Chapter 4

Why some companies keep traditional performance reviews

Not all organizations seek to replace performance reviews. Here’s why some companies keep all or certain elements of their performance review process.

No two organizations are truly alike — what works for one might not work for another. Accordingly, some organizations have chosen to retain certain aspects of traditional reviews.

Specifically, some companies, like Facebook, have held on to a version of the performance review that uses ratings and ties it to compensation. Facebook, in particular, found in a survey with 300 members of their own staff that 87% of employees wanted to keep performance reviews. (Facebook’s performance reviews include peer reviews with ratings that are delivered by their managers and are a part of a compensation discussion — with a formula used to determine that compensation.)

Similarly, companies such as PwC and Deloitte, have maintained elements of their performance reviews: PwC gives ratings to their employees along five competencies, while other companies like Deloitte assign them one of four categories that provide a "performance snapshot."

Here’s why some companies keep all or certain elements of performance reviews for the following reasons…

Quality of manager conversations can go down without effective training and support

Research conducted by CEB with almost 10,000 managers revealed how the lack of ratings in performance reviews reduced employees’ perceptions of manager conversation quality by 14%. That is, without ratings, managers struggled to tell employees exactly how they could be performing better. This shows that eliminating ratings doesn’t solve everything: You still have to equip managers with training and support to communicate feedback cogently and clearly to their direct reports.

People want to know where they stand

One study shows how uncertainty can trigger intense neural reactions, particularly in highly anxious people. Not knowing if you’re doing well or poorly can interfere with strong performance. However, this clarity of how well someone is doing is something that absolutely a manager should be communicating in their one-to-one conversations. Ratings merely serve as a proxy for a clear message — they are not a requirement for one. For instance, Netflix helps their staff understand where they stand without a numerical or categorical ranking by encouraging their staff to ask the question, “Would you fight for me if I were to think about leaving?” They call it the “Keeper Test.”

Bias happens when a feedback prompt is too open-ended — and when training + support is not provided

Many studies reveal how “without structure, people are more likely to rely on gender, race, and other stereotypes when making decisions.” Idiosyncratic rater effect is perhaps the most pernicious and widespread of biases in performance reviews: Studies have famously revealed that 61% of the feedback you give is a reflection of you, as the rater, rather than the other person. As a result, some companies find that having more structure (i.e., ratings) prevents bias. But the effectiveness of this has been debated, as bias appears even when ratings are present. To alleviate bias doesn’t mean we must resort to ratings or re-adopt the formal performance reviews. Rather, it shows how structure, training, and support are necessary around (1) how to give feedback constructively (2) the perils of bias in feedback and how to minimize it. For example, better prompts for feedback, training around framing feedback more objectively, and reading through the feedback for consistency can help.

Where does this leave us?

Given that no two organizations are identical, there are trade-offs to weigh and scenarios to consider when thinking if and how to conduct performance reviews in your organization.

However, if there is one most meaningful insight to zoom in on, amidst all the noise, it is what we’ve distilled in our KYT methodology shared in our next chapter…

Chapter 5: The KYT Way →

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