2. No Ratings!
1
¨
Objectives
¤ Raise
awareness of the need to eliminate annual
performance appraisals in organizations
¤ Generate and discuss ideas about what to do instead for
your organizations
¨
Agenda
¤ Discuss
our collective experience of performance appraisal
¤ Discuss the merits and demerits of performance appraisal
¤ Discuss what to do instead of performance appraisal
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October 12, 2012
3. Performance Appraisal Defined
2
The formal process of evaluating or judging the way in
which an individual is functioning, and:
¨ Employees’ work performance, behaviors, traits are rated, judged,
described by someone else
¨ Ratings, judgments, and descriptions relate to a specific time period
rather than a product or service
¨ Process is systematically applied to all employees or groups of
employees
¨ Process is mandatory or induced by extrinsic motivators (e.g.,
eligibility for a pay raise)
¨ The results are documented and kept by someone else in the
organization other than the rated employee
Source: Coens & Jenkins. Abolishing Performance Appraisals, 2002
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4. Exercise 1: What does your company’s
performance appraisal intend to accomplish?
3
1. What are the objectives your organization’s
performance appraisal system is intended to
accomplish? What are the appraisals used for?
2. Discuss with the person sitting next to you
3. Be prepared to share your answers with the group
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5. Typical purpose(s) of performance appraisal
4
¨
To determine pay
¨
To identify candidates for promotion or selection decisions
¨
To give employees feedback
¨
To provide communications between supervisor and employee
¨
To give direction and focus to employees
¨
To aid in career development
¨
To identify training needs
¨
Others?
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6. Exercise 2: Rate Your Performance
Appraisal Process
5
1. Write down your overall rating of your current performance
appraisal process in how it has improved your performance or
your companies’ performance?
5 = Superior exceeds expectations (Exemplary)
4 = Exceeds expectations
3 = Meets expectations
2 = Needs improvement
1 = Unsatisfactory / Far below expectations (Possible termination)
2. Discuss with a partner, why you rated your performance
appraisal system the way you did. What are some of the
challenges?
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7. Top 10 Challenges of Performance Appraisals
6
Undermines teamwork
Create losers, cynics, and fear
Disregard the existence of a system. They generally encourage
individuals to squeeze or circumvent the system for personal gain rather
than improve it for collective gain.
4. Disregard variability in the system and to some extent unnecessarily
increases the variability
5. Use a measurement system that is unreliable and inconsistent
6. Encourage an approach to problem-solving that is superficial
7. Tend to establish an aggregate of safe goals--a ceiling of mediocrity--in
an organization
8. Seek to provide a means to administer multiple managerial functions
(pay, promotion, feedback communications, direction-setting, etc.), yet
are inadequate to accomplish any one of them
9. Creates reductions in productivity
10. Institutionalizes existing values & biases
1.
2.
3.
Adapted from: Peter Scholtes. Total Quality or Performance Appraisal: Choose One, National Productivity Review 1993 and Harvard
Management Update 2000
8. The dark side of performance appraisal
7
Many companies in America have systems by which everyone in
management or in research receives from his superiors a rating
every year. . . . Management by objective leads to the same evil.
Management by numbers likewise. Management by fear would
be a better name. . . .The effect is devastating.
W. Edwards Deming, Out of the Crisis, 1982
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9. Today we “Topgrade” our workforce
8
Topgrading is a detailed how-to manual
for packing one’s team with A players (the
top 10 percent of talent available at all
salary levels), clearing out the Cs (bottom
10%), and using expert coaching
techniques to turn B players into As.
“Topgrading is the definitive manual for becoming an A player
and for recognizing those traits in others.”
Larry Bossidy, former CEO Honeywell
and coauthor of Execution
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10. Under Roman rule they would periodically
“decimate” their workforce to manage performance
9
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11. Exercise 3: What to do instead?
10
1. Imagine a world with no performance appraisals
in organizations. Then reality hits and you realize
that you still need to improve performance of your
organization, pay people fairly, motivate them,
etc. What might you do to accomplish these
objectives without a performance appraisal
process in your organization?
2. Discuss with your partner.
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October 12, 2012
12. 11
Case Study – Glenroy Inc.
“In my 21 years at this company, not a day goes
by that I don’t actually look forward to going to
work.”
Nancy Seager, HR Director at Glenroy Inc.
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13. 12
¨
Case Study – Glenroy Inc. Flexible
Packaging Manufacturer
About the Company
¤
¤
¨
¤
Removed pay for performance incentives
(more on next slide)
¤
Low turnover
24 years ago, CEO decided it was time to
eliminate appraisals
No sales quotas or sales incentives
Non-unionized
¤
Response
¤
200 employees
¤
¨
All employees meet with CEO 1/month
Situation
¤
HR, managers, employees disliked
performance appraisal process
n
Was considered painful to manage and
painful to do
Result
¤
n
Performance ratings tied to incentives created
competition and inhibited collaboration
Feedback delivered more timely, frequently
n
Costly, took too much time, did not produce
expected returns
n
¨
Managers don’t wait for scheduled appraisal
meeting
¤
Enhanced collaboration, info sharing
¤
More employee ownership of development
¤
Sales increase, no layoffs during downturn,
joint investment in company success
¤
No unions in a heavy unionized environment
12
14. Compensation at Glenroy
• Hire Rate
Start at ~60th percentile of pay range
• Learn about the company
• Interim Rate
~ 5%
• Learn more about the job
• Job Rate
~ 5%
• Up to Speed
l
l
l
Annual increases same across company based on market
If change jobs, move into interim rate
Also includes profit sharing of 3-4% on average
15. What to do instead?
14
1. Change the way you think
2. Stop doing it
3. Develop organic and sustainable alternatives
¤ De-bundle the multiple functions (e.g., pay, selection,
promotions, development)
¤ Develop organizational measures that matter and connect the
dots to key processes
¤ Focus on improving organizational performance
¤ Adopt a coaching model to improve individual performance
¤ Compensation – focus on critical segments and tailor
compensation to the culture, adopt gain-sharing
¤ Educate supervisors on origins of performance and motivation,
establish ways to document.
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October 12, 2012
16. Suggested reading
15
Abolishing Performance Appraisals, Coens & Jenkins
¨ The Legal Case for Eliminating Performance
Appraisals, Judith Droz Keyes, HR Magazine
¨ The Leader’s Handbook, Peter Scholtes
¨ Out of the Crisis, W. Edwards Deming
¨
De Young Consulting
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October 12, 2012
17. When will we get it?
16
“The aim of reviewing the subordinate's performance is to
increase his effectiveness, not to punish him. But apart
from those few employees who receive the highest
possible ratings, performance review interviews, as a rule,
are seriously deflating to the employee's sense of worth ...
not only is the conventional performance review failing to
make a positive contribution, but in many executives'
opinions it can do irreparable harm.”
Rensis Likert, Harvard Business Review, July 1959
De Young Consulting
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October 12, 2012
