3 Fundamental Truths About Traditional Performance Reviews

Prolific entrepreneur Elon Musk often gives the following advice:

…it’s important to reason from first principles rather than analogy….First Principles is a physics way of looking at the world. What that really means is, you boil things down to the most fundamental truths, what we are sure is true, and then reason up from there….

When we boil work performance reviews to the most fundamental truths, it becomes clear that we all desire a process which encourages collaboration, improves our skills, and facilitates dialogue. However, as recent studies suggest, performance reviews hardly address any of those goals.

Here are three fundamental truths that have revolutionized the way top companies do performance reviews:

Fundamental Truth #1

Employee performance doesn’t follow a bell curve.

In 2014, Microsoft abolished its stack ranking system, because it contained a major flaw. As reported in Business Insider:

….no matter how well an individual performed, that person might still get a bad review because a certain percentage of folks had to be ranked as a bottom performers compared to their co-workers.

Research suggests that traditional employee ranking could have negative effects on employee morale:

Basically, many people have lost faith that ranking employees works, and some research suggests that employee performance doesn’t follow a bell curve at all. Instead, most people are slightly worse than average (pdf), with a few superstars. And while a bit of pressure can motivate people, constantly pitting employees against one another is terrible for morale. In a company that is going through layoffs, this gets worse over time (pdf), wrote several MIT professors in a study of forced rankings in 2006. ‘As the company shrinks, the rigid distribution of the bell curve forces managers to label a high performer as a mediocre. A high performer, unmotivated by such artificial demotion, behaves like a mediocre.

Story: Forced Ranking and the Bell Curve: How Outdated HR Practices Undermine Employee Performance

Fundamental Truth #2

To keep your employees, work on their development.

After concluding that Adobe’s employees don’t find performance reviews useful, the company’s senior vice president of people resources Donna Morris decided to replace the entire process. This resulted in an entirely new work performance system, the Check-In, which focuses on goals, objectives, career development, and strategies for improvement, rather than mapping deficiencies.

Here’s what Adobe found out in the process:

…we made a bold and necessary change to abolish the annual performance review, ratings, rankings and forms that went along with the process. Looking back we could not be happier about this decision as I outlined in July. Managers are now having on-going, genuine conversations with their team members; employees are engaged in feedback; we are saving approximately 80,000 hours of our manager’s time in the annual review process; and our voluntary attrition continues to trend downward.

This leaves us with the third, and perhaps most fundamental, principle:

Fundamental Truth #3

Regular Feedback > Annual Performance Review

As reported in Bloomberg, Connie Symes, Expedia’s executive vice president for Human Relations, advocates work performance that is “less ‘event-oriented’….something that manager and employees engage in as a regular part of how they do business together — not a look back at last year and assigning a grade to it.” Ms. Symes calls for re-humanization between employees and their bosses.

“Once-a-year reviews suffer from short-term memory loss: Managers remember more recent events and forget things that happened longer ago,” says Jeffrey Pfeffer, professor at the Graduate School of Business at Stanford. According to him, “if you are serious about feedback and helping people improve, do it all the time.”

Leading companies’ implementation of employee-oriented work performance principles signifies a change in the way we review and reflect on our work. Top-down, event-oriented annual performance reviews are being replaced with an ongoing process that incorporates collaboration, engagement, real-time feedback, and reflection.

One thing is clear: the process of evaluating work performance is changing quickly and is being lead by some of the most innovative companies of our time. The traditional way of ranking employees and counting on a “rear-view-mirror” performance review process is being replaced with a more cooperative approach to performance management.