Why is the prevailing belief with employees and managers that performance reviews = compensation?

A typical response I get is: “The rest of the 1000′s of companies in the world do it. We are the only company not doing it. Whenever I sit down with my employees they immediately ask when we will be talking about Comp. How can I have a performance review without discussing Compensation.”

 Crazy as it seems, when I put together a formal performance review process, which is not even the preferred method, I struggled with two issues.

1. Qualitative vs. Quantative review process

2. The goal of the performence review process

We have all worked for large, established companies or know someone who has. Most have a well defined, overly beaucratic, quantative review process. When I say quantitative I mean a numeric or percentile rating system.

When I asked spoke to a friend at Microsoft about, how many hours he spent per annum on the review process at Microsoft. He said it took about 40 hours as an individual contributor. 

That is a lot of time to spend on a performance reviews it adds up quickly across an organization reducing the amount of time spend on other areas. It can very much reduce productivity both through the actually process and the ripple effects it has on employees and managers. 

Now, depending on the goal of the performance appraisal system and how it actually works is the real question of “Is it all worth it?”

I have found in research and through experience, that most performance appraisal systems create the opposite of what is hoped.

A performance appraisal system should create an environment of continuous performance feedback and improvement through recognition of good performance and the creation of actionable plans addressing areas of improvement in specific and measurable language.

Performance systems directly tied to compensation do not create this type of environment. It creates an environment of anxiety and gaming the system to your achieve your desired outcome. As soon as someone in an employee’s peer group receives a real or imagined ranking that is undeserved whether good or bad, morale starts to be affected. Poor managers who are employee pleasers will give inflated ratings trying to appease their subordinates. Managers who care about their employees but believe in standards will quickly shift their ratings so their top performers won’t be punished, even if it is against the definition of the performance review policy. Then comes the review board, they are forced to be take the brunt of the necessity of parity. The result is managers giving the “I wanted to give you a 4, but They gave you a 3.25, sorry.”

And heaven forbid an employee receives a subpar rating early in the rating period. Performance and morale will suffer, with the poor performer even possibly mentally checking out for the remainder of the rating period awaiting punishment or termination. The goal of performance reviews should be to take a under-performing employee and creating a plan to get them back to adequate performance levels. Doing this well reduces turnover and recruiting costs while retaining key experience and organization knowledge.

Why do we need performance reviews anyway? And what is a qualitative review process? More to come on this next post.

Dan Hall

Seattle Human Resources Manager