Introduction
Despite the widespread research and practice on performance appraisals, there has been an increasing dissatisfaction with the system. Organizations that have been finding performance appraisals problematic have been implementing changes to their management systems, with the most controversial decision of completely eliminating such ratings. More than 90% of employees, Human Resource Managers, and company managers indicated that the performance management processes do not offer the expected results and often view them as either inaccurate or ineffective (Adler et al., 2016, p. 220). Moreover, even though performance management is often needed, its essential component, performance review, is a dreaded process that becomes highly demotivating even to the highest-performing workers and their managers. Thus, more and more organizations choose to opt out of performance appraisals and search for other methods of measuring the effectiveness of the work being done. Therefore, it is vital to delve deeper into the methodology of performance appraisals to understand the reasons behind their abandonment among organizations.
Performance Appraisals
A performance appraisal (PA) refers to the consistent review of workers’ job performance and the general contribution to a company in question. The goals of conducting a performance appraisal process include improving productivity, making informed human resource decisions, identifying the goals and responsibilities, as well as assess performance against set goals (Adler et al., 2016, p. 219). All of such plans can be reached more quickly if managers make an effort to establish the performance appraisal process in the form of a dialogue, the final purpose of which is the betterment of all parties involved. In order to develop and sustain the framework, managers are expected to inform their subordinates of their value, acknowledge accomplishments, establish a track record of transparent feedback, and have consistency in employees’ treatment.
Throughout the history of performance management, PA has been seen as a critical component that can directly reflect the strategic plan of an organization. Even though the evaluation of team performance is vital when there are teams within one company, the focus of most PA efforts lies on workers individually. No matter how the emphasis is placed within the context of performance appraisals, an effective system is expected to evaluate the accomplishments of personnel and companies as a whole to facilitate plans for development alongside relevant goals and objectives.
Reasons for Performance Appraisal Implementation
Much of the dissatisfaction associated with PAs is concerned with expecting too much from one plan of appraisal. For instance, a plan that is effective for developing the performance of employees is not the best for determining the increases in payment. However, a properly established system can help achieve organizational objectives and improve employee performance. In fact, data acquired from PA can be precious for almost every functional area of human resources. Specifically, when it comes to evaluating the human resources of a firm, data should be made accessible for identifying workers that are capable of becoming successful within various areas of internal employee relations. For example, with the help of performance appraisals, managers can discover whether there are enough workers who can be promoted to higher positions according to human resource planning initiatives. Then, it is possible to make plans regarding the greater focus on management development and succession planning. Therefore, with the help of a well-designed and efficiently implemented system of performance appraisals, managers can facilitate a profile that considers the strengths and weaknesses of a company’s human resources.
In terms of selection and recruitment, PAs can facilitate performance evaluation ratings that can allow predicting job applicants’ performance. For instance, it may be possible to determine the specific positive behaviors that new workers should exhibit based on the experience of evaluating the existing workers at an organization. Such data provides benchmarks for behavior and performance through PA interviews. Besides, it is essential to consider the implementation of PAs when it comes to pointing out specific needs of workers in their professional development and training. For example, if a job requires employees to have technical writing skills and their evaluation shows deficiency in such a factor, they will need additional training in this area. Another example is concerned with a PA finding that first-line supervisors are struggling with administering disciplinary actions or delegating responsibilities, which calls for training and development of managers. Through identifying limitations in the performance of workers, it becomes possible to facilitate training and development programs to allow workers to build on their strengths and reduce the impact of deficiencies. However, PAs cannot give a guarantee that employees will be trained appropriately in accordance with the expectations of executives. Because of this, identifying the needs for training and development should go along with the most relevant and accurate data that is available.
Besides establishing expectations for potential employees and facilitating training and development, PAs can also be used to provide a basis for effective decision-making regarding the adjustments of payment. Managers suggest that outstanding job performance should be rewarded tangibly with increases in payment (Adler et al., 2016, p. 221). This way, the behaviors that are being consistently rewarded financially are the behaviors that employees will exhibit in their work. For encouraging high levels of performance, a company should create and implement a reliable and consistent system of performance appraisals and then reward the most productive and effective teams or individuals.
