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No more annual performance appraisals

Several companies are scrapping their annual employee performance appraisals. The move is an acknowledgement of the fact that performance management is often counterproductive and leads to dissatisfied employees, a lack of cooperation and far too much focus on the past.
DI’s annual management survey shows that the popular annual employee performance appraisal has a number of dark sides.

Publiceret: 05.10.2017
Af Peter G. H. Madsen mail

Up until a few years ago, IT company Cisco’s 70,000 employees were summoned for an annual performance appraisal by their manager, at which a thick line would be drawn under that year’s results.

If the year had gone well, the employee received a rating of four or five. If had it gone roughly as expected, the employee received a three. And if the year had been less satisfactory, the employee would receive a one or two, along with clear instructions to shape up in the coming year.

The annual examination day was anything but popular among employees. Not least because guidelines stipulated that only every fourth person could receive a rating of four or five, explains Lila De Sousa, Nordic HR Manager at Cisco.

“It was not fun for the managers or the employees. Managers spent tons of time rating employees - the only result of which was complaints and demotivated employees,” she says.

The problem was often that employees’ view of their own performance did not at all line up with the assessment of their manager. Managers and employees would therefore often end up in lengthy discussions about the rating, which took up all the time that could have been used to talk about how the employees could become better at their responsibilities.

“There was no focus on how employees could move on and become even better at doing their work. Furthermore, the appraisals were far too retrospective in outlook. They reflected the past - not the future,” explains Lila De Sousa and adds:

“Eventually, we decided to drop the performance appraisals. What is more, we did so without having anything to replace them with. We simply abandoned the system.”

See also DI Indsigt: Companies are wild about performance management - few are aware of the effect (in Danish)

Companies: Are we getting enough out of our appraisals?

Cisco is far from alone in having mixed experiences with performance appraisals, shows DI’s annual management survey, which is based on responses from 1,353 managers in DI’s member companies.

The management survey shows that the annual rating of employees has a number of dark sides. For example, many managers find that performance appraisals create a one-sided focus on the set targets, increase stress among employees, create a short-term view of problem-solving, have a negative effect on innovation and decrease employee satisfaction.

According to Kinga Szabo Christensen, Director of the Management Development and Productivity Unit at the Confederation of Danish Industry, the survey underlines the fact that many companies have begun to doubt the effect of performance appraisals.

“Companies spend a lot of time and resources on the appraisals. Therefore, it is naturally very crucial that they also get something out of them. But there is not particularly good evidence to support this,” she says and refers to the fact that more than half of the managers in DI’s survey lack documentation to prove that appraisals contribute to improved performance.

Review your targets!

According to Kinga Szabo Christensen, there may also be a number of serious problems with the traditional way of assessing employees’ performance.

First of all, the appraisals do not take into account the fact that we live in a highly mutable world where focus and targets are subject to ongoing change.

“Many companies do not even review their targets once a year, but set the same ones year after year. An important suggestion to companies is that they review targets on a regular basis and critically consider whether they contribute positively to the company,” she says.

Secondly, the appraisals can affect the well-being and dedication of employees, as is also indicated in DI’s management survey. And thirdly, the appraisals often focus far too much on the past rather than future that employees and companies face.

“Naturally, there should be targets for the work. But the danger of the very traditional and retrospective employee appraisals is that they focus on things that employees cannot change anyway. It is far more constructive to focus on the conditions that employees can actually do something about,” says Kinga Szabo Christensen.

She finds that there is currently a momentum that can help create an opportunity for companies to get much more out of their performance management.

“Performance appraisals have been in for many years. But it is my clear impression that more and more companies are beginning to seriously consider how these can be improved for the good of the company and the employees,” says Kinga Szabo Christensen.

From counting minutes to measuring quality

Another company that has ditched the appraisals is consulting firm Deloitte.

For decades, Deloitte has had a very traditional performance management model with scores for employees and an according bonus. In the mean time, the company has found that the method did not have much effect. The consulting firm is therefore now implementing a new form of dialogue and feedback between managers and employees.

“It simply doesn’t work to have just a single annual conversation between managers and employees. The focus has to be on feedback right here and now - and open and close dialogue between employees and managers,” explains Michael Steen Holst, HR Director at Deloitte Denmark.

Meanwhile, Deloitte has also reconsidered its approach to counting hours. Where there was once a close connection between the number of hours that employees could bill clients for and their score and bonus, the focus today is increasingly on the quality of solutions.

This has happened in acknowledgement of fact that Deloitte’s clients do not purchase hours, but solutions - and that employees are motivated by something other than hours in themselves, explains Michael Steen Holst:

“If we tell employees they are rated based on hours put in, they’ll go for the hours. But that itself does not drive value. First and foremost, we want employees to create value. 

That is not to say that we do not still count hours at Deloitte, but now it happens as a follow-up to the business’s performance and thereby at a more general management level.”

Big demands for managers

Michael Steen Holst says that the changes have been met with “a healthy scepticism” from employees. Several have questioned whether management’s assessment of their performance would not become less transparent, given that value creation and quality are more subjective parameters compared to objective factors such as hours and sales figures.

“Many have been accustomed to being stars as long as they put in lots of hours. Now, we are becoming more nuanced. It is challenging for both employees and managers. When you talk about employees having to deliver value, it becomes less transparent. And that causes uncertainty,” he says.

For managers, the challenge is for example that they now must define what has value and what is an expression of high quality, particularly if the employees or clients have another understanding of what the best product is professionally. The new management tools are therefore not an exercise in savings - to the contrary,” explains Michael Steen Holst. 

“We usually say that all the time we previously spent talking about our employees we must now spend talking with our employees,” he says.

Dialogue between managers and employees is crucial

At IT company Cisco, the break with the classic performance appraisal has also meant that dialogue between employees and employers has increased.

“In our new system, we do not focus on performance appraisals. Instead, we focus on managers having the opportunity to talk as much as possible with their employees about their responsibilities. Managers must focus on their employees’ strengths and on getting employees to work together as a team,” says Nordic HR Manager Lila De Sousa.

She quickly adds that it is not the case that performance has become less important. There are still targets that must be met.

But since Cisco has abandoned the annual rating of employees, there is increased focus on how best to utilise employees’ competences. And, just as importantly, there is an ongoing discussion of plans and goals.

However, Cisco is still far from finished with the transition.
“What is important is not the system but the kind of thinking behind it. Management needs to help employees develop and work together as a team. That doesn’t happen from one day to the next,” says Lila De Sousa.
It was not fun for the managers or the employees.
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PUBLISHED: 10/5/2017 LAST MODIFIED: 10/5/2017