Evaluation Stagnation

Research shows that organizations should ditch conventional performance evaluations in favor of more effective strategies.

Evaluation Stagnation

Business consultant and author Dr. Alan Colquitt has a succinct message for the conventional job reviews used by much of the business world: Good riddance.

“The one point I try to make is that you need to get more value out of the process,” says Colquitt, the managing partner of Alan Colquitt LLC, a talent-management and organizational-change consulting firm. He’s also the author of Next Generation Performance Management: The Triumph of Science Over Myth and Superstition. “Most of the performance reviews done today are almost compliance-related. It’s insane — not the way you want to think about this process.”

“Managers essentially are asked to write lengthy documents to make a case for high ratings and justify big merit increases and bonuses,” he adds. “It’s all a game, instead of talking about true differentiation and evaluation of employee performance. And there’s a whole body of scientific evidence that shows the game is broken — the system doesn’t work.”

One of the biggest problems with annual performance reviews is that they’re based on the erroneous assumption that pay increases motivate employees. But in reality, that mindset stems from classical psychological and economic principles that were developed a century ago for an industrial workforce that hardly resembles today’s complex and dynamic organizations.

“The reality is that when you look at the scientific evidence, money and rankings and ratings don’t motivate people,” Colquitt notes. “The scientific evidence is very weak, yet organizations continue to use them religiously.”

In the end, managers become judges instead of coaches, searching for negative things to justify low ratings for some employees. Why? There’s usually a set budget for pay increases that must be split between direct reports, so some employees have to end up at the bottom rungs of the increase ladder. And the shame of it is that in most cases, the difference in pay increases from top performer to the worst usually isn’t large enough to motivate anyone, he points out.

As an example, Colquitt points to Netflix, which doesn’t rank or rate people and doesn’t base individual raises on performance. “They don’t use any of these shenanigans,” he notes. “Now, many leaders fear that if they do away with these systems, their best people will leave. But the reality is that the best people aren’t here because you gave them a raise that’s $30 a month more than another employee. As long as employees are whole with the market and not underpaid, the money part of the equation is not in their heads every day.”

So what really motivates employees, if not money? Colquitt cites doing important work in the service of something larger than themselves and working with a group of people they identify with.

“In addition, you must abandon the focus on financial rewards and differentiation with ratings and rankings and instead focus on different reward schemes, like more profit sharing, market-based pay adjustments and cost-of-living increases,” he continues. “Instead of having a bonus pool, pour that money into cost-of-living increases and market-pay adjustments. Focus on things that really matter — giving employees autonomy and a sense of belonging. Focus on teams and what they’re trying to achieve as a team, rather than driving them apart because they’re competing.

“The science on these (motivations) is bulletproof. … Production goes up 5 to 7 percent, whether you’re in manufacturing or sales or whatever,” he adds.

Naysayers assert that such systems encourage a so-called free-rider culture where some employees figure they no longer have to work as hard because they’ll still share equally in the rewards. But research shows that employees don’t react this way nearly as much as expected, Colquitt says.

Other components of typical job reviews fail to yield the desired results. Take feedback from other employees, for example. Research shows that about one-third of the time, feedback actually makes things worse.

Why? For starters, feedback too often focuses on only negatives. And perhaps more importantly, it usually isn’t focused on whether employees are meeting goals. “Feedback needs to specifically focus on the work the employee does and be given in the context of whether an employee is making progress on goals,” he says. “It’s fine to crowdsource feedback as long as the people providing it know the employee’s goals and see their work. If they don’t know the goals, the feedback won’t be helpful. It’s all about performance that furthers the employee’s goals and the goals of the organization.”

So what would a great performance-review model look like to Colquitt? First, it would have individual employee goals at the center, not the periphery, of the review. “It’s the most fundamental piece,” he says. Secondly, it would include continuous feedback via weekly or monthly one-on-one meetings with employees that would focus not on keeping score, but on how they’re progressing on meeting their goals for the year. Moreover, managers should constantly ask what they can do to help employees achieve those goals, too.

Last but not least, the process would also keep a team objective in mind by having periodic team meetings to talk about things such as cooperation, collaboration, goals and so forth. “That makes employees feel like they belong to something bigger than just themselves and that they don’t want to let their colleagues down,” he says. It’s OK to use crowdsourced feedback but, again, only if the right people are involved — those who are familiar with the work and goals of the employees being reviewed.

As for job ratings, Colquitt says get rid of them, noting that more times than not, they’re about as useful as the traditional review process itself. In other words, there’s little to lose and much to gain by embracing a more collaborative, team- and goal-oriented approach and saying good riddance to pay raises based on a divisive and outdated paradigm.


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