From our CEO: The hidden opportunity cost of performance reviews



There’s little doubt that performance reviews as we know them are dying. For too long, people have been forced to look backwards and try and justify what they have been doing for the past year. With little clarity over the outcome of these conversations, inevitably no one is happy with this process. People loathe their performance discussions and expect the process to hurt - and it does.

The hidden costs of performance reviews are huge

Historically, organizations have combined evaluating their people with giving developmental feedback. In one conversation, they have tried to review someone’s performance, give them feedback, help them get better, work out if they’re actually any good at their role, and set their salary. That’s a lot of important things to put on one conversation.

One of the biggest problems with this approach is that there’s a tendency to respond to the evaluation component more than the feedback. It is extremely stressful to have someone say whether they think you're good at your job, particularly when there's a lot at stake. If the person receiving the feedback thinks the discussion is tied to a promotion or pay rise then it becomes an even more loaded exchange. This can trigger a fight or flight response.

This in turn affects how the feedback is received. A person needs to have an open mind to receive feedback effectively. They need to allow themselves to be vulnerable so they can take it on board and learn something. But this is difficult to do if the feedback is linked directly to their salary. That often results in a very defensive mindset which makes achieving any constructive development even harder.

This entire process creates a huge amount of anxiety - the people giving the feedback are anxious, the people getting the feedback are anxious. The anxiety is a huge cost for the organization, not just in monetary terms but also in terms of time.

We need to discuss the opportunity cost of performance reviews

The real question organizations need to ask themselves is whether their performance reviews are as valuable as the cost, time and effort that goes into them.

The opportunity cost of running performance reviews can easily be missed. Many companies need to budget for software and teams to run the performance review process. And if you're a relatively senior person in a company of certain size, performance reviews can take days or even weeks to get through, particularly if you’re trying to provide feedback in a useful way.

When you add all of this up along with the anxiety caused, there's an enormous amount of organizational time and energy that goes into the traditional performance review process.

While the concept of a performance review is valuable, it’s time we looked at whether the time, effort and total cost that goes into creating them is less than or equal to the value they offer.

When rethinking performance reviews, it’s critical to split evaluation and development

Organizations need to deliver a process that actually helps them to understand value and accelerate growth. To achieve this it’s critical to split evaluation and development (check out our eBook on the topic here).

While most companies still need to form a view on how their people are performing, the best ones are transparent about when and how they are doing it. They're not trying to give people development feedback at the same time. Instead, they are clear on where a person is and where they’re expected to be.

How we think about evaluations at Culture Amp

A big challenge when you’re trying to transform these type of processes is that there’s a temptation to try and be too clever. So there’s always the risk of ending up with something that's heavier than the original process.  

At Culture Amp we have replaced evaluations with calibration sessions. These are a collaborative effort. We bring together people across the business and show them where we think our people are at. We then ask them if our view is in line with their experiences or if they believe there is something else we need to address.

We’ve taken inspiration from the concept of an agile retrospective. This is a tool agile teams use to review how they're performing periodically. The team stops to discuss what worked well, what didn't work, and what needs to change. It works because it's lightweight and it's trusted.

Cadence is important for reviews. It’s no longer enough to stop just once a year. The way we work is changing and people's own expectations of where they're going also evolve more quickly. Once a year may have worked in a slower paced environment, but that’s not the case anymore.

At Culture Amp we hold our calibration sessions quarterly so that we can stay ahead of the curve. This means our people don’t have to wait until the end of year to mount a case for their promotion. We can be more fluid and introspective about the process. If someone is doing even better than we expected, we can give them a salary bump to get them where we need them.

How we think about development at Culture Amp

Development conversations can also be achieved in a much lighter model that gives people the feedback they need to get better at what they do. It should also allow them to receive feedback continuously in a way that isn’t scary or creates unnecessary anxiety.

Positive psychology offers some modern ways to give feedback. The strengths based model turns traditional feedback on its head. Rather than focusing in on what people need to fix, by spending time on identifying where a person is really strong you can help them build and grow.  

Perhaps a person has been asked to do tasks that don’t play to their natural strengths. Taking a strengths based approach can help determine if they need extra support to complete these tasks or if perhaps it would be better to place those functions elsewhere. This is powerful because it turns development into something that is useful.

With this in mind we’ve developed an effectiveness product that gives people a tool to deliver strengths based feedback at an individual level, while also highlighting some areas of opportunity for growth and development. It’s specifically designed to treat people as individuals. It elicits and collects feedback and then helps individuals understand and act on the feedback for their own development.

By calibrating regularly and continuously providing feedback, our people get what they need more regularly. It’s more accessible and generates trust in the process. After all, performance reviews should be a tool that we all use to get better, not just a process enforced from up high.

About Culture Amp

We've brought together experts in technology, data science and organizational psychology to ensure you can get the clarity you need, when you need it. Measuring employee engagement, experience and 360° feedback is simple using Culture Amp.

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