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PI Science Team conducts study on performance review effectiveness

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The PI Science Team conducted a study revealing the four things to focus on regardless of your philosophy on performance reviews.

The debate on the future of the performance review is far from over. On the one hand, there’s been a strong movement away from the annual performance review and performance review numbers. Many big companies have followed suit⁠—including GE, Adobe, GAP, Accenture, and Microsoft. On the other hand, there are plenty of critics who suggest that the no-performance-review movement is too extreme and leads to equally negative impacts.

To summarize, the against perspective points out how the nature of work has changed and how silly it is to set long-term, 12-month goals that are unrealistic in today’s fast-paced business world. In addition, rating employees (even for people who get high ratings) is a horrible experience that puts people into a defensive posture which is not constructive to better performance. Performance review ratings don’t help with collaboration, as they often reward individual performance. This can create competition, especially in “forced ranking” systems that save the top score for only a handful of employees. Finally, from a practical perspective, the whole performance review process takes way too much time. For example, an internal report at Deloitte found managers spend over two million hours a year on performance reviews.

The counter-argument is the numbers do, in fact, matter. Just because a company ditches formal performance ratings doesn’t mean ratings are really gone. Instead of being visible, ratings are just done more subjectively and behind the scenes. And since performance ratings do influence important things like compensation and promotions, invisible ratings—the subjective ones in managers’ minds—create perceptions of unfairness that can be quite harmful. In addition, when the numbers were removed, many managers simply skipped performance reviews. Employees frequently felt clueless about how they were doing. In fact, CEB conducted research that showed employees in organizations without scores were the “most dissatisfied and frustrated”—and this led to a 10% drop in performance.

So we did our own study to understand what performance review effectiveness looks like in the eyes of employees at small and medium-sized businesses.

The findings highlight the basics–the things you should be focused on regardless of your approach or philosophy:

1. Focus on process fairness.

No matter what you do, the biggest correlate of effectiveness in the employee’s eyes is the belief that the performance review is fair in terms of process. This is accomplished by focusing on openness and transparency of the process. Employees should believe that a performance number—or even a critical piece of feedback is based on reality. They should believe they have an opportunity to improve, or that good performance really does lead to positive outcomes. It has long been established that when employees believe an organizational process is procedurally just, they’ll be more engaged and perform better. To be fair, make sure employees see it as fair, and you get a double win: Better performance from the review process and better performance for doing things right.

2. Make sure performance counts.

Survey respondents were clear that performance reviews were more effective when the outcomes had consequences. All too often, employees see formal and informal performance review activities being disconnected from real, meaningful outcomes. That means if someone does good work, they should be rewarded. And low performers should be quickly and swiftly exited from the organization rather than wallowing around for everyone to see.

Finally, avoid politics at all costs. Our survey respondents were clear that it should be performance⁠—not politics⁠—that’s the reason people get ahead in their company. So make sure to build a high-performance organization by connecting the review process to outcomes with teeth.

3. Always come prepared.

Third on the list of our survey on effective performance reviews is for managers to be prepared and organized for any review activities. Nothing says “This performance review is a waste of time” like a manager who doesn’t take five minutes to prepare. Performance reviews—even informal ones—should be considered a serious activity that comes with considerable thought about the employee’s performance, clearly identified critical incidences (i.e., when they did good or bad), thoughtful feedback, and a plan for action or outcomes. In short, if you want to get anything out of performance reviews, your managers need to do some real prep work.

4. Tailor the review to the person.

Finally, while the earlier tips may have been a rehash of conventional wisdom for some, our research did uncover one relatively unique finding—at least in our eyes. Employees rated their performance reviews as significantly more effective when they felt the manager had tailored the review and any coaching toward their individual personality style. This may seem obvious on the surface. Why wouldn’t everyone do this? But in reality, many managers don’t take the time to prepare, let alone think thoughtfully about their employees’ personality characteristics as part of the performance review. In fact, most managers probably don’t really have a good framework for understanding employee personality in the first place. This is where using an assessment—like the PI Behavioral Assessment—can be extremely valuable. By understanding an employee’s drives and needs, it’s possible to not only put context to performance (i.e., why they do what they do) but also nail it in terms of providing the right coaching or rewards.

Whether you’re a big believer in the formal performance review or someone who thinks they should be wiped from the face of the earth, you can still manage performance successfully if you stick to some basics. Make the process fair. Build consequences that matter. Take time to prepare. And finally, put a little “personality” into the review. These small steps help build a higher-performing organization.

Greg is the SVP of science at PI.

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