A young head of HR at a small firm I know just had his first experience with managing and implementing the employee performance evaluation process. He is a very smart guy and carefully implemented the process in a way that was consistent with "best practices" suggested by leading HR professionals. I guess things did not come out as well as he hoped. He wrote me yesterday: "I’m getting very close to finishing up our performance reviews for 07. I’m having some questions as to how helpful the process is for companies. .... I am wondering if the process does more harm than good."
I forwarded this email to My co-author Jeff Pfeffer and he reminded me that there is a lot of theory and evidence out there suggesting that many companies might be better off not doing performance evaluations at all, as this young head of HR seems to be learning. Although there is so much faith in the importance of doing performance evaluations, most companies implement them badly enough that (applying the "first do no harm" standard to management), and doing them well is expensive enough and time consuming enough, that having no process, or an extremely simple and quick one (e.g., one company I know used to have employees pick three peers or subordinates, and those three alone decided the size of the raise and bonus within a preset range).
Then there is another, more extreme argument, that the performance evaluation process is fundamentally flawed. That doing it well is like doing blood-letting well -- it is a bad practice that does more harm than good in all or nearly all cases. This is the position taken by the famous quality guru W. Edwards Deming -- he was vehemently opposed to using them at all. As Jeff Pfeffer and I wrote on page 193 of The Knowing-Doing Gap:
Deming emphasized that forced rankings and other merit ratings that breed internal competition are bad management because they undermine motivation and breed contempt for management among people who, at least at first, were doing good work. He argued that these systems require leaders to label many people as poor performers even though their work is well within the range of high quality. Deming maintained that when people get unfair negative evaluations, it can leave them "bitter, crushed, bruised, battered, desolate, despondent, dejected, feeling inferior, some even depressed, unfit for work for weeks after receipt of the rating, unable to comprehend why they are inferior."
I would be curious to hear from people out there who have a lot of experience giving or getting performance evaluations. Do they do so much damage that the best performance evaluation might be none at all?
To make an extreme and probably over cynical argument: Do organization just do them because they have always done them, because there is excessive and irrational faith in them, and perhaps because a whole bunch of vendors, consultants, and HR professionals benefit financially (in fact, you could argue that because so many things go wrong with evaluations, that the amount of work they generate is nearly endless).