Performance Management

Way back in 2005 I said performance reviews were a problem (in We Have Always Done It That Way–still a good book, if I do say so myself). Since then, many others have been coming out against performance reviews–like these articles in the New York Times, the Wall Street Journal, and Harvard Business Review. With publications like that, I think it’s safe to say the idea is mainstream. So why are performance reviews so bad?

Well, it’s sort of complicated, and I’m working on a white paper that will spell it all out (too long for a blog post), but here’s the short version.

Performance reviews are based on a flawed theory. We think that we can tie a review of employee performance to their compensation, because that, obviously, will motivate them to perform better. This represents cutting-edge management theory, by the way. Unfortunately, it was the cutting-edge of 100 years ago, during the industrial era. Back when we designed our organizations like machines.

If you’ve been reading my stuff at all over the last year (or if you’ve read Humanize), then you know I think that’s a huge problem. Much of our management theory is based on a mechanical view of organizations. You know, where we evaluate all of our cogs…um, I mean people, and if any of them are not up to specifications, we repair or replace them. Performance reviews are perfect for that.

But since the industrial era, we’ve actually learned a lot about human motivation and the way human systems work, and we realize that the mechanical approach simply doesn’t work. Read Dan Pink’s Drive to learn about how money as a motivator can actually cause performance to DECLINE in jobs that require complex thinking. Our performance review systems don’t work because they are based on a flawed theory, and that’s why we’re so frustrated with them. We hate spending time on processes that can’t work.

The good news is, there are alternatives. The bad news is, they are probably going to press your buttons. Your intuition will throw up red flags around the new ways of managing performance. It won’t feel right. It’s not how you’ve done it in previous organizations. You remember that time you got a 2.5% raise because you scored a 4.2 on your evaluations? That felt good, right? How can that be a problem? Your intuition won’t get it, because your intuition has been subdued by a hundred years of “best practices” that lack a sound research base. Your intuition doesn’t yet know what it is like to work in a powerful, human organization. But there are organizations that are doing it, and thriving, so I know you can too.

But you will have to let go of the connection between performance management and compensation. A human approach focuses on different things to improve system performance. It starts with culture. Understanding what makes a powerful culture and then cultivating the behaviors that support that culture is the first step to improving performance of the system. The next step is to ensure you’ve got the right skills in place to support the technical competency required by both your culture and your strategy. Third, you have to make sure all the people in the system are growing as much as possible, in ways that make sense to them (humans that aren’t growing will slow down the system). And finally, you need to make sure that everyone knows how to define their own success. It’s never enough to let the supervisor provide that judgment. Powerful humans take on that responsibility themselves.

The performance of our systems will improve when an effective culture is strengthened, the right skills are in place, and the people in the system are growing and feel powerful.


Does your performance management system really get at the cultural aspect? Does your process for improving skills keep up with the demand for new skills in today’s environment? Are you actually giving your people the room to grow? Be honest: do you even know how to support them in growing? Do they actually know when they’re successful?

You can put processes in place that will enable positive answers to those questions. But get ready for the processes to look different than what you’ve got now:

  • They will be more ongoing and continuous, never just once-a-year (though there IS value in annual conversations)
  • They will have an online/technology component (because forcing all this information and learning into more meetings and/or documents will kill the process)
  • They will balance top-down with bottom-up (get ready to give up some control)
  • They will force you to be more disciplined about your compensation strategy (be clear where compensation and performance are connected—and where they’re not)
  • They will be about culture, which will require you to get much clearer about what culture you want and why.

If you want to get the white paper when it’s done, then be sure to sign up for my mailing list. If you don’t want to wait for the white paper and want to start creating new processes that work today, then give me a call.

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