by Garold Markle
The jury has returned. The verdict is in. Performance reviews (a.k.a. employee evaluations), as practiced for the past six decades by the vast majority of the Fortune 500, are no longer regarded as viable business practices. If you’re still doing them, it’s only a matter of time before you feel pressure to change.
Complaints about the world’s poorest performing personnel practice have been lodged for literally decades. In the last two years, however, some extremely prominent organizations have very publicly abandoned ship. Adobe, Hilton, Cargill, Pfizer, Medtronics, and The Gap jumped early. More recently, they were joined by none other than Microsoft and GE, two institutions that had been virtual standard bearers for an evaluation-based performance-driven culture.
Interestingly, the nails that truly signal a sealing of the coffin are coming from the mortuaries. When globally prominent consulting companies that helped install and operate these systems take to the press to declare their disdain for the process applied to their own populations, it is beyond dispute that the tipping point has arrived.
In April of this year, Deloitte, with the help of Marcus Buckingham, published an article in the Harvard Business Review about a grand experiment that they’re doing on a portion of their own population. In August, a mere four months later, Accenture used the Washington Post to announce their own plans to walk away from the long established employee evaluation system in search of an alternative.
Reasons for the desertion are relatively consistent across organizations. I’ll cite the top four here:
- Evaluation Systems cost too much
Process cost estimates for large firms participating in the full-meal-deal of both rating and ranking are staggering. CEB, a self-described “insight and technology company,” estimates that an organization of 10K employees spends $35MM/year on the ritual as practiced by some of these giants. With more than 330K employees at Accenture, that puts the annual price tag at more than a billion. Using the same math, Deloitte’s annual tab would be a mere $800 million.
- They produce too little
Well, you say, these figures need to be taken in context. Payroll is pretty high at these Fortune 100 corporations as well. Of course. And, if they were getting something for their efforts, it might be worth discussing. Unfortunately, each of the organizations in question assess the true impact of their programs, to be more negative than neutral. If you really want to cry in your soup, read last year’s Vanity Fair article called “Microsoft’s Lost Decade” which projects the lost opportunity cost of their culture-killing performance-management system in multiple billions. One might even argue that Microsoft’s highly dysfunctional HR system (and the scathing article describing it) lead directly to CEO Steve Balmer’s early retirement.
- They don’t actually make things safer
Several of the recent defectors noted that their legal exposure was not reduced by the annual file documentation exercise. In fact, most cite a significant negative impact. Ironically, even if you’re conducting performance evaluations as a compliance-driven file documentation obligation just to protect yourself, you’re seldom actually getting protection. Quite the opposite. More often than not, this loathsome paperwork is being used against you in court. As I’ve said for years, “Managers will kill poor performers when they have to. They just don’t like to wound them.” Years of damning with faint praise can add months to the process of safely documenting just cause for termination.
- “Millennials don’t like them”
The newest and most trendy reason for abandoning performance evaluations is the notion that a new generation of young workers doesn’t respond well to being labeled or graded by their bosses. This implies, of course, that prior generations did like the ritual. Thirty years of Dilbert cartoons might suggest otherwise. As a Baby Boomer who published a book more than fifteen years ago with a subtitle campaigning for “The End of the Performance Review”, I would strongly argue against that premise. In contrast, I think the major difference is with supply and demand in the labor market. These days, talent (of all ages) has choices. With the idea of lifetime employment out the window, retirement plans either vanishing or becoming portable, and the necessity for all companies to pay market, the way your managers talk to their direct reports about performance and career can have a measurable impact on both attraction and retention.
It is noted in several recent articles that the number of Fortune 500 companies practicing performance evaluations fell from 96% to 90% over the course of the past two years. Accenture projects that the figure will drop to 80% by the end of 2016. I’m guessing that those estimates for large companies are conservative. I would also bet that smaller companies will jump ship even faster. After all, most small organizations don’t invent their personnel practices. In school we’d call what they do “plagiarism”, but in business we call it “Best Practices.” Small copy Big and they don’t take very long to do it.
Most speed boat sized organizations that count employees by the thousand, hundred, or handful, are ready to change more quickly than the larger and slower turning corporate battleships that they routinely emulate. Once they notice that their role models are abandoning a ritual they didn’t like very much anyway, smaller, fleeter entities will quickly flock to a viable alternative.
Here’s the biggest challenge with The Great Unraveling. Nearly every large company that has recently admitted the problem is only experimenting with solutions. They are quite literally in Beta mode trying things that are likely to be more “different” than actually “better” when the results of their trials come in. Deloitte’s first gambit is case in point. They’re on experiment number two with a first attempt they themselves label as a failure.
The good news is that the time for change is upon us. The bad news is that there will be a lot more failed experiments. My best words of advice are to stay away from the bleeding edge. Find an intact system that has proven that it works to avoid reversing course every two to three years.
So, how can you best position yourself to benefit by The Great Unraveling?
- Be Careful Who You Follow: Do you really want to copy the organizations who steered you wrong the first time? While it is admirable that GE and Microsoft are now repenting and trying again, do you really trust them to come up with a truly innovative solution? Frankly, that goes double for the consulting companies that likely sold them their old bad best practice.
- Check Outcomes: As you look at candidates for a replacement system, check closely the desired outcomes that the new solution is designed to produce. Many are inherently flawed. Carefully checking desired outcomes vs. program design is a quick way to spot an inevitable dead end.
- Find One that Works: If at all possible, find and trust a stable system with a proven track record. An intact program, like Catalytic Coaching, for instance, has been used as an effective replacement for performance reviews for nearly a quarter century. It is being utilized by companies big and small in almost every type of industry.
- Software That Supports: Don’t fall in love with an attractive software solution that merely glamorizes and automates a bad idea. Be wary of flashy graphics and the illusion of portability. Search for a system that actually makes coaching conversations better, if you want to make a measurable difference.
Download the PDF The Great Unraveling by Garold Markle