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How Performance Reviews are being Reinvented, Refined and Perfected

Eric Jorgenson
Jul 20, 2015 · 15 min read

Performance Reviews

At the first mention of performance reviews, everyone seems to tighten up. They’re not something anyone looks forward to. Yet the idea behind performance reviews is simple: provide feedback, coaching, and share what the results of past performance mean for an employee’s future compensation and career.

Apprehension about performance reviews often leads to half-assery on the part of managers, and dismissal from the employee’s side — which is not helpful or productive. It turns out that by being aware of the potential pitfalls, reviews are easy, productive, and beneficial.

So here’s everything you need to know to make your performance reviews simple, easy, and productive. And maybe even not terrifying. Here’s what we’ve got in this Edition of Evergreen:

  1. The Classic Performance Review: As explained by a master of management, Andy Grove.
  2. Performance Review Non-believers: The various pitfalls of the review system, with lessons from big companies and psychology papers.
  3. Case Studies of Performance Reviews Reinvented: See who has innovated and built new productive systems that you can adopt.

Enjoy the read, and have fun getting smarter.

Why You Need Performance Reviews

The best place to start for most management topics is, of course with Andy Grove of Intel and his classic management book, High Output Management.

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He devotes “Chapter 13: Performance Appraisal” to guidance on how to do performance reviews, and why they are so important to a manager’s toolkit. This is the best resource on the traditional performance reviews, full of fantastic insight and advice from a man who has a lifetime of lessons to teach on management.

Grove strongly believes in the importance of Performance Reviews:

As Grove puts it, the most crucial function of performance reviews is to improve employee performance. Every other function is secondary to that.

In order to execute excellent performance reviews, we have to start with the assessment process itself:

On having distinct goals to measure against:

On evaluating an employee’s output, not hypothetical future output:

On holding managers accountable for the product of their team:

After assessing the performance, and creating the worksheet (read more about this in Grove’s book) that organizes and prioritizes the potential topics of conversation, you’re ready for the meeting where you delivery the assessment. Here’s what Grove has to say about that:

This chapter is stuffed full of helpful advice that we’ve just seen the tip of, so if you don’t already own High Output Management, it’s worth buying for this chapter alone.

Performance Review Non-believers

There are a lot of benefits to Performance Reviews as put forth by Andy Grove, and no doubt Intel was better for them under his instruction. However, there are many people who disagree, and believe that performance reviews are flawed, broken, and otherwise useless.

It may be that they’re only effective if executed thoroughly as they were under Grove, and the benefits quickly become harmful if they’re half-assed. Or maybe they are best in a large and heavily measured business like Intel.

Let’s look at some of the dissenting opinions and see what we can learn about the problems that they see with the traditional process:

Conflation of Performance and Compensation

Performance reviews are the medium for quite a few tasks that could be treated separately. Here are a list of issues that are commonly handled through performance reviews:

  • Assessing an employee’s work
  • Improving Performance
  • Motivating an employee
  • Providing feedback
  • Justifying a raise or promotion
  • Rewarding performance
  • Providing discipline
  • Advising on a work direction
  • Reinforce company culture

That’s a lot of stuff. Performance reviews are packed with content, and some messages tend to tower over others in the mind of the recipient. Especially if you have information about a raise or bonus in a conversation… they’re not likely to remember anything else that you said.

As David Maister puts it in his book, True Professionalism:

Google has come up with an interesting solution to this problem as Lazlo Bock explains in his book about the People Operations team at Google, called ‘Work Rules!’. Thanks to Itamar Goldminz for the contribution!

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Google has learned that it’s beneficial to separate these two very different concepts into totally distinct conversations — separated by a month. In November, employees have their performance reviews, with the standard conversation about areas of improvement and emphasis on good work. In December, a conversation is had about compensation and role changes.

Our Psychological Limitations to take Criticism

Judging by the literature coming from the field of Psychology, some academics have launched an all-out assault on performance reviews. Some articles read like they are determined to see them banned from the earth.

This short post from Psychology today cites a few studies that show some of the negative consequences, such as decreased productivity and loyalty to the company. Adobe even found that voluntary attrition was significantly higher in the period after performance reviews. [Thanks to Natala Constantine and Jason Evanish, respectively, for these two contributions.]

