Performance Reviews - Problems and Recommendations

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Issues With Performance Reviews: Firms within the financial services industry, especially the larger ones, tend to have highly formalized processes for performance reviews. This is no surprise, since approximately 91% of all companies across the world, and 97.2% in the United States, have formal performance reviews.

Unfortunately, as a management process, performance reviews tend to be viewed negatively by managers and subordinates alike.

The reasons are varied. Many observers and participants find it to be a highly bureaucratic exercise in paper pushing, form filling, and box checking that adds little value, yet absorbs excessive amounts of time. The main purpose, in most instances, tends to be documentation and justification of decisions about compensation and promotions, rather than a mechanism to deliver high-quality feedback and coaching or mentoring to employees.

Human resources specialists Sibson Consulting finds that only a distinct minority of companies, in the range of 35% to 40%, conduct performance reviews well, and part of the problem is that human resources departments tend to be good at enforcing compliance with filling in the boxes, but not at improving the quality of how the process is conducted. A Sibson survey of human resources executives found that 58% rated their companies' performance management systems at "C" or less.

The main issue, they report, is that managers are inadequately trained in the art of giving appraisals.

Factors that damage the quality of performance reviews include:

  • Managerial biases and prejudices
  • Pressures from internal politics
  • The ability of manipulative or dishonest employees to influence the process, game the system or mislead their managers
  • Flawed processes for setting critical few objectives, managing expectations and tracking key metrics
  • Weak managers who hesitate to give negative reviews to anyone
  • Managers who feel compelled to give top ranks to people whom they hired, to justify their own personnel decisions
  • Employee fears that speaking out frankly about problems with their jobs or the company, or to disagree with the boss, can be politically damaging to them

The upshot of all the above is that many companies have employee evaluation systems that do not tie performance and rewards closely enough. The result is employee dissatisfaction, at least among high achievers. People in matrix reporting situations face the added challenge of trying to please multiple masters, who may have radically different priorities and agendas.

Ideas for Improving Performance Reviews: In environments such as consulting, where work is project based, performance reviews tend to make more sense if done when projects are complete, rather than on a fixed annual cycle.

In other work environments, more frequent reviews, such as on a quarterly or even monthly basis, has been suggested by some who have studied the issue. However, the administrative burden would be too onerous if anywhere near the amount of form filling associated with the usual annual review were part of a more frequent review cycle.

Factoring in feedback from subordinates, peers and managers in other departments(and also, in appropriate circumstances, from clients and other people outside the firm with whom the employee in question interacts regularly) holds some theoretic attractiveness and is the essence of so-called 360-degree evaluation processes. However, the downside to 360-degree reviews is that, if used as input in decisions about bonus awards and promotions, participants have incentives to give low grades to their competitors for these and other rewards.

Accordingly, some observers advise that 360-degree reviews should be anonymous, not shared with the employee's manager, not an input into compensation and promotion decisions, but simply a way for employees to understand how others see them, and thus strictly a tool for personal development and improvement.

SAS Institute Case Study: The SAS Institute is a leading purveyor of analytic software commonly used by information technology and management science groups in the financial services industry. SAS is the world's largest privately held software company, with 11,800 employees globally, 400 offices and $2.43 billion of revenues in 2010. In both 2010 and 2011, it placed first among the Fortune 100 Best Companies to Work For. SAS implemented a performance review process only in the past decade.

SAS has a 360-degree process, but only for improving employee skills. It does not factor into compensation and promotion decisions.

Additionally, a key application of SAS' performance review process is to identify which individuals are suitable for supervising employees in managerial positions, and who belong on a parallel advancement track for those with outstanding technical skills, but not supervisory skills. The mistake that many companies make is to have only one promotional track, which requires managerial responsibilities, and into which people without the requisite skills must be inserted if they are to be paid adequately.

Source: See "Should Performance Reviews Be Fired?" in the summer 2011 edition of Wharton Magazine.