It used to be simple. Employees met with a boss for a performance review--and either got a raise or didn't. But times change. In today's flatter organizations, more and more companies realize they need feedback from people at several levels. As a result, peer reviews and upward reviews (in which employees review their supervisors) today supplement the traditional top-down reviews in some companies. Now, with the latest evolution--360° reviews--the performance evaluation has come full circle. In a 360° review, employees get feedback from all directions in the organization: up, down, and all around.

There's no doubt that 360° reviews are trendy. A study last year by the American Management Association revealed that 13% of companies surveyed do 360° reviews, and that number is growing. But what exactly is a 360° review, and how does it work? Here's how one entrepreneurial company, PhotoDisc, uses the reviews.

Like many companies in Seattle--where competition for techno-savvy employees is fierce--PhotoDisc encourages employees to develop skills and stick around. The 360° review process helps. At the digital-stock-photography company, which had more than $25 million in 1996 sales, president Mark Torrance wanted a developmental, rather than a punitive, tool. So he made the 360° reviews optional and scheduled them to occur six months before the annual appraisals tied to compensation. Torrance says that gives folks enough time to learn from the 360° reviews and to make changes prior to their salary appraisals. David Antonioni, an associate professor at the School of Business at the University of Wisconsin­Madison, agrees that separating the two types of evaluations makes sense--and encourages honest feedback. Besides, he says, "peers don't want to make compensation decisions about each other."

Instead, PhotoDisc uses the 360° reviews to emphasize employee development. Employees can pick some of their reviewers, although the review panel automatically includes both immediate supervisors and those who report directly to the person under review. For technician Jason Gruber, the 360° review was an opportunity to get input from the respected head of another department. "I had access to lots of invaluable people," he says. As all those who have been reviewed do, he met with a supervisor after his review to discuss the results and create a follow-up plan. After learning that many coworkers agreed that he needed to brush up on his desktop-publishing skills, Gruber signed up for several relevant classes.

Like many fast-growing companies, PhotoDisc can't afford to devote too much time to the review process. That's why its review form is intentionally short and sticks to core issues such as teamwork and follow-through. (The form is designed to take less than 30 minutes to complete.) Still, the process isn't cheap. To keep results confidential, PhotoDisc pays a consultant familiar with the company $50 a head to tally the results. All totaled, Torrance estimates the program costs upwards of $200 a person. So far, about one-third of PhotoDisc's 170 employees worldwide have been reviewed this way.

Torrance claims PhotoDisc can't afford not to do 360° reviews. "It's the best way to get feedback," he says. Vice-president of sales and marketing Katherine James Schuitemaker agrees. Though she was surprised to learn that her staff thought her inaccessible--something she claims workers would never have told her directly--she was grateful for the insight. "The form gives people the opportunity to get things out," says Schuitemaker, who, after her review, built in hours during her week just to listen. "The 360° feedback gives workers the opportunity to reduce the undiscussables in work relationships," says Antonioni.

But what if coworkers use the form to air grudges anonymously? Torrance admits that while that's hard to prevent, companies can build in safeguards, such as relying on a third party to filter out incongruous ratings. However, even the most effective review doesn't guarantee people will change the way they work. "It's very hard to get people to change their behavior," cautions Antonioni. "You need specific goals, an action plan, and a mentor to remind people."

Case Study: PhotoDisc's 360° Review

  1. The employee and the supervisor agree on 6 to 10 reviewers. The reviewers typically include peers, internal customers, and team members--as well as supervisors and those who report directly to the employee under review.
  2. Reviewers complete the three-page review form.
  3. A consultant compiles the results and shares a summary with the employee and his or her supervisor.
  4. The employee and the supervisor discuss the feedback.
  5. The employee proposes a development plan to the supervisor that addresses the issues raised in the review.

Stephanie Gruner is a staff writer at Inc.

Resources: To figure out how to create a 360°-review program at your company, check out 360° Feedback, by Mark R. Edwards and Ann J. Ewen (Amacom, 800-262-9699, 1996, $27.95). If you're already convinced that 360° reviews are for you, skip to Part II and Part III. Those sections explain how to implement a program and avoid potential pitfalls. You can order a copy from Amacom or by calling 888-360-TEAM or 602-517-1466.

DAVID ANTONIONI, Management Institute, University of Wisconsin-Madison, 975 University Ave., Madison, WI 53706; 608-262-2155

PHOTODISC, Mark Torrance, 2013 Fourth Ave., Seattle, WA 98121; 206-441-9355; http://creative.gettyimages.com/photodisc/