What’s the point of annual performance appraisals?

Have you had your annual performance review? For anyone working in a large organisation, it’s that part of the year. It’s time for the age-honoured ritual of sitting down with your immediate superior and going through your performance for the year, step by step.

Are they not a fine thing, these performance appraisals? Certainly the logic behind them is impeccable. Don’t judge people on gut instinct alone – be systematic and comprehensive in evaluating their contribution to the organisation. Don’t give people pay rises on a whim – base it on scientific appraisal of their performance. Don’t ignore your people – give them proper constructive feedback to help them improve.

Oh really? Tell me: how much do you enjoy this annual ritual, and how motivating and useful do you find it?

Consider these words: “A dysfunctional pretence; a performance negative; an obstacle to straight-talk relationships; a prime cause of low morale”. Those are the conclusions of Dr Samuel Culbert, professor of management at UCLA in the USA, writing in the Wall Street Journal in October last year. And he came to that damning summing-up after studying the performance review process in a host of companies. “It’s a mainstream practice that has baffled me for years,” wrote Dr Culbert.

Why is the good professor so angry? He finds the performance review is just plain “intimidation aimed at preserving the boss’s authority.” In other words, the process only pretends to be two-sided and constructive; the reality is something else altogether. Most performance reviews are just glorified pay negotiations: the boss is trying to keep pay down (backed up by systematic argument); the employee is trying to get it up (backed up by systematic argument). So an appraisal is only superficially about behaviour and performance; the subtext is all about pay.

Yet pay rises, Dr Culbert posits, don’t really come from “performance” at all. They are determined by market forces. In other words, the head honchos of the company usually sit down to work out how well the company did, how much of the takings need to go to shareholders, reserves and investments, and how much can be distributed to staff as raises. Once the pool of staff money is known, the next step is to work out who gets what.

And guess what? Managers have usually decided who their top performers are long before the appraisal interview. And they know very well who they think is a dud. So the actual appraisal becomes an empty ritual, a lighting of candles, a chanting of phrases.

Does that ring true for you? I have been on both sides of this process in different companies in different countries, and it resonates with me. In fact, the annual performance appraisal period is often the most tedious and least-liked part of the year, for bosses and juniors alike.

At the heart of this problem is the power distribution. Managers only pretend to be evaluating subordinates; what they are really doing is justifying their own salary claims. The question is not “how can we improve together”, but rather “where was your performance deficient?” And it is this subterfuge that leads to all the insincere conversations and covering of behinds.

It need not be like this. Dr Culbert suggests that we need to all re-teach ourselves the role of the modern boss. It is not to monitor, supervise, appraise, oversee and tick off; it is to coach, mentor and guide. That is a fundamentally different thing. In other words, the subordinate is a team-member who needs to be uplifted, rather than someone at a different level who needs to be talked down to. It is this misunderstanding of the nature of organisational leadership which causes all the dysfunctional behaviour.

The real question should be: “How are we going to work together to improve our unit’s performance?” That simple change of mindset will fuse the boss’s and subordinate’s fates, and will create a “we’re in this together” attitude. In other words, the boss’s real job is to work with subordinates to get the best out of them. After that realisation, the real conversations about performance can begin.

For now, we’re stuck with inane box-ticking, subjective grading, banal justifications and many lost hours. It’s time to own up. This much-practiced ritual is in many cases a sham. The real decisions about pay are made elsewhere, usually much earlier. The same set of questions and criteria cannot possibly apply to every employee. Pleasing the boss tends to do much more to gain high grades than genuine performance does.

The funny thing is, these ritualistic appraisals do nothing to motivate star employees (who feel boxed in by them); and do plenty to demotivate the rest (who automatically infer unfairness). So who are they done for, the filing cabinet? I hope the end of 2009 can be a smell-the-coffee time for bosses and HR professionals, to rethink from scratch the nature of performance and reward.

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