How to Make Your Performance Reviews Count

NEW YORK (TheStreet) — Jon and Karen Smith are the parents of four children from ages five to 15. The Taylors take their parental duties seriously and strive to ensure their children succeed in life.

It's Dec. 30 and time for the children's annual performance appraisal. Sara, 15, is the oldest and, as usual, is first.

Jon: "Sara, I know that you've been worried about appraisal for the past few weeks, so let's get right to it. Sara, we ranked you third among your siblings and gave you a two on our family's five-point scale."

Sara: "But, I thought you were proud of me."

Jon: "Sara, as you know, we have high standards in this house — a two is not so bad. If you work hard next year, you certainly might improve your score ... and rank."

Sara: "But, what did I do wrong?"

Karen: "Well, for one thing you neglected your chores at least five times. Just a minute; I have it documented right here."

Sara: "But that was last February. I haven't missed my chores even once since then; I thought you forgave me for that."

Karen: "That may be true, but remember that this is an annual appraisal — February problems count."

How might this appraisal affect Sara? Will it accelerate her growth and confidence? Will it help her be a better big sister to her siblings? Will it strengthen the bond of trust and the free flow of information with her parents?

From an HR viewpoint, Mr. and Mrs. Smith delivered an outstanding appraisal: tough discussions, behavioral examples and rankings to reduce positive skew. But to some, this is borderline child abuse. At what point in the human lifecycle do the scientific principles of human behavior reverse themselves?

Today's Appraisals

Today's performance management systems are designed to focus and integrate individual efforts to achieve a higher corporate goal. Performance management comprises four interrelated parts — goal setting, feedback, appraisal and link to rewards.

The objective of the appraisal is to motivate employees to work hard, hold them accountable for results and recognize and reward those who produce the most value. The objective makes sense. However, today's system does not deliver those outcomes.

Today's appraisals primarily fail because of employee beliefs that ratings are not a valid measure of performance. A Corporate Leadership Council study of 19,000 participants in 37 countries found that 88% of respondents felt that "most people in my organization do not get the ratings they deserve." That's almost nine of 10 employees who think that appraisal ratings do not represent reality.

The same study statistically examined 106 performance drivers (e.g., training, appraisals, selection) and found that "fairness and accuracy of feedback" is the single most powerful method for improving performance.

Appraisals will improve performance when individual efforts are integrated and aligned to a common set of business objectives and when feedback is perceived as fair and accurate.

Principle 1: Define and document the success measure.

Is success defined as quota attainment or customer satisfaction or share; or is it a combination? Is it number of quarters at quota or average over 12 months? Whatever it is, make a deal and stick with it.

Principle 2: Define the most important results to measure success.

What are the four to five major activities to deliver the success metric and, precisely, how will each be assessed? For a sales manager, they might be pipeline management, forecast accuracy, executive positioning, sales team excellence and account management excellence. Actual performance versus performance standards becomes the appraisal.

Notice how the focus is on results, not competencies or effort. If the sales manager delivered to plan, but has low "attention to detail," then attention to detail was either incorrectly assessed or it is unrelated to the job. In any case, attention to detail is a developmental discussion and should not be part of a rating. Performance ratings are results that are accomplished in a way that strengthens corporate values.

Don't reward effort. Rewarding effort will produce late night and weekend heroic displays. Sales managers are hired to produce profitable revenue. Never reward for trying hard.

Principle 3: Hold monthly or quarterly business reviews.

Consider AIG employees' goals set in January 2008 versus the business challenges in December 2008. Setting annual goals almost ensures misalignment to business needs; it does more harm than good. Frequent business reviews ensure continuous alignment, "Here is what I will do in the next 30 days."

Principle 4: Use 360-degree feedback.

People love feedback as long as it is fair. How much fun would bowling be if you had to wait until the end of the year to see the pins fall? Performance improvements, and enjoyment, come from immediate feedback, adjusting and trying again.

The primary management role is to provide valid sources of feedback. At McDonald's (Stock Quote: MCD) ( MCD) , I asked a good restaurant manager, "How do you reward your people?" He said, "Often, when we have a $1,500 lunch, I buy a pizza and we celebrate."

I then asked a top 10 manager the same question. He said, "When we have a $1,500 lunch, I buy a pizza and we celebrate." Similar, but completely different answers. The first saw his role as judge. As the team Alpha, he judged the worthiness of the effort. The second manager shifted control to the crew. His role was to help the team over the bar. Jump the bar and get a cookie - every time.

( MCD) When objective feedback is unavailable, use 360-degree feedback. Goldman Sachs ( GS) (Stock Quote: GS) is well-known for using 360s for appraisals. After asking many people if appraisals improve performance, only two confidently said they do. Both were Goldman Sachs executives. Subjective data from a variety of sources becomes objective.

( MCD) ( GS) Appraisals provide an ideal opportunity to improve performance. The trick is to ensure that goals are tightly aligned to current business needs and that employees get continual feedback.

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