Both internal and external characteristics can influence the process of appraisals. For instance, legislation of countries in which organizations operate requires systems of reviews to be non-discriminatory. There have been multiple legal cases in which companies-defenders had to respond to claims that they had discriminated against their workers. For example, in Mistretta v Sandia Corporation, the company lost the legal battle as the judge ruled against it. The judge stated that there was “sufficient circumstantial evidence to indicate that age bias and age-based policies appear throughout the performance rating process to the detriment of the protected age group” (Special Committee on Aging, 1982, p. 20). In Albermarle v Moody, there had also been a support for validation requirements for appraisals of performance alongside selection tests. Therefore, companies are expected to avoid using appraisal systems that will lead to bias and result in negative consequences for the selected group.
Reasons for Abandoning Appraisals
Performance appraisals set the primary goal of achieving high levels of effectiveness by means of encouraging managers to motivate their workers to do the best job they can (Adler et al., 2016, p. 220). However, most organizations’ managers have accomplished the opposite as the majority of employees find appraisals of their performance to be unmotivating and not valuable to their work. The process may often seem frustrating and too bureaucratic, emphasizing metrics and data not being relevant to their jobs. Managers spend too much time on the activities of formal performance management, which they believe to add very little value. For instance, the Corporate Leadership Council found that workers and their managers spend respectively around 40 and 210 hours annually on performance management and appraisal activities. These can include mid-year and end-year reviews, rating and calibration procedures, as well as formal processes associated with goal-setting.
Because of the extensive amount of time that goes toward performance management, for a large organization with average salaries, the costs incurred as a result of the processes, including training expenses, HR time, software, and other expenses, can amount to millions of dollars every year (Adler et al., 2016, p. 222). As a result, organizations incur significant investments despite the fact that appraisals often disengage employees from adding value to their organizations and potentially undermine performance. Therefore, within recent years, a number of organizations have contemplated changing their performance management systems or abandoning appraisals altogether in order to gain more value and positively impact employee effectiveness. As mentioned by Maier (2017), around 70% of multinational organizations are stepping away from the review approach to performance management. Among the leaders of the change are Dell, Microsoft, and Adobe, with professional services such as Deloitte, PwC, and Accenture joining the movement.
Companies quote several reasons for abandoning the traditional process of performance appraisals and avoiding rating workers based on a standardized set of measurements. The lack of efficiency is among such reasons as appraisals have shown to take a lot of time to carry out. As Wilkie (2015) mentioned, even though managers spend around 210 hours conducting appraisals every year, 90% of HR managers believe that the reviews do not offer accurate information. Because of the lack of accuracy, performance appraisals lead to little progress among organizations. The valuable time, resources, and personnel efforts, which are necessary for the labor-intensive process of reviews, are wasted because workers spend a lot of time heading in the wrong direction. With the consistent evaluation and re-evaluation of goal setting, the progress is being retarded, even though it can be avoided.
Besides, organizational managers have mentioned that performance appraisals can often be demotivational. To make appraisals easier to implement, they are often simplified by managers, which means that workers are generally rated through something similar to a numerical scale. However, social researchers have found that workers are much more likely to choose being rated as ‘average’ instead of being assigned a numerical value to their work at an organization (Cappelli & Tavis, 2016). Because employee experiences are important indicators of satisfaction and retention, workers want to be thought of as more than numbers. The entire process of performance appraisals is entirely impersonal, ineffective, and demotivating.
Teamwork is crucial to organizational success, and through the exchange of ideas and opinions, it becomes possible to come up with different solutions to organizational challenges and conduct business effectively. However, performance appraisals pit workers against one another as every individual tries to outdo their colleagues in the ongoing struggle to achieve the highest reputation in the eyes of their supervisors. This results in a lack of cohesion and little teamwork efforts, in addition to the overall negative mentality and poor work atmosphere.
Appraisals of performance are carried out and often required to occur on an annual or quarterly basis, which makes them highly rigid and inflexible. As a result, companies get very real problems because the projects can vary in timespan, ranging from a month to an entire quarter. Therefore, the process of review that is better fitting should be flexible enough for reflecting the changing work environment. Because many organizations are overhauling their performance review processes, there is little debate over the fact that ongoing and transparent feedback void of appraisals is the solution to effective performance management. As mentioned by Sutton and Rao (2017) in their book Scaling Up Excellence, despite the fact what system an organization uses, having open and regular conversations between managers and subordinates is crucial to a good culture of a company and effective performance management.
