Team performance: Meditations on Performance Reviews

Firing up my time machine, I can vividly recall my first averse reaction to the concept of performance reviews as if it were yesterday. It was a sunny day around noon during an all-managers meeting in the cafeteria on the second floor of a super-fast-growing company in the late 2000s. We had recently hired a new CEO, and the topic of the meeting was an introduction of a company-wide performance review process. Now that I think about it, I am surprised that it took so long into the life of the company for the concept to be introduced. But admittedly, we had other things to focus on.

Until that time, as an individual contributor in previous companies, I had experienced the performance review process, but it never registered. Like most people, I would look at the compensation adjustment line and the rating, ignore all else, and move on.

This time, as an engineering leader, the full rollout of the performance review process, complete with 360s, ratings, ratios, calibration sessions, and the SuccessFactors software, caused some visceral feelings. Here are some things that went through my mind in that meeting:

1. Time commitment - while it was being sold (as all new processes are sold that way) as “lightweight,” even then, it was clear to everyone that it wasn’t going to be. Mind you, being understaffed and overworked wasn't even beginning to describe the degree of burnout we then experienced. After all, the 9/9/6 schedule is a Silicon Valley invention, and we had a 9/9/6 Plus (we loved it though in all fairness).

2. We had great and highly complementary teams in terms of skills - it was a head-scratcher for me how I would rate people in that situation where there were no obvious underperformers, and everyone was giving it their all.

3. I was most worried about the downsides of the process. Hiring was extremely difficult in those days, and losing a key engineer or two because of an artificial rating almost guaranteed a major adverse impact since we had single points of failure just about everywhere.

Being rather naive at the time, I shared my reservations in that meeting and asked why we needed to focus on performance reviews. I still remember the answer that is worth pondering on: “Because it is Best Practice.”

Let this sink in - "We are going to be implementing X because it is a Best Practice.” Take your favorite pick where we heard a similar explanation or a variant of it. To this day, I keep failing to find any evidence of this practice being positive at all, let alone “best,” from whatever scant research there has been.

Perhaps someone has done or is going to do a well-designed study (even a retrospective one) on the topic - if you know of one, please point me to it. Here's what I have observed in my experience across several companies (as well as heard from other managers and executives):

1. There seems to be an uptick of regrettable departures (people we don’t want to quit) right after a performance review cycle.

2. Performance calibration meetings are one of the more toxic events in the company, often preceded by a massive amount of horse-trading among managers and executives and a lasting ill will afterward.

3. Compensation adjustments following the reviews are always below what people expect and are (on average) a negative retention driver (if you want to retain someone for comp reasons, you better adjust the comp out of cycle).

4. The amount of time spent on the process is material in terms of delivery and focus, and of course, those magically fall into the end of the quarter. I would estimate at least 1 full month of productivity lost.

5. No one likes the performance review process (not to be confused with what you hear from HR surveys - when people say they want feedback through the review process - they want a raise or a promotion).

Now, to be dialectical about this problem, let's look at it from the point of view of a CEO. Why would a CEO need to have a performance review process within the company? There are several good reasons:

1. We need to understand how to manage compensation adjustments within the company, hence we need to understand the performance rankings.

2. Similarly, we need to make sure we manage out underperformers on a regular cadence.

3. We may have managers within the company who are new or inexperienced and not doing performance management.

4. We want to put some objectivity into the data - and not rely on managers only, hence the 360 feedback.

5. We want to have a process/documentation to manage performance for compliance reasons.

6. As the company grows, the individual performance matters less than elevating an average, hence we’re less concerned with the impact of regrettable attrition - but rather with managing the average performance of the organization (the usual curse of a big corporation).

7. We just hired a new Chief People Officer 🙂

Any process that involves people is an attempt to program people's behavior towards specific goals. It works best when groups are small and goals are clear. When groups are small, you don't need performance reviews. In a bigger company, I would argue that neither is true, nor are objectives clear (a fair distribution of a token comp adjustment, an overdue promotion, or identification of already obvious bottom performers are hardly that).

So, if it is about programming organizational (and individual) behavior, we are going to need to approach it from first principles and in more subtle ways.

To be continued.