If appraisals need a tune-up, then what’s next?

Traditional employee performance appraisals are being called outdated and arbitrary. Here’s how to turn them into useful conversations.

Kathleen Fitzpatrick, CPA, CGMA

If anybody knows the ins and outs of employee performance assessment, it’s Kathleen Fitzpatrick, CPA, CGMA (at left). As the former human resources director for Johnson & Johnson, she was responsible for the corporate wellbeing of more than 125,000 employees, helping the multinational corporation unify HR practices across roughly 250 companies.

Yet she can trace much of her perspective on performance reviews — a pressing topic for business leaders lately — to the experience with just one person.

Early in her career at the medical products manufacturer, she had learned that one employee wasn’t working well with others. Her direct report seemed to be faltering under the pressures of the job, an issue that Fitzpatrick knew she would need to address in her first performance appraisals with her new team.

The conversation happened in Fitzpatrick’s office. She delivered a score on a 9-point scale and an evaluation of the employee’s issues, per protocol.

The reaction? “A breakdown, right away,” she said. “Denial. Shock.”

The issue: It was the only major assessment that the employee had received that year. The meeting delivered months of feedback in one unbearable load to an employee who was feeling stressed and vulnerable already. The human brain doesn’t operate by the year — whether calendar or fiscal — especially when business roles can change by the day. So Fitzpatrick vowed to make a change.

“I’ll never surprise a person again,” she told herself as the devastated employee fled her office. She decided that from then on she would watch and instruct her team with the tenacity of a sports coach. She embraced constant communication.

Fitzpatrick’s experience is just one instance in a body of anecdotes and research foreshadowing significant changes in how companies evaluate and develop their employees.

The uncomfortable ritual of the infrequent or impersonal employee performance assessment is dying, or at least shrinking. In recent years, the performance review has been maligned as an outdated and arbitrary system that attempts to compress people into just a handful of variables, while ignoring factors that may be limiting or benefiting them.

Its most trenchant critics say there’s no purpose in ranking employees at all. At the least, companies are trying to make performance assessment a friendlier process. Giant after giant — Accenture, Adobe, Microsoft — has announced major changes, in some cases eliminating numerical ratings and increasing the frequency of communication in an effort to retain employees and meet the demands of an information-hungry new generation.

About 43% of respondents to a recent CGMA Magazine survey said that their employers had instituted major changes to performance reviews in the past three years or were in the process of doing so. They most commonly reported that reviews were becoming more frequent, with more self-evaluation, more peer evaluation, and a greater number of automated systems for tracking metrics. Still, some 55% said the reviews they received were not serving them well.

“Until recently, business leaders haven’t really been expected to be as rigorous about human capital issues,” said John Boudreau, professor of management and organisation at the University of Southern California’s Marshall School of Business, who has published extensive research on performance management.

“With increased volatility and uncertainty, there are lots of experiments today. But what’s consistent is this idea of empowering employees to make decisions themselves — to understand the connection between what they do and what motivates them.”

Find the roots of discontentment

Businesses have been trying for at least a century to distill the rules that will select and advance their best employees. At the dawn of World War I, industrial psychologist Walter Dill Scott brought scientific rigor, in the form of intelligence and aptitude tests, to the hiring processes of companies such as the American Tobacco Co.

Scott’s “man-to-man” scale, developed first for salesmen, came to widespread use by the US Army during the Great War. By the end of the war, a team of 7,000 analysts had interviewed and ranked more than 3 million troops on a slate of five metrics, from physical fitness to leadership qualities, according to an article published by Harvard University’s Business History Review in 1962.

Even then, the researcher saw his ratings as a way for companies to engage their employees. As the Harvard periodical described his philosophy: “The important thing was for the employer to have a sincere interest in the welfare of his men and to make each employee feel that his job was essential and worthy of his best efforts.”

But those higher ideals couldn’t hold back the surge of cynicism that has crashed against his creation. In fact, the revolt has been building for decades.

“This idea that performance reviews are flawed and bothersome to people, and don’t meet their objective — it’s been around since I started in the profession in the ’80s,” Boudreau said. And the latest revolt is the strongest yet, he said.