Company Examples
While it is generally understood why companies have begun abandoning performance appraisals, it is essential to look at specific examples of organizations that implemented the change. Microsoft was among the first organizations to step away from performance appraisals because instead of ‘crippling’ its competitors, the company found that it was ‘crippling’ its employees instead. At the center of Microsoft’s organizational culture issues was the performance review system. Every manager at the company was expected to put their workers on a scale from highest to lowest performance. As a result, some of the top engineers at the company would avoid working together in teams out of worry that they would later be hurt by rankings. Besides, particular workers were given management business objectives, which represented the expectations of accomplishments for a specific year. However, even when workers achieved the set objectives, high rankings were not guaranteed, which created a culture of sabotage. In particular, employees would do the best work that they can to achieve the best results while also trying to ensure that their colleagues did not.
Even though the highly competitive and unhealthy organizational culture persisted for some time, the executives at Microsoft could not understand why it was struggling in the area of innovation quality compared to high-ranked competitors such as Google or Apple. To understand what was going on, the company carried out an organization-wide survey which revealed that employees simply did not want to work together because the expectations of performance pinned workers against one another (Microsoft throws stack ranking out the window, no date). It became clear that a new system of performance management was needed to encourage innovation, collaboration, and professional growth.
The first step toward change was the Head of Microsoft’s HR Lisa Brummel sending out a digital memo to all employees to inform them that formal appraisals were being eliminated. The note to workers stated that there would be an entirely new approach to performance and development, intended to promote new teamwork levels and agility for competitive business impact. The focus of the change was emphasizing the importance of teamwork and collaboration alongside with the focus on employee development and ongoing growth (Warren, 2013). In addition, Lisa Brummel mentioned that there would be no curves anymore, which meant that managers would be free to allocate the rewards to individual employees or entire teams as they see fit. Besides, the lack of ratings was also expected to help the company overhaul its performance management approach. Ultimately, the change was expected to enable Microsoft to attract talent and move beyond the outdated roots on which the organization was founded.
Therefore, taking feedback from thousands of Microsoft employees over several years and reviewing several external practices and programs allowed the company to determine the most appropriate method of reaching organizational goals and objectives. The change presented a crucial step for the organization to continue creating the most favorable environment for the exchange of feedback to facilitate the best decision-making in accomplishing goals. Thus, instead of appraising the work of employees on a regular basis and giving them ratings, Microsoft decided to put more emphasis on teamwork and collaboration, their employee and development, eliminate ratings, and avoiding the curve. With the help of the new approach, it is possible to make it easier for managers and organizational leaders to allocate relevant rewards in a way that is reflective of the unique contributions of individual workers and teams.
Deloitte has redesigned its performance management system because the company’s leaders realized that the process put in place for evaluating employees’ work and training them were out of synch with its objectives (Buckingham and Godall, 2015). In a public survey that the company carried out, 58% of the executives that were questioned believed that the existing performance management approach had driven neither performance nor engagement (Barry, 2014). The leaders recognized that employees needed something more individualized and focused on boosting performance in the future instead of evaluating what took place in the past.
Within the newly implemented system at Deloitte, the company will not have to cascade performance objectives or once-a-year reviews, and no 360-degree-feedback tools (Adler et al., 2016, p. 221). The leaders have established a much more streamlined system of managing performance. The system’s hallmarks include individualization, continuous learning, speed, and agility, all of which rely on the stable framework concentrating on collecting reliable data on performance. Such a system seemed much more reasonable to the management instead of the talent-dependent businesses. The changes to the performance appraisal system were expected to give the organization an accurate picture of someone’s performance, thus avoiding the idiosyncratic rater effect for streamlining the review processes starting from evaluations and ending in final ratings.
Among the most important actions that Deloitte implemented has asking immediate leaders of teams to evaluate their future intentions that impact team members rather than their skills. Base on this principle, the new structure of feedback can include questions such as “Considering the available knowledge on a worker’s performance, would I want him or her on the team?” The phrasing of questions allows team members to rely their judgment solely on the knowledge available to them. Therefore, by recognizing, noting, and fueling performance, the management of Deloitte has a hope that they will be capable of supporting its personnel because of the possibility to define the characteristics of the most productive teams and their strengths. As a result, team members feel that the work at their organization is the best that they can do every day. Moreover, the discovery of the new system of performance management was not based on intuitive judgment or drawn from anecdotal evidence. Instead, it was developed based on the empirical study of high-performing teams.
