Why performance reviews don’t work

Performance reviews can be seen as a hated necessity of business. Whichever side of the desk you happen to be sitting on, the annual performance evaluation is bound to be uncomfortable. As the manager, you feel like a judge handing down a sentence; as an employee, you are automatically put on the defensive. To make matters worse, salary increases are handled at this time, even though the increase may have little — if anything — to do with an employee’s work performance.

“The traditional performance review is demoralizing and doesn’t work to improve performance,” says Joel Adams, CEO and founder of Devon Consulting, a professional temporary staffing firm based in Wayne, Pa. “A review ought to be more like a coaching process on how employees can best reach their goals.”

Smart Business spoke with Adams about how businesses can use the performance review to benefit both the employee and the company.


What is wrong with performance reviews?
Performance reviews are supposed to improve performance. But, in reality, they are an attempt to justify a salary increase. A salary review shouldn’t be a performance review — or vice versa. Salaries, and therefore salary increases, are primarily set by the marketplace. For example, a company may set a percentage range for salary increases based on how the company is doing and its view of the economy and marketplace. Then a manager looks at where an individual is in the salary range for his or her particular job. A senior person could be at the top of the salary range already. So a particular individual’s percentage increase is not tied to his or her recent performance.


But why doesn’t the review improve performance?
When people believe that their review determines their salary, they want to argue that their performance is already great. Managers feel they need to point out the individual’s weaknesses or faults to justify a less-than-expected increase. No one is listening. Then salary increases almost always fall short of expectations. Employees are rarely satisfied with them. So, instead of motivating the employee to perform better, the review is demoralizing.


What’s the alternative?
I’m not advocating doing away with performance reviews. I am saying that performance reviews should be about improving performance, not about salary. Traditional reviews look in the wrong direction: the past. We’re trying to improve performance in the future. Performance improves when we set goals and the manager and employee work together to achieve those goals. What needs to happen is performance planning.


What about the salary review?
Salary adjustments need to be detached from performance planning in concept, timing and communication. At a salary review, there should be an explanation of the company’s current salary policy and clarity about where the individual currently falls in the salary range for his or her job.


So you don’t believe in pay for performance?
We expect good performance for earning a fair salary. And bonuses are a good way to recognize exceeding goals. But for most professional positions, a fair guaranteed salary is a great compensation system.


What would a performance planning meeting look like?
It would look more like coaching than a review of an employee’s past performance. This coaching needs to start with the goals of the employee. If you understand what your employee wants out of a job, you are in a better position to help that employee achieve those goals.

For example, you have three engineers working at the same level with the same salary. But all of these employees have different goals for working at your company. Engineer No. 1 is only interested in the income to get her kids through college. When done with that, she plans to pursue her lifelong dream of being a professional musician. Engineer No. 2 loves his job. He grew up wanting to be an engineer, and wants to become the lead engineer in the company. Engineer No. 3 aims to eventually be promoted to senior management. Those three people need to be coached very differently.

When coaching, emphasize the employee’s strengths and make specific recommendations to help the employee to reach his or her goals while addressing the needs of the company. It becomes a positive experience, and ultimately encourages the employee to work at top performance. And that, after all, is what everyone is aiming for.


JOEL ADAMS is the CEO and founder of Devon Consulting (www.devonconsulting.com), a professional staffing firm serving the IT and Clinical Trial industries. Reach Adams at (610) 964-5703 or [email protected].