Performance Reviews: Moving from Painful to Productive By Laurence B. Valant and Gayle W. Hustad There is no better way to create a culture of honesty and respectful feedback than to use a quantitative, unbiased approach to reviewing performance. Recently, Samuel A. Culbert with Lawrence Rout published a book on performance reviews in which they write: It s time to finally put the performance review out of its misery. This corporate sham is one of the most insidious, most damaging, and yet most ubiquitous of corporate activities. Everybody does it, and almost everyone who s evaluated hates it. It s a pretentious, bogus practice that produces absolutely nothing that any thinking executive should call a corporate plus. (Adapted from Samuel A. Culbert with Lawrence Rout, GET RID OF THE PERFORMANCE REVIEW! HOW COMPANIES CAN STOP INTIMIDATING, START MANAGING AND FOCUS ON WHAT REALLY MATTERS (Business Plus 2010)) Culbert and Rout explain that reviewing performance is important, but that employees deserve evaluations they can trust, not reviews cloaked in pretense and corporate procedure that make all those involved uncomfortable at best. The reason both the manager and direct report find performance reviews uncomfortable is that most performance reviews are not objective, but rather subjective. Most performance reviews are based on qualitative input because unbiased, objective criteria and results are not required. As a result, the performance review reinforces the subordinate nature of those being reviewed. The power lies solely with the manager. The direct report s only hope is that their manager likes them. Qualitative reviews, those based on subjective opinions rather than quantitative objective measures, are relied upon within most firms and cause incalculable damage on a personal level and poorly serve both the
6 JULY 2010 employee or the firms that use them. A qualitative review process wastes enormous amounts of time and energy and largely shuts down the creative energy of employees. Even if the broad areas of the review are understood, the means for measuring them are not because generalities cannot be measured. How do you measure communication skills, motivation, teamwork, cooperation and other qualitative measurements? Not easily, and certainly not credibly. Therefore, most performance reviews include surprises, most of which are unpleasant. Bad experiences result when performance reviews are qualitatively, rather than quantitatively, based. Disappointment will be the result for those reviewed unless performance reviews are based on quantitative measures and standards of performance that have been agreed to at the beginning of the performance period. Good performance reviews are based on agreed-to deliverables and standards of performance and clearly defined expectations. And when they are, the performance review becomes a valuable developmental tool, rather than a huge source of frustration and disappointment. Every firm can improve their performance-review process immediately and move it from qualitative to quantitative by applying four practical steps. 1. Managers must clearly state and quantify their expectations. Clearly stated, quantifi ed expectations provide the basis for fair and reliable performance evaluation 2. Commitment must be gained from each direct report to meet the manager s expectations. 3. Performance reviews must be conducted quarterly, allowing the manager to become the coach, not the annual judge, jury and executioner. 4. Compensation must be linked directly to performance. Nothing is sadder than to see someone who thought they had been performing acceptably, discover they are suddenly unemployed when all they had done was repeat the same behavior and performance that had been acceptable in the past. Step One: Clearly stated, quantified expectations provide the basis for fair and reliable performance evaluation Effective management, beginning in the CEO suite and down through every level of an organization, begins with the ability to clarify and quantify expectations. Expectations are rarely clarified for two primary reasons: either the manager isn t clear in their own mind what the expectations should be, or if they are clear, managers fail to take the time to make those expectations clear to their direct reports. Clearly stated expectations must be quantitative and measurable, have timeframes attached to their achievement and be perceived by both the manager and direct report as fair and doable. Clearly stated expectations provide the basis for planning and completing tasks. Ninety-nine percent of an effective performance evaluation can be answered by responding affi rmatively to the following question, Did I meet expectations on time and on budget? Step Two: Commitment must be gained from each direct report to meet the manager s expectations Many managers believe that once directions have been given, the responsibility for delivering results belongs to their staff. By delegating, they believe they have done all that is required. In reality, they have just begun. Managers must take the time to gain commitment because commitment leads to the everelusive accountability, and accountability is elusive because very few in management positions understand how, or take the time, to gain commitment. Commitment can only be negotiated, never demanded. Once the manager s expectations are clearly understood, the direct report must have the freedom to insure their commitments are doable. The plan and budget to meet the expectations must be agreed upon by both the direct report and the direct manager. The resources and time required to meet the expectations must be available and under the control of the direct report. The direct report must possess the technical and man-