Adobe was also one of the leading organizations that chose to eliminate performance appraisals in favor of the new approach of reviews. The reason behind the company’s decision was associated with the fact that performance reviews had favored short-term performance, promoted fear, and facilitated rivalry among workers instead of teamwork. Instead of the yearly performance ratings, Adobe implemented regular check-ins, which allowed managers to provide individual feedback to their subordinates along with advice and coaching (Sutton, 2018). The new approach meant that there was no pre-determined or rigid format for performance revaluations, nor was there a set of requirements that managers had to meet when submitting employee reviews. The simple expectation of regular and transparent meetings focused on the topic of building new growth and development plans.
A crucial component of the new approach that Adobe had adopted is that managers were given more say in their subordinates’ salaries and bonuses. This gave managers more authority and responsibility to act in the interests of their workers as if they were not working in a large corporation but rather ran their own businesses. The accountability of managers was strengthened with the help of a ‘pulse survey’ that a random sample of workers was asked to complete. The workers had to give feedback on the effectiveness of their leaders in setting expectations, helping with growth and development, as well as commenting on either progress or failure.
The move away from performance appraisals was made in order to achieve three specific objectives such as rewarding accomplishments, reviewing contributions, and giving and receiving effective feedback. All of these objectives can be reached without enabling a cumbersome process, which is why Adobe decided to do things entirely differently. Including employees’ progress and training in the check-ins, the framework can allow staff and their managers to discuss opportunities. It enables workers to examine their existing roles within the organization and their expected career path when receiving advice from supervisors on the skills, knowledge, and abilities needed. In contrast to the outdated perspective that performance appraisals bring, which is focused on past experiences and accomplishments, the new method allows everyone involved to discuss staff goals and their alignment with the company’s strategy (Burkus, 2016). The most important thing about Adobe’s move from performance appraisals is that it helped workers to make decisions about their own careers and the plan for development while feeling empowered and confident.
Conclusion
To conclude, performance appraisals cannot accurately evaluate individuals’ or teams’ performance. Therefore, it is time for companies to treat the ratings of employees’ work as a failed experiment even though decades of research and practice went toward the process. There is little evidence to suggest that organizations can meaningfully improve the engagement and performance of workers as a result of measuring and evaluating performance. While it is always possible that some future intervention can lead to an improvement, decades of failure suggest that there is little hope for that happening. The comprehensive review of the intentions behind performance appraisals and reasons for their abandonment illustrated the shortcomings of performance ratings and the failure efforts of organizations to make the system work.
Organizations have recently started abandoning performance appraisals because the system has not given the desired outcomes, with performance being stunted by the overall resentment and dissatisfaction of workers with the process. The examples of such companies as Microsoft, Adobe, and Deloitte illustrated that performance appraisals do not allow for creating favorable organizational environments because of the lack of transparency and the sole focus on metrics. Instead, the companies decided to abandon performance appraisals in favor of emphasizing teamwork, transparency, and ongoing training as a way of addressing performance limitations and helping workers reach the goals that the companies plan on achieving.
Reference List
Adler, S., Campion, M., Colquitt, A., Grubb, A., Murphy, K., Ollander-Krane, R. and Pulakos, R. (2016) ‘Getting rid of performance ratings: genius or folly? A debate’, Industrial and Organizational Psychology, 9(2), pp. 219-252.
Barry, L. (2014) Performance management is broken: replace “rank and yank” with coaching and development. Web.
Buckingham, M. and Goodall, A. (2015) ‘Reinventing performance management’, Harvard Business Review, Web.
Burkus, D. (2016) ‘How Adobe scrapped its performance review system and why it worked’, Forbes, Web.
Cappelli, P. and Tavis, A. (2016) ‘The performance management revolution’, Harvard Business Review, Web.
Maier, S. (2017) Why fortune 500 companies are abandoning the traditional performance reviews. Web.
Microsoft throws stack ranking out the window. (no date) Web.
Special Committee on Aging United States Senate. (1982) Aging and the work force: human resource strategies: an information paper. Washington: US Government Printing Office.
Sutton, R. (2018) Why Adobe killed off the annual performance review. Web.
Sutton, R. and Rao, H. (2014) Scaling up excellence: getting to more without settling for less. New York: Random House Company.
Warren, T. (2013) ‘Microsoft axes its controversial employee-ranking system’, The Verge, Web.
Wilkie, D. (2015) Is the annual performance review dead? GE is latest company to reject time-consuming paperwork and yearly appraisals. Web.