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Rethinking the Review

After 50 years of debate, has the time finally come to chuck the performance review? 

Wednesday, July 24, 2013
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Adobe Systems Inc. has long been renowned for its innovative multimedia and creativity software products, most notably Photoshop, Adobe Acrobat and Adobe Reader, and the Portable Document Format that we all know as the PDF.

By the fall of 2011, however, the San Jose, Calif.-based company had shifted its focus toward rich Internet-application software development -- specifically digital media and digital marketing.

Not everyone was convinced the company was ready for an ambitious new business strategy and restructuring. The human resource function had grave concerns that Adobe's HR processes had become antiquated and ineffective, particularly when it came to ensuring that employees were engaged, contributing, and developing the skills and competencies necessary to warrant a bright future with the company.

"We were aggressively moving from being a boxed software company toward having a strong subscription service for our digital media business," says Donna Morris, senior vice president of people resources. "The business all around was changing, but the mechanisms to manage and support our employees were stuck in a time warp."

Morris quickly zeroed in on Adobe's performance-review process. Each year, in the aftermath of the process, she had witnessed a significant increase in attrition. Coupling that yearly increase in voluntary departures with an annual survey in which employees routinely expressed their disdain for the performance-review process left Morris understandably worried.

"When you're a company of 11,500 people [and you experience] an increase [in attrition] of a few percentage points, you're talking 100 to 200 individuals leaving who were likely great contributors," says Morris. "That has implications around your productivity and your performance as a company."

During a trip to India, a sleep-deprived Morris was being interviewed for an article in The Economist. Feeling "edgier than normal," Morris spoke openly about her growing desire to abolish the performance review. Scrambling to get in front of the story, Morris worked with Adobe's communications department to quickly write a blog entry on the subject that was posted on the company's intranet. Employees devoured the post, making it one of the most-read pieces in the history of Adobe's intranet. Across the company, they engaged in a lively discussion about their dissatisfaction with the review process. According to Morris, the underlying message that emerged was that employees were "disenchanted about what they believed to be a lack of recognition for their contributions." For Morris, the necessary course of action became obvious.

"We came to a fairly quick decision that we would abolish the performance review, which meant we would no longer have a one-time-of-the-year formal written review," says Morris. "What's more, we would abolish performance rankings and levels in order to move away from people feeling like they were labeled."

In place of the traditional performance review, Adobe introduced The Check-In -- an informal system of ongoing, real-time feedback -- in the summer of 2012. There's no prescribed timing and no form to fill out and submit to HR. Managers decide how often and in what format they want to set goals and give feedback. Rather than dwelling on workers' shortcomings, managers are told to focus on goals, objectives, career development and strategies for improvement. Employees are evaluated on the basis of what they achieved against their goals, rather than how they compare to their peers. That facet is particularly important, says Morris, because Adobe's previous stacked ranking system effectively discouraged people from working in teams by pitting individual against individual and creating an environment of competition rather than collaboration.

Adobe is far from the only employer to question the effectiveness of performance reviews. A 2012 survey by San Francisco-based rewards and recognition consulting firm Achievers found 98 percent of 645 HR managers believe yearly evaluations are not useful. And nearly 60 percent of HR executives give their own performance-management systems a grade of C or below, according to the WorldatWork/Sibson 2010 Study on The State of Performance Management, which reflected the insights of 750 senior level HR professionals.

Criticism of the performance review process is certainly not a recent phenomenon. Edward Lawler, distinguished professor of business at the University of Southern California, Marshall School of Business in Los Angeles, and founder/director of the university's Center for Effective Organizations, says he first encountered condemnation of the process in 1963, when he began his study of performance management. Yet 50 years later, performance reviews remain deeply entrenched in the vast majority of organizations.

That doesn't mean they've stuck to the traditional performance review model. Increasingly, organizations are carving out their own versions of performance reviews. In some cases, they've abolished them altogether in favor of a more informal approach to discussing performance, goals, and developmental needs. Other companies have opted to retain the formal sit-down review, but have eliminated performance ratings.

A Necessary Evil?

In recent years, the debate over the usefulness -- and perhaps even harmfulness -- of performance reviews has surged once again, in large part due to the publication of Samuel Culbert's controversial book, Get Rid of the Performance Review! How Companies Can Stop Intimidating, Start Managing -- and Focus on the Results That Really Matter, co-authored with Lawrence Rout. Culbert, a professor at the Anderson School of Management of the University of California, Los Angeles, has emerged as one of the most vocal opponents of the performance-review process.

