Performance Appraisals: Part 3

Two columns ago, I wrote about the growing controversy over whether performance appraisals should be abolished. The natural question follows: What do we do if not appraisals?

Thinking drives behavior. Therefore, to begin to answer the question the subsequent column explored the thinking that underlies appraisals and their alternatives. Some might label the beliefs that underlie appraisals as Theory X, i.e., that employees will only do what they have to do, have little interest in learning, and are externally motivated. Appraisal abolishers might label their own thinking as Theory Y, i.e., that employees are primarily eager to contribute, want to learn, and are internally motivated. Assumptions that different lead to different management behaviors.

Now we can explore some alternative behaviors to appraisals by looking at what some actual companies, large and small, have done. Be forewarned: letting go of appraisals and putting something useful in their place is a complex task. If you are not prepared to engage in serious examination of thinking and behavior within your organization, keep what you have. However, many companies that dared to be different have earned great rewards.

In the mid- 1980's, General Motors Powertrain, in search of a more productive culture, abolished performance reviews. Powertrain eliminated the tie between pay and appraisal. They shifted the focus of employee feedback from performance evaluation to the personal growth and development of the employee. A voluntary system was established in which employees could get feedback whenever they wanted it from whomever they wanted to get it from - supervisor, peers, direct reports and others. The freedom to trigger the system when they felt the need for feedback made the feedback relevant. The freedom to select sources of feedback made the information credible. Employees are free to share their feedback with their supervisor and they are free not to.

Freedom to use one’s own judgment about need for and timing of feedback, credibility of the sources of feedback, and control of the information makes the feedback valuable and useful to the employee. Interestingly, to make the system work well, Powertrain found that they needed to train employees in how to use and interpret feedback. These are not skills that most people naturally develop.

This approach may seem odd to you. Where are the controls? The controls are within each employee. Most employees behave responsibly when Theory Y beliefs are implemented by their leaders. What do supervisors do instead of trying to control employees? Supervisors are responsible for providing the resources that employees need to do their job. They help employees with their self development as requested. They work with employees to constantly improve the processes by which work gets done.

Powertrain’s approach was tested when General Motors required each of its divisions to downsize dramatically. Other divisions used performance reviews to identify which employees would go. Powertrain had no performance reviews. The collaborative culture Powertrain had created steered them to devise ways to cut jobs less painfully. A team of line and executive employees created ways to reduce the number of jobs, through voluntary retirement, transfers, and personal leave. There were no forced layoffs. Results? Whereas other GM divisions experienced widespread employee anger, depression, and cynicism, which eroded the savings from layoffs, employees at Powertrain accepted the changes and got on with their future.

The president of a small manufacturing company in Wisconsin realized that his company could never achieve his dream of “legendary quality” with its top-down style of supervision, complete with performance appraisals. He eliminated appraisals and worked with his leaders to change their approach to one of guidance, development, and consultation. Rather than supervisors taking responsibility for employee performance, which is the kind of thinking we use with children, supervisors learned how to guide employees into taking responsibility for their own performance. The company has tripled its work force and quadrupled its gross income.

The leaders of a computer service company abolished performance appraisals because they found them to be demoralizing. To accomplish the aims that appraisals had been intended to serve, three practices were instituted. First, the company’s 60 employees meet every Monday morning to talk about what is happening and to discover how they can better cooperate. Second, the company annually puts aside an amount equal to 10% of each employee’s pay for training. Employees determine how to use that money in consultation with their supervisor. Third, 35% of profits are shared with all employees at the end of the year, not as a performance bonus but rather as a way of sharing whatever the company has earned. The message is: “We’re all in this together.” Results? The company has increased sales by 1000%, and the company ranks in the top 10% of its industry with regard to profit.

Finally, a warehouse sized retail furniture store in Texas abandoned traditional retail personnel practices, including performance appraisals, to see if they could increase their sales. The CEO describes his alternative to appraisals:

“We appraise people every day as they need it. We talk to people and listen to them. We try to give people jobs and tasks they like to do. We help them if they need it, but mostly we try to make work fun. Work is supposed to be fun. Appraisals get in the way of this. We’re in the customer business, not the appraisal business. Ninety percent of people will be disappointed with appraisals because they all expect top ratings.” Results: since making this shift in personnel practices, the company has increased sales from $25 million per year to over $100 million.

Alternatives to appraisals exist. Leaders of companies, large and small, have implemented alternatives on the basis of their courage and belief in people. They have also invested in planning and training. Their courage and trust appear to have been rewarded.

Dana C. Ackley, Ph.D., is founder and CEO of EQ Leader, Inc., which helps individuals and companies solve problems and build skills. He can be reached at (540) 774-1927, or by e-mail at dana.ackley@eqleader.net.