It’s that time of year again in corporate America. Managers and executives everywhere are sitting down with their employees to review their performance over the past year.
Take Tim, for example. He’s a senior manager in a small technology company, and all of his direct reports are project managers. Tim is, at this very moment, considering three of those project managers: Brook, Sam, and Alex. He summarizes the year for each of them quickly in his head:
Brook: Got stuck in project prioirity churn the entire year. Wasn’t his fault necessarily, but as a result Tim didn’t really get a sense of how he could perform. It’s hard to tell if a PM is any good when their assignment is constantly changing.
Sam: Delivered her two projects right on time. She’s new to managing projects, and required a great deal of coaching. Now it’s time to cut the umbilical cord and set her free to see what she can do.
Alex: Alex is, in many ways, the quintessential queen of project management. She frequently manages five or more complex projects at the same time and the end product is always right on target, if not always on time. She is frequently short-tempered with her project team, her peers, and, less frequently, Tim, but she has a rock-solid reputation for getting it done.
How should Tim review these three? What data from the past year should be used to “rank” these three employees and determine how to reward them?
The typical solution to this is to take a nice set of corporate objectives and compare Sam, Alex, and Brook’s past year against them. These objectives might look something like this:
Tim might take a look at these objectives, think about what happened over the past year, and then assign scores to each of these objectives based on his perceptions. These scores usually indicate how well each of these objectives were met and translate to things like “met”, “failed to meet”, “exceeded”, “vastly exceeded”, “almost met”, etc. These scores are then used to establish acceptable ranges for salary increases, bonuses, etc.
What do you do in your workplace? Is this how you get evaluated? What do you think of it?
I think it stinks, and I’m going to tell you why. This type of approach is used all over America’s largest companies in various flavors, and I believe it is a total failure. Here’s why
Performance reviews are backward looking when they should be forward looking.
When Tim hired Alex, Sam, and Brook, he didn’t base the salary he offered them on their previous year’s performance. He didn’t really have any objective data about their past performance. Instead, he offered them salaries based on the value he perceived they would add by joining his team. Backward-looking reward systems are counter-productive because the employee has already been rewarded for the past. That’s what the twelve months of paychecks were.
Performance against objectives doesn’t actually correlate to value added.
There’s really not a good way to measure performance, even when objectives are clearly defined (which is extremely rare). When they are poorly written, it becomes impossible. Look at the objectives we mentioned earlier. Are any of those objectives exceedable in ways that are actually good for the organization? Sure, Sam could deliver projects in half the time estimated just by doubling the estimate. And Brook could invent new project management methodologies while Alex learns to hug her team members when they fail, but is this really helpful to the organization? Exceeding these objectives doesn’t actually add any value to the organization.
Objective-based reviews are insulting to intelligent people.
This approach to performance reviews was created with the good intention of rewarding performance by creating an objective way of it. Unfortunately, even the simplest of tasks is very difficult to measure with any degree of accuracy. In the end, performance reviews are simply facades of objectivity that attempt to hide the complete subjectivity of the review behind five to ten pages of anecdotal evidence about the employee’s successes and failures.
In depth performance reviews are too time-consuming for managers to do effectively.
Too many employees write their own performance reviews, which their managers edit briefly and assign a totally arbitrary score to. Or the manager writes several “boilerplate” review paragraphs which he then reuses over and over. None of this is helpful.
Performance reviews frequently punish the children for the sins of the parents.
Look back at Tim’s assessment of the three project managers. How many of these are actually his issues, not his employee’s? Brook’s shifting assignments, Sam’s growth, and Alex’s workload are all issues that Tim ought to identify as his responsibility and create a plan to fix them.
Backward-looking reward systems are also insulting.
Being required to toil away for twelve months in the anticipation that at the end of the year Alex, Sam, and Brook will be rewarded (or punished) for what they’ve done is just plain stupid. They should be paid for the value they are expected to provide now, not the the value they provided last year. If employees are paid less than they are worth, the marketplace will be a constant temptation.