Never shy about speaking his mind, Culbert openly brands performance reviews "destructive," "fraudulent," "bogus" and "counterproductive." He posits that the contents of a performance review are "invented" to justify whatever decisions have already been made regarding an individual's compensation. In addition, Culbert says, performance reviews demoralize the workforce because they focus too heavily on flaws in employees' performance, rather than on building their strengths. Employees desperately hide their shortcomings instead of asking for managers' help. The result is stagnant performance and a team of demoralized employees who are not getting the support they need to grow and develop.

"Companies have everything to gain by having good, honest, robust conversations between employees and bosses, but that's not happening," says Culbert. "Employees aren't talking about the problems they are having because they're hoping the boss doesn't find out, and managers aren't about to ask employees what they need from them."

For all his criticism of performance reviews, Culbert stops short of advocating a system in which employees are never given feedback on their performance. On the contrary, he feels strongly that employees and managers should be talking about performance all the time. Such an environment helps shine a spotlight on difficult issues and developmental opportunities while there's still time to do something about them.

If managers were skilled and effective in their day-to-day communication and leadership abilities, there wouldn't be any need for formal performance reviews, says Lawler. The benefits would have already been realized through ongoing feedback, guidance, goal-setting, and development activities. However, Lawler believes the vast majority of managers don't possess the skills or motivation required to make performance reviews unnecessary. Consequently, organizations are hesitant to abandon the formal performance-review process, fearing that leaving it to individual managers to engage employees in regular, meaningful conversations would be a recipe for inaction.

Real-Time Reviews

Employees' dissatisfaction with a lack of regular feedback was one of the contributing factors in Adobe's decision to abolish the performance review in favor of a culture of informal, ongoing dialogue between employees and managers.

"Employees told us ... they did not know where they stood," says Morris. "They ... felt their managers were not living up to the task of providing them with ongoing support and feedback in terms of their performance and their growth."

As more millennials enter the workforce, the desire for constant feedback is only growing stronger, another factor that led Adobe to adopt its new approach. While the company's average age is 37, Adobe is increasingly hiring individuals directly out of college. This summer, it has 200 fresh college grads working in the San Francisco Bay Area alone.

"They have grown up in an environment where it's real-time text, real-time posting [in smaller segments that are] far more informative to an individual in terms of how they are doing than a big, long, once-a-year written essay," says Morris.

Ensuring that rich, meaningful conversations are actually taking place can be a challenge. At Adobe, HR relies on skip levels to ensure that such discussions are taking place throughout the year. For Morris, that means meeting with individuals who report to people who report directly to her.

"Basically, I want to find out [if] they have expectations, are they getting feedback, is there a plan for growth and development?" says Morris. "Our view is, if you hold the leaders accountable, they are going to be holding their teams accountable and that's what we've been seeing."

HR ensures both managers and employees have plenty of supportive materials available through the Employee Resource Center. The goal, says Morris, is to provide a "one-stop-shop" for coaching and feedback, growth and development, or anything else associated with employees' overall performance and contribution to the organization.

"A manager can call upon the resources of the Employee Resource Center to help them through how they can approach the coaching discussion or provide difficult feedback or reinforce positive feedback," says Morris.

The idea of a check-in appeals to Stuart Sidle, chair of psychology and sociology, and director of industrial-organizational psychology graduate programs for the University of New Haven in West Haven, Conn. However, he cautions companies to be careful that such a system doesn't come to be viewed as merely an increase in the number of performance appraisals.

"What you don't want to do is start making people feel like they are having continuous performance appraisals," says Sidle.

Nevertheless, the ability to have real-time feedback presents valuable opportunities to "course-correct," something that is not possible in a traditional "rear-view mirror" performance-review process, says Connie Symes, executive vice president for global human resources at Expedia Inc. The Bellevue, Wash.-based company revamped its process in 2010 after recognizing that relying solely on a review process that focused on performance as far back as 12 months ago was a ridiculous practice for such a fast-moving organization.

Like Adobe, Expedia eliminated performance ratings and set about building a culture in which real-time feedback takes place on a regular basis. "Over time, the rating system had become this huge obstacle," says Symes. "The employee would see their rating first and then the whole review evolved into a discussion of 'Why this?' 'Why not that?' It was no longer driving performance."

HR enlisted Expedia's executive team to conduct town-hall meetings in which they explained the new process, which required each manager to have informal one-on-one conversations with employees, with a heavy focus on development and career-pathing, either weekly or bi-weekly. Over the course of the next six months, HR prepared the company for the change, putting 1,100 managers, along with every member of the executive team, through training on the new process.

