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15 Oct 2015

Performance Management Has a Performance Problem

Recent high-profile announcements from the likes of Deloitte, Accenture and NAB scrapping their year-end employee reviews has sparked a growing debate about the effectiveness of traditional performance management approaches in organisations. Is this the death-knell of traditional performance appraisal processes? And, if so, does that mean we no longer need to put a priority on managing performance? Does that in turn mean employees no longer need to worry about how well they are doing in the jobs?

I’m confused! Imagine what the average HR person is thinking now that the whole ball game appears to be changing around them. Not to mention the average employee who, whilst generally hating the annual review process, at least they know what is on the end of it – typically a 1.39% payrise and a pittance of a bonus.

So, let’s delve a little deeper shall we and consider two aspects to this annual performance review debate.

Firstly, what are the factors that are catalysing the shift away from reviews. Secondly, if we ditch the reviews, what should we be doing instead?

Right, firstly, this is not an overnight seismic shift in thinking from the corporate world. This little storm has been brewing for the term of my living memory in the HR world – close to 25 years. Let’s face it, the annual review has been the source of angst, frustration and occasional parody since its very inception. Why is this? Well, in my view, it’s because it is an artefact – perhaps a relic even – of the very worst aspects of 20th century industrial-era human capital management. An era when labour was merely an input to production and productivity was measured on the outputs as opposed to outcomes.

Tying compensation to performance reviews became the main instrument to drive motivation and increase individual workers’ productivity. And for nigh on half a century we have locked and loaded around performance reviews as the primary tool for managing human capital in organisations. We have spent the last 20 of those years only managing to re-engineer the process by eliminating paper with very little improvement to the data collection nor the impact of the practice itself on the humans involved.

But what the hell is wrong with performance appraisals? Surely, employers need to be able to hold their employees to account for making a contribution to the business. We go through our school and university careers being constantly assessed, why not our working lives too?

Well, here’s a snapshot of the latest research that points to the ineffectiveness of performance appraisals.

  • Alec Bashinsky – the HR Director at Deloitte – compared performance reviews to a drive-by shooting with neither party being clear on their objectives nor how to rate individuals against them.
  • A recent Harvard Business School report highlighted the “idiosyncratic rater effect” – that the rating given to an employee is a more accurate reflection of the rater themselves than of the person they are rating. Challenging to standardise, pathologically inaccurate and impossible to calibrate, it is therefore a very poor tool to effectively drive better performance.
  • Jason Averbook has been telling us for a while now that performance reviews are designed to support HR’s needs and that we should instead be focusing on building and supporting better team leaders who in turn will influence positively the effectiveness of their teams and the individuals within them.

Ok, so if we’re willing to accept that performance reviews should be sent the way of the fax machine and the dodo bird, what should we be doing instead?

The answer to that is longer than we can cover in a single post, but here are a few conversation starters that we can pick up on in the next instalment.

  • Organisations are already evolving their performance approaches to encompass more informal and more frequent feedback opportunities between team leaders and team members. This trend will continue to be at the heart of the evolution of performance management in the future.
  • Increasing investment in talent management platforms is driving a more holistic approach to people management with better tools to support the employee lifecycle resulting in a better dataset to aid team and individual development.
  • The growing adoption of social collaboration technologies in the enterprise provides increased opportunity for more frequent contextual feedback, social learning and employee engagement.
  • The transition of a higher proportion of the workforce to contingent or freelancer models will increase the redundancy of traditional employee-centric performance approaches. If it hasn’t already, focusing on engagement will trump a focus on performance in getting the best out of this new generation of workers.
  • The severance of the umbilical cord that has tethered performance ratings with compensation reviews will accelerate the movement away from formal reviews.

Clearly, I’m only scratching the surface on this, and it deserves further discussion.  Interested to hear what you all think? Is there life left in the Annual Piece of Paper yet? Has your company moved away from the formal review yet?

This article originally appeared on the Future Knowledge blog.

About the Author


David Guazzarotto is one of Australia’s leading authorities on HR, Talent Management and social collaboration technologies. For over 20 years, he has worked at the intersection of people management and technology as an influencer, thought leader, consultant and change leader. In that time he has helped over 70 companies to evaluate, select and implement tools for Human Capital Management and social collaboration. As CEO of management consultancy, Future Knowledge, David provides strategy, advisory and implementation services that drive business transformation and build organisational capability in many of Australia and New Zealand’s leading companies.

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