Particularly vilified by the psychologist’s perspective is the numerical ranking system, which is addressed in this post on Strategy+Business, suggested by Cecile Rayssiguier. You can see how ranking performance negatively affects people in this video:

These studies serve as a reminder of the psychological and emotional power of these conversations. Handled poorly, they can affect people for long after the meeting is over, and plant seeds of resentment and attrition.

We can see an explicit example of this from Microsoft. This article in Vanity Fair is based on interviews with numerous former executives there, who did had very clear opinions on their now-abandoned ranking system:

The expected negative effects unfolded and amplified over the years:

That is not a description of a company that any of us would like to work at, let alone be responsible for the employees at.

Rushing, Oversights and Laziness

It’s often very tough for managers to bring themselves to deliver negative feedback. Especially 10+ times in a row. Popforms mentions this in a post:

Delivering a weak, watered-down version of the assessment does not help the employee, you, or the organization. Employees need to hear the good news, and the bad news to really learn and improve.

This is a very common affliction in the performance review process. Managers rate everyone as average, because the alternative means more work for them. If employees are rated above or below average, a justification will be required. If they’re great, now you start a promotion and growth discussion and may need to go to bat to give them a raise or bonus. If they’re poor, then you have to start a Performance Improvement Plan, which requires often detailed, noted discussions.

The problem is compounded for managers with large teams, as the time requirements compound quickly. Knowing that, lazy managers simply default to average ratings across the board.

Case Studies: New Performance Reviews

Hearing these conflicting reports on the purpose, practice, and protocol of performance reviews — what do we do? How can we proceed with an intelligently designed system of assessment, feedback, and improvement that is fair and productive?

We need to review the options to improve our systems and match them to our team and our set of challenges.

That’s what some companies have done already. We can follow their journey to learn what our improvements look like. Here are some interesting experiments and findings from companies that have done some exploration.

Deloitte: ‘Reinventing Performance Management’

Deloitte has done some very interesting things with it’s management practices, and radically improved it’s performance review system. Their efforts are found in the recent article in Harvard Business Review, suggested by Jason Evanish.

The first problems Deloitte discovered in their diagnosis process were of the assessment practice. As it turns out, the rater is the main factor of the quality of the employee’s assessment:

Deloitte’s solution to this was ingenious. As it turns out, the rater’s aren’t wrong at the core — it’s the act of rating that creates the problem. When Deloitte restructured the survey to ask about a manager’s intention of future actions with that employee, they found that they got clear, reliable answers.

Google’s response to this problem was totally different (as explained in Work Rules!). Their solution was to have managers peer reviewing each other’s assessments, talking through assumptions and explanations to bubble up and address any biases. They also take the proactive step of educating managers about these biases before the assessment process.

And here is the overview of the solution that Deloitte deploys:

The quarterly performance snapshot is fascinating, and has some thoughtful details about phrasing questions, and the correct level of transparency with results. It’s certainly worth reading the full post.

Let’s dig into understanding the structure of the weekly check-ins:

This is such a great insight — that the content of a conversation is determined by the frequency. It’s the meeting version of ‘the medium is the message.’ This dynamic really shows the inability of yearly or even quarterly meetings to carry the weight coaching near-term performance.

Of course, what Deloitte has really arrived at is the concept of the regular 1-on-1 meetings that Andy Grove and many others have been relying on for decades. The interesting thing here is that the way they implemented them shows the versatility and the importance of those 1-on-1 meetings.

Deloitte has some fantastic innovations here that will soon be seen spreading to new companies to be further refined and reapplied.

Atlassian’s Performance Review Renovation

Feeling the pain of all of the previously mentioned challenges associated with performance reviews, Atlassian did a full renovation to their review process with very interesting results.

One big change was to assess performance in greater depth. Rather than a mere good/bad, they added an axis for level of challenge, and another question that respected the frequency of various behaviors.

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As they changed their performance review system, it became clear to them that their compensation process had been flawed as well, and they stopped issuing bonuses that were dependent on reviews:

Also, similar to Deloitte’s version, they discovered that their performance reviews were faltering due to functional overload. To correct this, they adopted a novel solution:

This honest post by the Atlassian team about their challenges in reinventing their performance review process is well worth a read. It will give you some ideas, and prepare you for some of the challenges of pursuing your own version of this exercise.

Conclusions & Summaries

With companies as examples, we see a wider set of tools used more precisely for specific functions of management.