JULY 2010 7 agement capability to meet the manager s expectations. And they must have the authority to meet their commitments. Once commitments are gained, they should be formalized in writing. The process of gaining commitment requires planning, communication and negotiation between the direct manager and each direct report. The steps to gaining commitment are usually set aside because they are too time consuming. Gaining commitment does take time, but that time is well spent. A manager whose philosophy is expressed by, We haven t got time to plan, is the same manager who fails to meet expectations. Meeting expectations can only happen when there is adequate planning and development of commitment. It must be remembered that accountability cannot be delegated. A manager is accountable for the performance and output of their direct reports. To ensure their own success, managers must gain commitment from their direct reports, securing individual agreements to be held accountable as well. This process must be repeated down through the levels of an organization. Linked accountability puts the manager in the boat with the subordinate and makes all in the hierarchical chain accountable. When qualitative reviews are replaced with regular feedback, where the focus of the review is on quantitative results, not personality, the manager can and must be held accountable for the success of the direct report. Gaining commitment is not optional if accountability is to be achieved. Step Three: Performance reviews must be conducted quarterly, allowing the manager to become the coach, not the annual judge, jury and executioner Quarterly performance reviews should replace the annual review because frequent evaluations encourage managers to coach their direct reports to success, and when frequently reviewed, performance does not get very far off track without corrective action. During the quarterly review, managers evaluate their direct reports against commitments, which have been formalized in writing, that include quantifi ed expectations or re- Commitment Plan 1 2 3 4 5 6 RESPONSIBILITIES STANDARDS OF 12-Mar 19-Mar 26-Mar 2-Apr 9-Apr 16-Apr PERFORMANCE To develop and implement a strategy to organically grow 5 existing customers to $5 million annual revenues within 24 months Define and package the brand identity and provide organization with all assets, presentation, proposals, etc. Delivering a uniform message. Define sales training requirements and the plan to meet them Measure and assure customer retention Develop and manage marketing budget and expenditures to optimize returns Customers identified and strategies to acquire are in place by June 1st. Capable of $5 million annual revenues within 24 months Plan is met on time and on budget. The brand and corporate identity is established, understood, and communicated by Sept 1st. Organization has assets required to deliver a uniform message by Dec 1st. Sales training plan and budget are submitted for approval by June 30. Sales training is completed on time and on budget Measurement tools developed and implemented and goals met according to plan Marketing budget is met on time Targets are established Define training requirements / rough draft Draft outline of approach Develop outline of deliverables Review with EVP collecting data Outline approach to meeting requirments Revise and begin implementation Plans to acquire completed and presented to Sales Org First draft completed Prepare presentation for sales force Review current status and make recommendations monthly follow up and reporting Presentation submitted to CEO for approval implementing Monitor and report monthly
8 JULY 2010 sponsibilities and standards of performance also defined quantitatively. When defined quantitatively, the direct report s performance can be graded by yes for having met the standard for each responsibility, or a no for not meeting the standard. If their performance merits a no, the direct report and their manager can agree to remedial steps. These steps can be implemented and reviewed weekly to assure that the direct report can turn the no to a yes before the next quarterly review. The results of the review should then be communicated electronically to the human resources department for central record keeping. A manager must also communicate in writing all performance results to those in their own chain of command. Fourth-quarter reviews become the sum total of performance and the final review for the year and provide essential input for subsequent opportunities for growth by the direct report and for compensation adjustments based on merit and/or promotion. Whenever a commitment is not kept, or the standard of performance is not met, a no appears in the final fourth-quarter review, and the manager s supervisor must participate in the review and approve a remedial plan. A formalized, written commitment process turns the manager into a coach, rather than a onceyearly judge and jury; for when it becomes apparent that a yes may become a