Stop doing annual performance reviews. Now. This minute. Send out a message telling everyone on staff that you've banished this tortuous rite from your company.
You won't be alone. Microsoft, The Gap, and General Electric have all scrapped the formal year-end rite. Accenture recently announced that it was canning the process. My company, Menlo Innovations, hasn't done a single formal performance review in its 14-year history. It's among the reasons we're so successful.
Annual reviews do more harm than good. If you doubt that, ask yourselves these two questions about your own process:
- Does anyone feel better as a result?
- Is there any evidence that the company benefits?
In his book Out of the Crisis, quality guru W. Edwards Deming identifies "evaluation of performance, merit rating or annual review" as one of the "seven deadly diseases of management." Deming writes:
"The idea of a merit rating is alluring. The sound of the words captivates the imagination: pay for what you get; get what you pay for; motivate people to do their best, for their own good. The effect is exactly the opposite of what the words promise."
The chief problem with the annual review is that it pits the performance of the individual against the performance of the team. Reviews focus attention on individual efficiency. Organizational effectiveness seldom enters the conversation. How did YOU do this year? What were YOUR most significant accomplishments? How did YOU contribute to the goals of the organization?
Such questions create among both managers and employees expectations of super-human performance. Suddenly your business is like Garrison Keillor's Lake Woebegone, where "all the men are good-looking and all the children are above average." Desperate to earn the coveted "exceeded expectations" rating, employees care only about standing out from their peers. That discourages them from helping others to succeed. And glorifying superstars can be destructive, especially if their personal achievement occurred separate from--or worse, at the expense of--teamwork.
Of course, team members will still want to know how they are doing. At Menlo, we practice an unusual form of peer-review, which I will describe in detail in an upcoming column.
Leaders and managers will have to provide as much--or even more--guidance than they did with annual reviews. But their feedback, advice, and encouragement will be delivered informally, all year long. In essence, they must become mentors, working with employees to develop skills and explore opportunities rather than merely judging past performance. You, the CEO, must model these constant, constructive interactions.
If in the past your role was to hire and celebrate superstars, now it is to develop leaders. That requires really knowing your people--talking to them and observing their progress. Annual performance reviews require employees to tell you about themselves and what they've done all year. Under the model I'm describing here, you and your managers should already know that.
If this is an uncomfortable zone for you, become a student again. Read books on the subject and attend classes. Encourage others on your team to do so. Books that have influenced our thinking at Menlo include Crucial Conversations, Leadership and Self-deception (a book I personally consider life changing), Five Dysfunctions of a Team, and Influencer. Our team has found classes from VitalSmarts and Arbinger to be quite valuable.
The beginning of the year is a great time to shelve the painful performance-review practice. Managers will feel relieved from a chore they dread, one that routinely ruins their holidays. Staff will feel exhilarated at being able to step out from under the microscope. And you and your leadership team can spend the year ahead building a culture of meaningful conversations and feedback.