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While Symes is quick to point out "this isn't an HR initiative," she admits that HR is "the support mechanism behind driving the change." Its current role in the review process includes a mid-year "push" to remind managers of the kinds of conversations they should be having with their direct reports. The function also sends a questionnaire to employees, asking them to acknowledge that their managers have been having one-on-one meetings with them. Employees are also asked to rate the quality of those conversations. HR also looks out for new tools to add to its online library of materials employees and managers can use to help drive their performance discussions.

All too often, employees focus exclusively on the ratings aspect of the conversation because that is typically the component that ties to compensation or bonuses, says Shelly Carlin, senior vice president of human resources for Motorola Solutions Inc. in Schaumburg, Ill., which eliminated performance ratings in the fall of 2012. Once that information has been shared, the rest of the discussion is meaningless.

"In a traditional performance review, the employee listens until he hears the rating and then tunes out because he's doing the calculation in his head about how that will affect his bonus," says Carlin. "You never get to any true, honest, candid, constructive feedback because they are so focused on whether he got the rating he expected."

Facing Forward

While Adobe abolished the formal performance review altogether, both Motorola and Expedia opted to keep theirs, with Expedia maintaining a mid-year formal review as well. While Carlin believes the formal performance review serves "a legitimate business purpose" for Motorola, she feels strongly that the existing process was ineffective, primarily because it was an "evaluation kind of parent-child process." The company's new approach is built around more of a coaching-and-learning model. Managers are given a list of questions to guide them in their conversations with employees.

"We specifically say, 'Don't talk about what you did wrong,' " says Carlin, equating that approach to a parent scolding a child. "Instead, the conversation is about, 'What can you do differently going forward?' or 'What could you have done differently and how are you learning from that going forward to help you grow and perform better in the future?' "

The notion of abandoning the traditional "rear-view-mirror" approach to performance reviews in favor of a more forward-facing approach also appealed to Troy, Mich.-based Kelly Services Inc. While the company still requires employees and managers to participate in two sit-down discussions each year, Kelly strengthened the dialogue with the introduction of My Career, an employee-led approach to performance management, in 2009. Employees schedule the conversations with their managers; during those talks, they set the tone, set goals and discuss possible development opportunities.

The two then talk about how the employee's plan aligns with the company's overall strategy and how it will impact Kelly Services. Throughout the year, employees are encouraged to initiate informal conversations with their managers to touch base on their progress and determine whether any of their goals should be changed.

Admittedly, not every manager -- or employee -- is equipped to take it upon themselves to conduct meaty, career-advancing conversations. When My Career was initially met with mass confusion, Kelly's HR function realized it had removed too much structure from the system, says Terry Hauer, director of leadership development. HR reintroduced structure by making scripts and instructions available for both employees and managers on the My Career section of the company intranet. Since then, the entire Kelly organization has embraced the new process.

"It's not like you just tell everybody, 'Start talking to each other' and they do it," says Mary Jenkins, principal at Jenkins People Systems in Brighton, Mich., and co-author with Tom Coens of Abolishing Performance Appraisals -- Why They Backfire and What to Do Instead. "You have to tool people up to be skilled at giving and receiving feedback."

In the four years since Kelly launched My Career, the company has experienced lower turnover than the industry average, even during the recession. That -- combined with rising employee-engagement scores, particularly on survey questions related to whether their managers care about their development -- demonstrates that Kelly's employees are much more satisfied with the way the company is handling performance management these days, according to Nina Ramsey, senior vice president and chief human resource officer.

Over at Adobe, the company's no-performance reviews approach has only been in place a few months, but Morris is convinced the company is on the right track. In addition to saving Adobe approximately 80,000 hours each year, eliminating formal performance reviews has also had a positive impact on a number of key indicators.

Whereas voluntary attrition previously spiked following the annual-performance-review process, that figure is now on a "downward trajectory." While involuntary attrition has increased, Morris considers that a sign that managers are getting better at managing performance on a regular basis. Personally, she feels confident that going "out on a limb" and announcing the demise of formal performance reviews at Adobe was the right thing to do.

Having input in the strategic direction of an organization "means sometimes you have to paint a picture of what the future might look like because people may not be able to see it yet," says Morris. "From my perspective, there was more risk associated with not making a change because the entire company was evolving and our people practices needed to keep up with the pace."

 

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