While they kept the yearly review structure, Google acknowledged the broken parts of the system — understanding that managers can be biased and subjective, Google has them read a handout immediately before assessing performance to attempt to rid them of bias. After the assessments, they are peer reviewed by other managers as another check for fairness. Given the amount of possible human error in this process and the consequences of mistakes in these reviews, they are wise to put those systems in place.

Atlassian has transformed their review process into a monthly cycle of more well-defined and carefully structured conversations between managers and their employees.

And Deloitte has dissolved it’s formal review process into a few simple quarterly check-ins, and unstructured weekly 1-on-1 meetings.

Which of these new approaches to performance reviews is right for your team is up to you and the leaders at your company. This can be a starting point for your own journey of experimentation and improvement.

There is a lot to improve about these systems, and these companies are just starting to uncover the possibilities of what we can do to build out more robust, more fair, and more effective systems of feedback and improvement.

Let’s get to work.


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Thank you

Massive appreciation for who suggested pieces of content (or wrote something new) for this Edition of Evergreen: Itamar Goldminz, Matt Donovan, Jason Evanish, Matt Constantine, Natala Constantine, Aaron Wolfson, Mike Smith, Daniel Funis, Cecile Rayssiguier, Victor S, Hanna Lisa, Sam Distaso, Caitrin McKenzie, and Jonathan Howard.

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Never Enough

As my Father always says: “There’s always room for the best.” There’s always a better resource out there. These collections can always get better, and I hope that they do. If you can think of anything that was missed, I welcome you to share it.

To share your thoughts, improvements or additions: Email or Twitter.

If you liked this, check out other Editions of Evergreen:Building and Managing a Team:How to Find and Recruit the Team you Need
How Not to Hire like a Clownshow
Compensation Rules Everything Around Me
Why Employee Onboarding is holding you back
How to Boost Employee Retention
How Performance Reviews are being Reinvented
Secrets to Perfecting Organizational Communication
How to Manage Scale, and Operate in Scaling Organizations
How to Fire an Employee
What you actually need to know about Company Culture
How to Interview Prospective Hires
Strategy and Competitive Advantage:How to Master the Craft of Strategy
Competitive Advantage: How to Build a Winning Business
The Power of Network Effects
How Cost Leadership Builds Powerful Businesses
Why the Best Brands Stand Out
Scale as Competitive Advantage
Barriers to Entry are Confusing
Flywheel Effect: Meta-Competitive Advantage
Building the Business:How to get good business Ideas: Mental Alchemy of Ideation
How to Choose the Right Business Ideas
Product/Market Fit: What it really means & How to Measure it
How to Failure-proof your business with Customer Development
How Strategy and Psychology Work Together to Perfect Pricing
The Most Important Equations in Business - CAC (Part 1)
The Simple Math Behind Every Profitable Business - CLV (Part 2)
How Psychology behind Word-of-Mouth Works
The Secret Core of Every Successful Business--Distribution
The Most Important Lessons in Sales
Why Value Creation is the Foundation of Business
Why Value Capture is the most important idea you haven't read about
The Misunderstood and Underestimated Genius of Advertising
How to be a Great Human:How to Start a New Job: Handling Career Transitions like a Boss
How to Master the Discipline of Product Management
The Ancient Origins of Storytelling, and how to Apply Them
I've also written about How & Why we started Evergreen:How a prototype's failure created the next iteration
Mission & Method of Evergreen
Follow me on Twitter: @EricJorgensonAnd Please... Join Evergreen.

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Eric Jorgenson

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Read and write. Listen and speak. Think and unthink. Fixing the biggest broken market in the world at Zaarly. Twitter: @EricJorgenson Site: EJorgenson.com

Evergreen Business Fortnightly

Timeless Wisdom on Business Topics, created from the best resources suggested by our readers. Each week there’s a new topic and a new Edition of Evergreen Business Weekly. Become a member at Evergreen.instapage.com

Eric Jorgenson

Written by

Read and write. Listen and speak. Think and unthink. Fixing the biggest broken market in the world at Zaarly. Twitter: @EricJorgenson Site: EJorgenson.com

Evergreen Business Fortnightly

Timeless Wisdom on Business Topics, created from the best resources suggested by our readers. Each week there’s a new topic and a new Edition of Evergreen Business Weekly. Become a member at Evergreen.instapage.com

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