual performance, it may allow for more customized measures that should, however, be linked to the culture and goals of the team and the organization. Independent of the goal, performance evaluation is difficult to get right and must be understood and managed as an integrated part of the culture – it may be a trust builder or a trust breaker. There is no neutral ground.

[W    globoforce.com    scottderue.com    shrm.org]

Published in the hard-copy of Work Style Magazine, Fall 2014