Performance reviews are awful yet unstoppable

Everyone matters at Network Rail, the British railway group says on its website.

Everyone also matters at Scotland’s health service, at the firm that owns Legoland, and a raft of other businesses.

Each uses the everyone mattering slogan as shorthand for the admirable desire to foster a diverse, inclusive workforce.

But shorthand does not always capture the full picture. The truth is, some people have always contributed more than others to a business and employers have always had an interest in knowing exactly who they are.

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Alas, the looming end-of-year performance review season is a reminder that, even in our data-driven age, a large chunk of companies are still doing a rotten job of figuring out who is who.

That’s according to companies themselves, or at least those taking part in recent North American surveys that show less than half of firms think their performance review systems measure their staff’s work effectively. This gels with earlier research showing people find performance reviews stressful, unfair and a colossal waste of time.

Most loathed of all are the “rank and yank” or forced ranking reviews Jack Welch controversially championed when he ran General Electric. These divide staff into groups of strong to weak performers, who can be rewarded or sacked, and date back to systems the US military devised before the second World War.

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Forced ranking has supposedly fallen out of favour. It hardly squares with the idea that everyone matters. Companies such as Microsoft scrapped it a decade ago and others followed suit.

But some management experts say the system is coming back in the tech sector, where lay-offs have been rife and thirst has grown for data confirming who should stay or go.

At the same time, it is becoming clearer that these rankings suit some fields a lot more than others, say Stanford University economist Nick Bloom and his PhD student, Gideon Moore.

They’ve done unpublished research showing the performance of call centre workers, for instance, follows a relatively smooth pattern. About 10 per cent of staff account for roughly 10 per cent of phone calls, while 5 per cent make up roughly 5 per cent of calls, and so on.

It’s very different for academics. Among University of California faculty whose work in the Nature science journal has been cited at least once, just 5 per cent account for 46 per cent of citations, while 1 per cent make up 24 per cent.

In other words, a tiny proportion of staff are responsible for an outsized share of performance. Forced ranking that divides the workforce into, say, five groups of 20 per cent, might lump the small share of top performers in with others who contribute a lot less. That is one reason star workers leave, and not just the obvious ones.

The financial performance of a bond trader or a money manager is relatively easy to measure. But what about the people who always help colleagues get their work done faster? Or know how to stop problems before they start?

I have worked with many of these hidden gems. I doubt one was ever properly recognised by an annual performance review, or the continuous feedback reviews a lot of companies now use, let alone forced ranking.

Many were useless at office politics. Most despised smarming up to the boss. Some suffered from the visibility bias that leads managers to rate people they can see above those they can’t.

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That problem has worsened with remote working and the profusion of messaging tools such as Slack, says Josh Merrill, co-founder of a performance review platform called Confirm. “A lot of the interactions that used to happen face to face are now happening in direct messages or Zoom calls where the manager really doesn’t get to see it,” he told me.

Confirm’s system is closer to the 360-degree performance review. It asks staff to name the colleagues they go to for help, or deem outstanding contributors, as well as those who need extra support.

Its data suggests 15 per cent of workers produce 50 per cent of value, while 5 per cent produce 50 per cent of problems. That sounds reasonably plausible to me. But Confirm claims to have found something else that is an even more telling reason to fix performance reviews.

For every 7.5 minutes employees spend writing self-reflections for a performance appraisal, managers spend eight seconds reading them. – Copyright The Financial Times Limited 2023