People Metrics: How Annual Performance Reviews Enable Bad Behaviors

End of the year. Beginning the next. Holidays. New Year resolutions. Spending time with your in-laws. The holiday season can be hectic and the last thing people are looking forward to are those pesky Annual Performance Reviews. I woke up from a holiday hangover to see my inbox flooded with requests to conduct annual performance reviews with short timelines to completion. Now, as an Agile Coach and Change Agent, I find this annual process to add very little value. Every day, I am assessing, modifying, reviewing and adjusting people’s performance and this is very often to help them through the change that Agile brings to their work life. This got me to thinking, “Are organizations crippling themselves through this process by not establishing a continuous improvement mindset?” The annual performance process is a hindrance toward an organization of continuous improvement. My wish for the New Year is that organizations set a path to follow and replace the annual performance appraisal with a process that brings continuous improvement to both the organization and the individuals within.

The core of Agile is based on the thought that as an organization, we hope to strive toward more people interactions versus process and documentation. The typical annual performance process kicks off in late November by selecting the people to silicate feedback from and ends in late March with a pay incentive and possible bonus. Through this process there are very hard deadlines to update your goals for next year (in alignment with the goals and objectives of the organization), as well as discuss your goals with your manager and getting them approved. People have grown to understand this process so well that they begin to rig the system to make it work by updating your goals at the last minute to maximize your pay incentive, or even planning to leave the company after the bonus is paid out (and with such low pay increases, why bother to stay?). These steps are potentially enabling very selfish behaviors that do not enable the growth and development of the person, nor do they help to grow and improve the organization. Rather, they enable a mutation of the system that maximizes personal benefit and minimizes personal and organizational improvement. Think of the time it takes to craft out these lengthy detailed goals and then plan a specific time to review with your manager to prove that you achieved them. All this just so you can get your bonus. Those who want to change or move on, for whatever reason, will wait to resign until they receive their bonus creating a “sit and wait for the bonus” culture. SAP got rid of their annual performance review process in 2016. SAP head of HR, Wolf Fassnach, found the process counterproductive to meaningful dialogue (Wright). This performance appraisal process is one of the strongest examples of how focusing on process over people can enable bad behaviors for people and organizations.

Is money a motivator? Well, maybe. Through several studies brought to light by Daniel Pink, it is true that money is a motivator. But it motivates in a unique way. For jobs that require knowledge workers, money acts as a motivator until people feel they are being paid enough. Beyond that, people are motivated by other things which can be summed up into three areas: autonomy, mastery, and purpose. Annual performance reviews are rooted in the belief that money is the primary motivator and it is glued together with annual pay incentives and bonuses. In many organizations, the conversations with management are focused on annual performance reviews, pay incentives and bonuses rather than development. The interactions become more like a loan shark and a client searching for money rather than knowledge and development. Organizations need to not only align pay to what is right but also provide transparency in order to eliminate this process entirely. If this happened, these interactions between knowledge workers and managers would be focused around,
  • Autonomy – Understanding what things that the knowledge worker finds interesting and enabling them to do more of that kind of work.
  • Mastery – Discussing areas where the knowledge of the worker can be expanded to improve the person, team and organization.
  • Purpose – Aligning the goals and vision of the organization, team and person to ensure the knowledge worker is motivated for the larger purpose.

In a study from UNC’s Kenan-Flager Business School, it was found that today’s workers look for mentorship and coaching over managers as experts. They want managers to enable a purpose and continuous learner (Duggan). The interactions of managers and workers is critical to the development and continuous improvement of the knowledge worker, team and organization. Focusing this interaction around annual performance reviews and pay incentive creates an environment where the motive to work is more focused on money vs improvement. This mindset will establish a selfish culture which will put the needs of the organization last.