no, the manager must come alongside the direct report and help that direct report get to yes. The manager s job is not to be seen as a tyrant waving a whip, but as a coach and mentor involved in the direct report s success. Compensation must be linked directly to performance. When confronted with making assignments, measuring and appraising performance, and then determining merit or promotional increases, an arbitrary approach to compensation will feel like walking through a mine field. The challenge in creating a compensation strategy comes from the disconnect associated with assigning work and measuring and rewarding performance fairly. Management must clearly define expectations (performance and deliverables), measure that performance quantitatively and reward performance fairly and consistently. Such an approach to compensation will be viewed by all as fair and will be difficult to challenge. [R]eviewing performance is important, but employees deserve evaluations they can trust, not reviews cloaked in pretense and corporate procedure that make all those involved [in the review process] uncomfortable at best. If a firm s leadership tries to save pennies when awarding merit increases, they may suffer higher turnover and the loss of talented staff. A foolish economy is trying to save pennies at performance- review time. The cost of turnover is estimated to range between an employee s annual cost and two times an employee s annual cost those are big numbers. Nothing is more frustrating to competent managers than to have effectively gone through the process described in this article and, at merit-review time, being given minimal meritincrease budgets that are more insulting than rewarding. Certainly, during difficult economic times, purse strings must be tightened, but a wise topmanagement team will be careful to continue to award high levels of performance with merit increases that can be both understood and appreciated. Accordingly, a word to the wise would be, find other places to cut nickels and dimes before affecting the merit-increase budget, which is the surest way to keep your highperformance people, especially during tough economic times. Valuable outcome: Early identification of both high performers and nonperformers One of the most valuable outcomes of quantitative, objective performance measurement is the early identification of both high performers and nonperformers. The failure of firms to make early identification of nonperformers usually leads to years of marginal performance. Inevitably, down the road, management must finally make the painful decisions to show these marginal performers the door. It is a terrible realization for these employees to learn that the quality of their work, which had been tolerated, is no longer acceptable, and, as they had been lead to believe, they were not employees for life. Nothing is sadder than to see someone in their 50s, who thought they had been performing acceptably, discover they
JULY 2010 9 are suddenly unemployed when all they had done was repeat the same behavior and performance that had been acceptable in the past. When a firm uses objective, quantitative measures of performance and provides honest, timely feedback, people truly know how they are doing and where they currently stand. High performers become and remain productive employees, who are not held back because they are surrounded by poor or marginal performers. The early identification of marginal performers makes the organization a model of high performance and efficiency and leads to a motivated and competent work team. Effective performance reviews provide the basis for turning your firm into one of the admired and preferred places to work and for providing a steady flow of candidates who meet the requirements for leadership and management for years to come. Summary Firms that base performance reviews on quantitative measures and objective standards of performance provide the basis for honest and true feedback on performance. And if they do so, the performance review becomes the foundation for and the most crucial part of personal development, management development, performance improvement and overall firm health and value building. And, preparation for these reviews becomes simple for both the manager and the direct report because the review is based on the delivery of written, negotiated and agreed-upon commitments. There is no better way to create a culture of honest, respectful and professional feedback than to use a quantitative, unbiased approach to reviewing performance. About the authors: Laurence B. Valant is the president and Gayle Hustad is a partner at Valant & Co., a different kind of consulting firm that delivers quantifiable, predictable results that matter and are measurable. Visit www.valantco.com. Both can be reached at 303.660.1552. Contact Larry at lvalant@valantco.com and Gayle at ghustad@valantco.com. This article is reprinted with the publisher s permission from the CPA PRACTICE MANAGEMENT FORUM, a monthly journal published by CCH, a Wolters Kluwer business. Copying or distribution without the publisher s permission is prohibited. To subscribe to the CPA PRACTICE MANAGEMENT FORUM or other CCH Journals please call 800-449-8114 or visit www.tax.cchgroup.com. All views expressed in the articles and columns are those of the author and not necessarily those of CCH or any other person.