Weaponizing the annual performance review
Does anybody remember the original aim of this widely accepted process?
For Christmas 2022, Google's management surprised their employees with a proverbial lump of coal. Despite a projected annual revenue increase to $283 billion from 2021 revenues of $252 billion, company executives announced a new annual performance review system that moved the goalposts, as reported by CNBC:
…in order to make the new, highest rated category, “Transformative Impact,” an employee must have “achieved the near-impossible” and contributed “more than we thought possible.”
— CNBC, Google tells employees more of them will be at risk for low performance ratings next year.
Unsurprisingly, employees reacted to this announcement with anger, confusion, and distrust.
Reviewing performance reviews
Performance reviews became popular after WWII as companies adopted the merit reviews and forced rankings used by the armed forces to transfer or discharge poor performers. By the 1960s, more than 90% of U.S. companies had adopted the practice. General Electric’s Jack Welch further embraced the approach with his “rank and yank” style of management. Despite their popularity with senior management, there are countless examples of how both reviewers and reviewees dislike these practices for their endless paperwork, inane evaluation criteria, and simplistic, quota-driven ratings. Former consulting firm Price Waterhouse found that many companies describe their review systems as "broken," "misleading," "cumbersome," "complex," or "counterproductive."
W. Edwards Deming, the visionary business leader who transformed Japan’s economy in the 1950’s, counseled that company performance is dependent on the overall system employed to produce an outcome rather than the individuals doing the work. In his 1982 book, Out of the Crisis, Dr. Deming warned of the negative impact of an evaluation of performance, merit rating, or annual review, noting that "the use of performance reviews is generally demotivating," and labeling such practices as one of six “Deadly Diseases” of management.
If you destroy the people of a company, you do not have much left.
— W. Edwards Deming
Photo courtesy of The W. Edwards Deming Institute
Deming pointed out that performance review systems generally:
Establish a "management by fear" environment. Most review systems function to categorize people, sometimes blatantly so. They focus on past performance rather than future possibilities and reinforce the perception that the person reviewed is neither trusted nor empowered. Deming considered fear an organizational "Force of Destruction" that “destroys the intrinsic motivation and natural curiosity of individuals."
Encourage an "Us vs. Them" relationship between management and employees. A typical performance review reflects a "Theory X" view of employees, where it is assumed that people dislike work and must be coerced, controlled, and directed toward organizational goals. Dr. Deming favored a more positive "Theory Y" perspective, where people naturally want to do well and will do so if appropriately supported. He encouraged management systems where employees are valued and allowed to excel. Caroline Stockdale, a former chief talent officer at Medtronic, says, "The typical performance review system doesn't work because you're demotivating half your population, poking them in the eye with a sharp stick."
“Violate scientific logic,” and ultimately waste time and money. According to Gallup, conducting an annual performance review costs $3,500 per employee in lost working hours, but research shows it usually does more harm than good. Could the same amount be spent to support employees and drive outcomes that are more predictably positive?
Is Google’s performance review doing evil?
Google's review system is antithetical to Deming's teaching about systems, leadership, and employee engagement. His theory of management is holistic: everyone working together – managers and workers – is responsible for an organization's success. People are the source of a company’s value; the people in the organization are what make it successful. Google's new system escalates employee anxiety and undermines faith in management. Indeed, according to the report by CNBC News, many employees believe that the new review system is simply a roundabout way to reduce headcount.
In addition to the problems described above, Google's reviews are especially egregious:
Lack of specificity. Vague objectives that the company terms as "near impossible" and "transformative" are, at best, subjective, if not altogether meaningless. How do such measures translate into achievable objectives? Dr. Deming observed that without specific, observable measures, "words have no meaning unless they are translated into action, agreed upon by everyone. An operational definition puts communicable meaning into a concept."
Lack of transparency. Deming taught that good management promotes continuous improvement through his PDSA cycle. Progress requires feedback – the combination of transparency and communication — each of which are missing from Google’s system. Even GE's Jack Welch believed in candor: "They must not be guessing what the organization thinks of them."
Lack of direction. Google exhorts its employees to improve performance without identifying or quantifying the goals to be reached, and they do not define “by what method” workers are to achieve them.
It is not enough to do your best; you must know what to do and then do your best.
— W. Edwards Deming
Feedback, not evaluation
For all the reasons above, managers and workers alike distrust review systems that primarily focus on judgment and categorization. True feedback should be continual and focused on personal improvement. Regular, meaningful conversations between managers and employees lead to better results. Other considerations for a review process should include:
Outcomes, good and bad, are products of the overall system. No employee can overcome a bad system. Workers should be viewed as part of the solution to poor results, not as causes. Improve the system with the aid of the people who have the best visibility into it.
Eighty-five percent of the reasons for failure are deficiencies in the systems and process rather than the employee. The role of management is to change the process rather than badgering individuals to do better.
— W. Edwards Deming
Establish tangible, measurable objectives. Data is critical and non-accusatory. Its use validates individual contributions and organizational processes that are working, along with any misalignments between the two. Every person should know and understand their importance, role, and responsibility in the system. Management must always remember, however, that objectives pertain to the overall system, not the individuals within it.
Daily, continual on-the-job training and feedback to employees at all levels are more effective than sporadic, arbitrary performance reviews. Continual communication is critical.
Workers should be meaningfully involved in improving the system, not blamed for shortcomings. Eliminate ratings and rankings. Performance rankings threaten and perturb people and impair their productivity and engagement. David Rock, director of the NeuroLeadership Institute, claims that, in most people, ratings and rankings trigger a fight or flight response that is hardly conducive to problem-solving, teamwork, or improvement.
Final thoughts
The good news is that many organizations are shifting away from traditional performance measurement systems, including large companies like Microsoft, Adobe, Dell, IBM, Deloitte, Accenture, Gap, and Lear. Even General Electric has abandoned them. If Google wishes to follow suit, Dr. Deming offers some good advice for getting started:
Modern principles of leadership will replace the annual performance review. The first step in a company will be to provide education in leadership. The annual performance review may then be abolished. Leadership will take its place.
— W. Edwards Deming
Michael, this was an excellent article and highlights a dysfunctional culture in some of these large corporations. Boeing has a similar "Rank & Yank" that was usually done prior to downsizing. The forced rankings did not inspire teams to reach for their potential, instead it created a back-biting and boss-stroking environment. How can I look better by putting down my peers and showering my boss with praise.