Objective-based reviews ignore the intangible contributions of employees
Some employees make everyone better, others make everyone worse. Both of these types are equally distributed across the performance spectrum. Objective-based reviews don’t capture the value of the intangibles.
So, how does this get fixed? How do managers take performance reviews and turn them into something useful? First, make the performance review honest and open by embracing its subjectivity. The value of the performance review should come from its subjectivity, not its objectivity. The good judgment of the manager should be more important than a simple checklist of objectives. Use the same good judgment that got the employee hired in the first place to determine how that employee should be rewarded. Second, make rewards an expression of what is expected rather than what has been achieved. Doing it any other way is like paying an employee twelve months in arrears perpetually. This drives good employees back to the marketplace, where they can be rewarded for what is expected now for at least one year. Bad employees will stick around as long as possible since they are overpaid to begin with.
The Honestly Subjective Performance Review (HSPR)
So, what is the honestly subjective performance review? How is it executed?
The good news is the HSPR, as I like to call it, is simple to perform. Ask employess to help create a list of problems that need to be fixed in the upcoming year. Tim did this and as a result created the following list of problems:
Once he has this list, Tim needs to make a plan. In this case, part of it is easy. Take some of Alex’s work and give it to Sam and Brook. That helps all three project managers. Tim still needs to figure out how to firm up the commitments of the projects that had once been assigned to Brook, but that’s what he’s there for. He’ll have to use the good judgment that makes him so valuable and figure out how to do this. Fortunately, he’ll have more time to devote to this task, because he has already finished the backward looking part of the performance review!
The next part of the honestly subjective performance review is forward looking and focused on reward. It is based on a simple premise: considering the quality of work that you expect to recieve from an employee in the upcoming months is a more accurate measure of their total package of capabilities than evaluating accomplishments and failures of the past against a vague set of poorly documented objectives.
It is done by asking a simple question about each employee: What assignments would you feel confident giving them over the next year with a reasonable expectation that they could pull it off? This question needs to be customized for the type of staff being managed, but that’s why managers need good judgment. If they’ve got it, they can do this. Here’s the list of questions Tim came up with:
Once he had his questions, Tim came up with preliminary answers for them, then discussed the results of the questions with each of his project managers. Together, they drove out consensus about the value that each project manager should be able to add over the ensuing year. In the process, Tim used his good judgment, coupled with his solid management skills, to strengthen his relationship with each of the employees and to find ways he could add even more value as a manager by removing obstacles to success that Alex, Sam, and Brook brought to his attention in the discussion.
The final step: compensate. Reward appropriately. Now that Tim knows the value he expects Sam, Brook, and Alex to contribute, he can assign a price to it. That’s what they should be paid.
The theory behind the HSPR is simple. Most people have a pretty good nose for bull. Any claim of “objectivity” by a person (or process) is bull. It is an indication of dishonest subjectivity. Objectivty in humans doesn’t actually exist, so we should embrace our subjectivity. Rather than putting systems in place to limit its impact, we should train and develop our subjectivity and turn it into a term I have intentionally used over and over in this article: good judgment.
I believe a review that is openly, honestly subjective reveals much more about both participants in the review process than one that attempts to be objective. If the manager has poor judgment, the HSPR will rapidly expose this. If the employee lacks the capabilities needed for the future, this will also be exposed. And if the employee is a diamond in the rough who only needs to be given the right opportunity to demonstrate her capabilities, a manager with good judgment will have the tools to recognize this and reward it.
Finally, the HSPR forces a manager to take the whole employee package into consideration, not just those capabilities that tie directly back to a set of objectives. It allows him to give credit for the intangible value an employee adds as well as the tangible, and it rewards the employee today for that value.
I welcome your comments.
NOTE: Tim, his colleagues, and the company he works for are all completely fictitious. Any resemblance to real people, etc. is completely coincidental.