At Some Companies, Performance Appraisals Have Become So Maligned, That Management Is Doing Away With Them All Together

[HR horizontal]

Smart Business: Banish Performance Appraisals?

Hed: Consider Scrapping The Annual Performance Review

Deck: Most companies have been tweaking their performance appraisal systems for years. Now some consultants are calling for scrapping appraisals all together.

Summary: Some experts think small companies should find other ways of accomplishing the familiar objectives of performance appraisals ‑‑ but those companies may have to change their cultures first.

Pull quote: "I had 15 years under my belt of actually designing appraisals, adding new bells and whistles. And each time we ran into the same problems." -- Tom Coens, co-author with Mary Jenkins, Abolishing Performance Appraisals: Why They Backfire and What to do Instead

Bill Brown has been writing performance appraisals for some of his employees for eight years. "It's the same words every year," says Brown, a middle manager at a small nonprofit company in Middletown, N.Y., called Occupations, Inc. "It starts to become hollow." On top of that, he says, the numerical ratings can be arbitrary. If an employee shows up for work on time every day, he might give the employee a three – satisfactory – on a one to five scale for attendance and punctuality, while another supervisor might give the same employee a five. The process, he says, reinforces a hierarchical structure, rather than the team-and-partnership environment his company is trying to create.

These are some of the reasons Occupations is looking at changing the way it provides feedback to its 450 employees ‑‑ and how they are rewarded. The company isn't ready to do away with performance appraisals, but it's seriously rethinking the process. "It's a hot topic lately, and there's recognition across the board that (the appraisal process) needs to change." says Brown.

The Performance Abolitionists

The company isn't alone in its quest to find something better. "I had 15 years under my belt of actually designing appraisals, adding new bells and whistles," says Tom Coens, an attorney and organizational trainer in East Lansing, Mich. "And each time we ran into the same problems."

In their book, Abolishing Performance Appraisals: Why They Backfire and What to do Instead (Berrett-Koehler, 2000) Coens and co-author Mary Jenkins, a human resources consultant, contend that the appraisal system reflects an outdated patriarchal procedure that is inherently flawed. Ratings are biased and subjective, and often discourage people instead of motivating them.

According to their research, 80 percent of employees think they're in the top quarter of performers, and 90 percent believe they're in the top half. No wonder more realistic rankings come as a blow. Moreover, the authors contend that appraisals try to do too much. Companies use them to coach and develop employees, give feedback, document performance for legal reasons, drive merit pay raises and promotions and improve company performance.

Coens and Jenkins don't suggest chucking the system all at once. Abolishing performance appraisals requires a cultural shift, they say. Companies can't do it unless they start trusting their employees, and gain a working knowledge of quality management theory. For instance, a company that still requires its workers to punch in and out on a time clock isn't ready to abandon performance appraisals.

Jenkins and Coens recommend "debundling" the various functions of performance appraisals. Jenkins says companies should assign teams to design new alternatives and introduce them on a pilot basis to be reviewed after six to 12 months. Meanwhile, companies can maintain simpler performance appraisals to handle the other objectives until the team gets around to designing new ways of tackling them.

Coens and Jenkins point to several success stories at small companies which bagged performance appraisals. Among them is Glenroy, Inc., a flexible packaging materials maker in Menominee Falls, Wisc., where according to the authors' case study annual revenues have quadrupled in the last 15 years while keeping turnover low.

Performance appraisals at Glenroy went up in flames ‑‑ literally ‑‑ a decade ago, when the company burned its personnel manuals at an employee party, including the multiple-page appraisal form. The company, which had used appraisals to decide merit pay raises, moved to a system using pay grades instead. Employees move up a grade automatically after one, and then after two, years with the company. Otherwise the only raises come from promotions. The company, which promotes almost entirely from within, identifies and develops people with leadership ability. Employees and managers are responsible for giving and seeking feedback on a day-to-day basis as needed.

Jim Lucas, author of The Passionate Organization: Igniting the Fire of Employee Commitment, agrees that appraisals are outmoded. He is president and CEO of Luman Consultants International in Shawnee Mission, Kan. "It's really a report card system," he says. "Are you naughty or nice? Not only is it not effective, typically it's obnoxious and disastrous… Nobody likes these things."

Instead of trying to bully performance out of employees with the implied threat of performance reviews, companies should focus on developing visions and hiring people who buy into the vision. Lucas uses informal performance agreements, in which employees agree on the expectations they will meet. They are held accountable to meeting those goals, and are free to tackle them in the way they see fit.

Once a year Lucas meets with employees for career development discussions. Employees are asked three things they'd like to do more of, and three things they'd rather do less of in their jobs. The company tries to match those desires as much as possible. Feedback, based on results, is sought and given throughout the year.

Go Slow, Say Some

Not everyone agrees. Some HR experts say abolishing performance appraisals is throwing out the baby with the bath water. Attorney Jonathan Segal, a partner in the employment services group of Wolf, Block, Schorr and Solis-Cohen in Philadelphia, says although appraisals aren't perfect they do provide consistent benchmarks and feedback from managers, especially for those averse to confrontation. They can also raise red flags when there are problems. Rather than tossing out appraisals, Segal recommends that companies improve them ‑‑ and train supervisors on how to deliver them.

Jack Zigon, president of Zigon Performance Group in suburban Philadelphia, says appraisals can be effective if they are well designed. When they fail, it's often because company expectations are vague. Exactly what is a good attitude, he asks. "You've got to get really clear on the result you're trying to produce." Feedback on whether criteria are being met shouldn't be saved for an annual event, he says, but given as often as necessary, perhaps weekly.

Occupations, Inc. began rethinking its management model when the labor market tightened in the '90s, and it became more difficult to find people to hire and promote from within, says CEO Jim DeStefano. Two years ago it hired Luman Consultants to help. The company surveyed employees, conducted focus groups to identify weaknesses, and formed a team to create a company vision. Employees were empowered to pursue ideas in line with that vision. For instance, they didn't have to check out every move with their boss, and their boss didn’t have to check out his move with his boss.

The company still gave appraisals last year, but it tried something new. Rather than using only the ratings to decide end-of-the-year bonuses, it let employees nominate themselves for bonuses, and make their best case. Rewards were given only in exceptional cases, instead of to everyone who met basic expectations ‑‑ a change that upset some employees.

"It's difficult when you step aside from the traditional model," says DeStefano. "This has not been easy and seamless. It's been hard." The company is looking at changing, but not eliminating, its performance appraisals. "We're not of a mind we can just drop them," he says. "We're morphing them into something more sophisticated."