One Thing is Missing from all These Performance Review Articles

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Article Summary

  • Why should you read this?  If you’re thinking about how to conduct your performance reviews and want to make sure they go well (and your organisation links pay decisions to performance reviews). 
  • It should be about career progress, but money talks: a performance review should be a development opportunity.   It’s a space for the manager and their team members to reflect; what went well, what didn’t, and where the opportunities are for growth over the coming year.  Instead, if pay decisions are linked to the process, this can become the focus rather than team members’ development. 
  • What you end up talking about: instead of a nuanced discussion about career development, you can instead spend an hour talking about performance ratings, how that links to pay, and whether or not an individual's outcome was fair.  You’re also less likely to have a genuine conversation about development, because people will be reluctant to reflect on mistakes they’ve made if they think it will impact their pay packet.
  • Practical tips: you can minimise the disruption by explaining the process in advance.  By being clear about how pay is set, answering any questions, and emphasising that the review meeting is about professional development.  Depending on your process, you may also want to deliver information relevant to pay decisions (often performance ratings) before the meeting, so team members can digest it rather than having to respond in real-time whilst discussing career aspirations.  More broadly, you should be having monthly or quarterly development conversations with your team, so sharing thoughts on career progress doesn’t all rest on an annual or bi-annual meeting which could be derailed by discussions on pay. 

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For many organisations, December is a careful balancing act involving how to run a performance review process without spoiling Christmas.  2020 has potentially made the job easier in that respect by already ruining Christmas.  But that still leaves the matter of performance reviews.

What should be a really constructive opportunity to review employees’ progress and reward them in time for Christmas has become a process that almost everyone is unhappy with to some degree.  When we spoke to managers, only 22% said they were ‘happy’ or ‘mostly happy’ with their performance review process.   On the other side of the table, a Gallup survey found that only 14% of employees strongly agreed that their performance reviews inspired them to improve. 

“It’s unclear and it’s a complete joke” (Kommon Interview)
“I’ve never been anywhere that’s had a good one” (Kommon Interview)

The criticisms vary depending on the process but it’s usually some combination of complaints that they’re time-consuming, unfair, artificial, inaccurate, subjective, drawn-out, unpredictable or just non-existent.  It’s a shame because at their best, they’re a brilliant tool for boosting performance and morale.  No wonder that there are plenty of articles published around this time on how to do them.

But this isn’t one of those articles (we’ll do that another time).

We’ve read lots of these and despite some excellent advice out there (this one by Lenny Ratchisky in particular), we’ve noticed that most seem to be missing one key point.  So we wanted to raise that here in case it helps anyone over the next few weeks. 

Don’t Forget the Money

Seems obvious.  We’ll elaborate. 

Strictly speaking, a performance review isn’t (and shouldn’t be) about remuneration.   It should be a development opportunity.   It’s a space for the manager and their team members to reflect on the previous six or twelve months; what went well, what didn’t, and where the opportunities are for growth over the coming year.  

But… and there’s a big but.  Many companies don’t separate out performance reviews from pay decisions - they’re on the same cycle.  If this is the case, this can significantly shift the dynamics of the review, often through some combination of the following:

  • Words are less valuable than numbers: pay is important because often it’s the main way in which an organisation concretely expresses its appreciation for what an employee does.  Warm words are fine, but money really talks.   Good performance reviews often involve nuanced discussions of where managers feel team members have excelled, and astute advice on their future careers.  However, if the review is linked to remuneration, these words will often pale into insignificance compared to whatever measure defines the paycheck (often a numerical rating).  Rather than discussing an individual’s strengths and development opportunities, instead conversations will devolve into why someone is a ‘2’ or a ‘3’.  This is completely understandable given the stakes, but a huge missed opportunity. 
  • Discussing challenges comes with a cost: it’s often said we learn most from our mistakes, and from a developmental perspective, these should be discussed in depth during a performance review.  However, if team members feel that emphasising mistakes is going to negatively affect their ratings or remuneration, they’re naturally going to be reluctant to discuss them.  This is particularly true for processes that include a self-evaluation form, where team members are asked to submit an assessment of their own performance. 
  • The integrity of the process will be questioned:  if you’re translating performance into paychecks, rather than discussing employee development, there’s a good chance you’ll instead spend time going back and forth on this process.  Particularly if an employee is dissatisfied with their rating, or feels others have been rated differently based on similar performance.  Again, this is an understandable debate to want to have, but it’s all distracting from the developmental aspect of the review.  

If managers aren’t aware of these dynamics, they can really warp a performance review.  Often any learnings will just be drowned out by a focus on whether or not the impact on salary/bonus/rewards was appropriate or fair.   The good news is that to a certain extent this can be avoided.

Practical Tips

Assuming your company does link remuneration to performance reviews, there are a few tips you can use to make sure that this doesn’t derail your reviews: 

  1. Explain the performance/remuneration link: often the link to remuneration is left as the elephant in the room, which is the first step to undermining trust in the entire process.  Be upfront about it with your team.  Explain exactly how your organisation translates performance into rewards, and answer any questions before the reviews take place.  You’ll probably still have some ground to cover in the review meeting, but it will maximise the time for development discussions.  Your team may also appreciate your understanding of how important the remuneration aspect is.
  1. Deliver ratings before the meeting: although your organisation may be closely linking performance and pay, you can create a better space for discussion by communicating them separately.  Sometimes it can be effective to send team members any ratings and comments (depending on your process) ahead of the meeting.  It enables them to prepare for a discussion rather than having to digest the number on the spot whilst trying to discuss their career aspirations. 
  1. Emphasise developmental aspect: if there’s an emphasis on pay, some team members may struggle to perceive the developmental benefits of the review process.  It’s often worth sitting your team down to explain that the review process is not just about sorting people on a pay distribution curve, but genuinely exploring their performance over the past year to make plans for future progress.
  1. Create more opportunities for career discussions: reviews that descend into discussions of pay often feel like a missed opportunity because in some organisations substantive career discussions take place so infrequently.  There’s no reason why this has to be the way!  If you are discussing your team members’ long-term careers in monthly or even quarterly meetings, then it doesn’t matter as much if the annual review becomes focussed on remuneration.  

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