Performance Evaluations: Do They Do More Harm Than Good?

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).

Comments

[Chris]

I've been at all levels of business over the last 15 years, from entry level employee to executive, for 4 different companies. At their best, performance reviews provide meaningful feedback and comprehensive development plans, and at their worst they tear an organization apart. But even the best performance reviews are a poor substitute for the real work management should be doing in this area with their employees - that work being the provision of guidance, direction, and support to staff on a regular basis. In a poor organization performance reviews provide a bare minimum of feedback to employees about their job performance, and in good organizations they are completely unnecessary.

The vast majority of reviews I've given and received are nothing more than a banal rehashing of poorly remembered facts that generically support a series of back-room deals designed to keep pay raises within budget boundaries. Both HR departments and senior level management feel that having an "impartial" process protects the company and supports merit increase decisions, but in fact 99% of all performance reviews end up ranging from good to great with no real basis in an employee's true job performance. As an example of this, I have never seen a terminated employee who was with an organization for any length of time who did not have a personnel folder full of excellent job reviews.

[Fredex]

Do organizations just do them because they have always done them? Short answer is yes. Longer answer is that the companies I know are full of Good Germans who do what they are told to do because that's their paycheck and if they get a paycheck for what they are doing they must be doing right. That may be a constant of bureaucrats everywhere.

[Chip Overclock]

Being an engineer who makes occasional forays into management, I often make the mistake of trying to treat merit evaluation issues numerically. One book (from his Ph.D. thesis) that taught me -- in a way an engineer can appreciate (which is to say, numerically) -- why this is really a stupid plan was Robert Austin's MEASURING AND MANAGING PERFORMANCE IN ORGANIZATIONS (Dorset House, 1996). He applies a Game Theoretic approach to show why merit evaluations don't (can't) work in information organizations (which is to say, pretty much all of them these days). It's one of those books (like Sutton's own HARD FACTS) that changes your whole outlook on the world. I consider it required reading for... well, for just about everybody. Austin was an executive with Ford Motors, and is now IIRC at Harvard Business School. (I find Nelson Repenning's work at MIT on fire fighting in organizations to be closely related, BTW.)

[JACH]

A friend of mine, who happens to be a manager, had a truly bad time while evaluating his people. He once told me "Why should I have to judge who's the best performer so he can have the only pay raise allowed in the department, when I think that almost everyone did a good job and deserve it".

On the other hand, I had my evaluation last September. Although the overall rate was "good" (good puppy, have a cracker?), the comments I received from my boss left me depressed for months and hating every moment I spend at the office (comments like "you're trying to do so much outside the department that someone might think you don't have work to do. Just do what you're told.")