Some see it as a reaction to the cutthroat competition exemplified in the 1980s by policies that pushed out low-rated employees. Companies today are starved for talent and less willing to shed employees on a schedule.

The increasingly flexible job definitions of the knowledge economy may also be more difficult to capture in a standardised review form. Business literature, meanwhile, has come to emphasise a style of management that is far more empathetic to employees. No matter how precisely it’s defined, the new thinking goes, the traditional review might amplify the way a supervisor’s biases and the company’s own flaws shape employees’ performance.

But none of this should be taken, Boudreau said, as evidence that the performance review should be eliminated. Done right, he said, an assessment can be a crucial connection between employer and employed.

“I don’t think it’s really a rejection of being evaluated,” he said. “In a number of studies, people are saying, ‘I really want to be evaluated. I want to know how I’m doing.’ ”

Turn reviews into conversations

Research on performance management emphasises one key assessment: the quality of the discussion with the individual, Boudreau said.

In the new conception, the performance assessment doesn’t pretend to quantify the employee so much as it tries to assure and improve the relationship between the employee and the manager.

“You tell the boss, your job is to help the employee do a better job — first to learn what the employee wants and then to help him or her get it. The bosses’ job is to get the chemistry right,” said Sam Culbert, professor of management and organisations for the UCLA Anderson School of Management and author of the book Get Rid of the Performance Review!

These relationships, of course, are murkily human things — but they still can be tracked and managed. In some post-review companies, the human resources department tallies the number of contacts between employees and their managers, offering cues at opportune times.

“I’ll send little triggers: You should start doing a quick review. Anthony’s an entry-level, he’s already worked 95 hours — he needs feedback,” said Kevra Esposito, human resources manager for Wilkin & Guttenplan PC, which recently eliminated its annual performance appraisal programme.

This change to a more frequent schedule also can encourage managers and employees to spread the work of assessment into more manageable chunks.

“One of the huge weaknesses I’ve observed in the process is people not setting enough time aside for the conversations,” said Rona Purdham, FCMA, CGMA, a UK-based management consultant who previously was finance director for European human resources at Kellogg Co.

“There’s all of these requirements to do evidence gathering, whether it’s customer feedback forms or examples of work — but, in my experience, people leave it to the last minute.”

More-frequent interaction can yield stronger relationships — or, at the least, deliver criticism and praise about a project before it’s lost to memory.

“Just using an annual cycle doesn’t really … allow you to have a consistent set of alignments and goals that you’re working on throughout the year,” said Brenda Morris, CPA, CGMA, senior vice president for finance at retailer Hot Topic. “I tend to like more routine get-togethers, and think that a quarterly goal and scorecard review is the better way to go.”

Christian Meloni, ACMA, CGMAChristian Meloni, ACMA, CGMA (at left), senior vice president for Belgian chemical company Solvay, suggested that this is a challenge for the entire organisation and that communication should be a focus for the training and advancement of managers. His company is trying to encourage a loop of continuous conversation, making its biannual reviews a “formalisation” of what’s discussed every week.

“You may be a very good performer in your role, but if you are not able to develop people, or develop your team, after a while this becomes a strong limitation — and this is a strong incentive,” he said.

Acknowledge bias to improve relationships

Some of the deepest concerns about employee appraisals can’t be addressed through more conversation alone. Assessors are vulnerable to biases — most obviously involving race, gender, and social status — that can result in unjustly lower scores and limited opportunities for some employees.

“By virtue of being in South Africa and being a black woman and being young, I’ve encountered all of that,” said Kume Luvhani, ACMA, CGMA, an operations technology manager for an international bank’s presence in Africa.

Older white colleagues have at times eyed her with suspicion, she said, perhaps thinking that her career was fast-tracked by diversity hiring practices.

“No matter what we do, the honest truth is biases will always be there, and all we can do to minimise them is to ask a vast range of people for their feedback,” she said.

An improved assessment system can somewhat alleviate those concerns by ensuring that a single person’s biases don’t shadow another’s career. On Luvhani’s team, employees and managers are reviewed by a diverse group of three to five colleagues. The group also is testing an application that will allow employees to leave comments anonymously about superiors.