Everyone has an example of when they worked on a team that could take on the world. Building that team takes time and a continuous improvement mindset. Project teams are proven to be ineffective. Why is that? Project teams are taught to quickly storm and work together. When the project team has some tough times, they finally start working together, usually right about the time the project ends. The cycle then starts all over again with new people. With this mindset, we cannot evaluate teams so instead we evaluate people. If there are continuous Agile teams then the performance of the entire team can be evaluated. This allows the entire team to develop and grow, rather than the people individually. Personal based performance reviews promote a selfish mindset against collaboration and drives personal achievements rather than team achievements. Conducting team performance reviews helps to focus an organization on goals and maximizes value to the organization. Evaluations of the team are based on working products and software. This drives throughput of the team, collaboration and accountability across the team and, eventually, the organization. Team performance reviews will enable continuous improvement and maximize value to the organization. Top organizations are made up of strong collaborative teams, rather than individual brilliant people. Enabling team performance reviews will create a mindset of building an effective collaborative environment for teams to improve the organization.

So Annual Performance Reviews are bad. They promote poor interactions between managers and workers, focus on self-greed rather than team and organization value and limit the growth of a person and organization. How do we fix this? Here are five steps which can get your team or organization to enable a continuous improvement mindset as a part of your performance reviews:

1. Build Long Lasting Agile Team

Enable teams to define, plan, build, and reflect together. Through that reflection coach them to find better ways to collaborate, hold each other accountable, enable better quality end products and develop as an individual by first developing as a team.

2. Take a PDCA approach (Plan, Do, Check, Adjust) to Performance Reviews

Teach the PCDA model to leaders and knowledge workers as a way to achieve team improvement, which leads to self-improvement. Enable them to set small meaningful objectives (Plan) and action on those objectives (Do). Measure and assess (Check) if those objectives were achieved in small increments. Constantly modify and refine (Adjust) your objectives based on outcomes.

3. Leverage Agile ceremonies for Performance Reviews


A. Demo – leverage this time of reviewing working software / end products by showcasing the team and individual value to the organization.
B. Retro/Inspect and Adapt – This is the critical ceremony for continuous improvement which should be leveraged to enable continuous development of people and teams. Take actions from retrospectives to improve the team and individual performance.
C. Innovation and Planning Sprints – Use this IP sprint which occurs every Program Increment (10 weeks) to conduct retrospective reviews with teams and managers and take time to build mastery in an area of development for the person, team and organization

4. Pay People Enough to take Quitting off the table

Pay competitive salaries and provide transparency into salary bands. This will take the conversations about money off the table and quitting as a last resort. This will eliminate greedy behaviors within the organization and promote collaboration and a continuous improvement mindset across all people. Worried about people leaving? Remember: Autonomy, Master, Purpose. Money is not the only motivator.

5. Develop lean agile leaders

Develop leaders to coach and mentor knowledge workers. Ensure they understand what motivates people. Enable them to understand and communicate the vision of the organization and team. Allow them time to invest in the organizations largest investment the people through interactions and not processes.

I hope this helps to spark ideas and conversations about the ineffectiveness of the Annual Performance Review process. Reflect on your organization and team and look to leverage some of the Agile concepts to keep improving people, teams and organizations.

On a personal note: I wrote this article one morning during my vacation as my significant other was writing her Annual Performance Review. She spent hours wasting her time writing her own review rather than enjoying the holiday going on outside our apartment. My wish for 2018 is that corporations eliminate a completely non-value personnel process and enable all of us to have more time to enjoy life, while we create valuable business products that make our work life just as enjoyable as our home life with our loved ones.

References:
Wright, Aliah D. Tech Company SAP Eliminates Annual performance Review. www.SHRM.org
Duggan , Kris. Why The annual Performance Review is Going Extinct. www.fastmoney.com

Dan Teixeira
Dan Teixeira
Dan Teixeira, SPC4, is an Agile Change Agent for Blue Agility (a Cprime company), helping lead organizations from team level to portfolio transformation to optimize delivery of business value. Dan brings his expertise in Agile/Lean best practices and industry experiences to help teams deliver the right results, faster and with higher quality. He strives to bring meaningful new approaches into organizations to ultimately improve the lives of people.