“We’re trying to encourage those open communication lines,” she continued, “and remove the fear.”

Culbert suggested that employees will put more faith in supervisors who acknowledge the limitations of their judgements.

“People aren’t objective. Self-interests are intertwined in everything a person does. And trusting relationships are built on the basis that we’re in it together. You have to make it real,” he said.

“Use ‘I’ speak. The boss talks about what I believe, he believes, she believes — about their needs, not the employee’s deficiency.”

A well-designed appraisal also can help to balance the power dynamic between supervisors and team managers.

“You could have a tyrant, and you don’t realise it because they manage up really well,” Fitzpatrick said. “There has to be some mechanism to get feedback from their employees.”

And that balanced relationship can make a review far more effective, no matter how often it’s happening, according to Deborah Myers, CPA, CGMA, a manager of financial product performance for Warner Bros.

“It’s supposed to be a two-way conversation. The boss can learn things from me,” Myers said. “The annual process — if there’s someone who’s administering it who’s keyed in to their employees and their growth — it can work.”

Create new avenues for advice

With career paths increasingly unpredictable, the “review” can’t simply measure progress toward the next promotion. Instead, it’s a chance to plot the path ahead.

“People in the early stages of this career find this process very dynamic. They can identify where they want to go and where their gaps are,” said Richard Adam, financial controller for Omega PLC, a UK-based kitchen products manufacturer.

The manager and the performance review, in the traditional view, are the principal guides for an employee looking to ascend the ranks. The manager tells employees what to do, and the review shows how well they’ve done it. A new performance review system can turn that assumption on its head.

“On the other side, it’s also that the employee himself is invited to take ownership of his career, to be proactive, to ask for more feedback from his manager and from his other colleagues,” said Meloni, of Solvay.

But if that’s to happen, companies must offer new avenues for support and feedback. For example, peer-to-peer partnerships, Culbert said, can help “high-structured” employees adapt to a world where jobs are loosely defined and promotions aren’t a function of time on the job.

“Their buddy would come out with them once a month, look at the situations they faced, and make supportive suggestions,” he said. “It gives them alternatives.”

The same tactic can help new employees set their course through the company.

“You choose a mentor, and you’re expected to meet with that individual four times a year,” said Kirsten Thompson, CPA, CGMA, and human resources director for the advisory and accounting firm HW&Co. “The protégé sets the agenda: ‘These are the things I need to work on’ — and then the mentor gives their suggestions.”

Many companies also have incorporated colleagues’ perspectives into the assessment, surveying relevant parties across the organisation to create “360” evaluations. This strategy can ensure employees get credit (or criticism) for their work beyond the department’s boundaries, but Culbert warned against making this commentary anonymous, as many companies do.

“Everything needs to be contextualised,” he said. “It’s ignorant to assume that if it’s anonymous, it is objective. That would mean that hate mail is objective.”

Setting expectations

Dick Grote, who writes and consults on performance management systems, sees value in rating and differentiating employees.

“Performance appraisal, for all the gripes and kvetches and moans, is probably as much a vital business process as budgeting is,” he said.

“In spite of all the stories we read about companies abolishing performance appraisal, the reason it isn’t happening is simple. If people don’t know what they’re expecting of them, and they don’t know how they’re doing, they’re not going to prosper.”

What’s changing, most certainly, may be the form of those answers. They may come weekly instead of yearly. They may arrive as spoken words, not decimal-point figures. And the results, perhaps, will be seen as a reflection of employee and boss alike.

“Historically, we use [performance appraisals] as an opportunity to tell employees what it is that they’re doing wrong,” said Elizabeth Nilsen, CPA, CGMA, the CFO for FKP Architects in Houston.

“As managers, we need to be so much stronger, and we need to see ourselves as mentors and as guides.”

These ideas about the quality of relationships reflect Walter Dill Scott’s vision of an employee satisfied by an understanding of the connection between her daily tasks and the company’s bottom line.

“Ultimately, that’s what you’re reviewing,” Boudreau said. “That’s what performance is: the thing that connects the employee to the broader goals of the organisation.”

Editorial Director Jack Hagel and Senior Editor Samantha White contributed to this report.