Samuel Culbert interviewed on NPR.

Employee performance reviews should be eliminated, according to UCLA business professor Samuel Culbert. “First, they’re dishonest and fraudulent. And second, they’re just plain bad management,”

There’s also an excerpt from Culbert’s book, Get Rid of the Performance Review! He doesn’t pull any punches.

It’s time to finally put the performance review out of its misery.

This corporate sham is one of the most insidious, most damaging, and yet most ubiquitous of corporate activities. Everybody does it, and almost everyone who’s evaluated hates it. It’s a pretentious, bogus practice that produces absolutely nothing that any thinking executive should call a corporate plus.

And yet few people do anything to kill it.

How could that be? How could something so obviously destructive, so universally despised, continue to plague our workplaces?

In part it’s because the performance review is all executives have ever known, and they’re blind to the damage caused by it.

In part it’s because few managers are aware of their addiction to the fear that reviews create amongst staff, and too many lack the confidence that they can lead without that fear.

In part it’s because HR professionals exploit the performance review to provide them a power base they don’t deserve.

And in part it’s because few people know an alter-native for getting the control, accountability, and employee development that reviews supposedly produce—but never do…

They fail to realize the most essential tool they have in getting quality performances is a trusting relationship with the people who work for them. It’s really that simple. If they understood this, there never would be something as stupidly one-sided as a performance review that is defined by domination by the boss.

As you know, putting an end ratings, rankings, and annual evaluations has been one of my personal crusades for some time.  Glad to have some company.

I suspect many managers would be happy to dispense with reviews.  But reviews are inextricably tied to another damaging practice, so-called merit pay.  So if we want to get rid of performance reviews, we have to get rid of the illusion of merit-pay, too.

A few ideas about what to do instead in an article I wrote a couple of years ago.

©2007-2010 Esther Derby

The idea of merit rating is alluring. The sound of the words captivates the imagination: pay for what you get; get what you pay for;motivate people to do their best, for their own good.

The effect is exactly the opposite of what the words promise. Everyone propels himself forward, or tries to, for his own good, on his own life preserver. The organization is the loser.

Merit rating rewards people who do well within the system. It does not reward attempts to improve the system.

W. Edwards Deming in Out of the Crisis

In an earlier column, I suggested that ScrumMasters should steer clear of annual performance reviews. Rating and ranking individuals interferes with a ScrumMaster’s responsibilities as a coach in service to the team. In fact, I went further than that: I suggested that managers and the rest of us steer clear of performance reviews, as well.

My suggestion does run counter to widespread practice. But I’m not alone in questioning performance evaluations and rankings.

W. Edwards Deming identified performance appraisal as one of the Seven Deadly Diseases of Management. Deming is clear and concise in stating the negative effects of performance appraisals and merit ratings: “It nourishes short-term performance, annihilates long-term planning, builds fear, demolishes teamwork, nourishes rivalry and politics.” [Deming p. 102]

More recently, Stanford University professors Robert Sutton and Jeffrey Pfeffer combed through data and studies related to widespread management practices. They reference a survey of 200 human resource professionals which reports that forced ranking—a common component of performance appraisal programs?results in “lower productivity, inequity and skepticism, negative effects on employee engagement, reduced collaboration, and damage to morale and mistrust of leadership.” [Pfeffer and Sutton, p. 107] They go on to describe the damage done by merit pay plans.

In short, the evidence supporting the benefits of rating, ranking, and then tying pay to the rating—the stuff of performance evaluations—is thin to none. Deming had it right.

My readers did raise legitimate concerns:

Without performance appraisals…

How do we determine how much to pay people?

How do we know who to promote or fire?

How do people know they need to improve?

Organizations do need answers to these questions. Performance appraisals and pay-for-performance (PFP) aren’t the only way to answer those questions, or even the best way. In this column, I’ll walk through some alternatives to the prevailing practice.

How do we determine how much to pay people?

One reader pointed out, “people get their salaries on an individual basis.” True. Tying annual salary actions to ratings and rankings is just one way to determine what those actions should be. There are other rational and non-capricious ways to adjust individual salaries:

• Adjust based on the cost of living so that the buying power of salaries keeps pace with economic conditions.
• Allow all employees to share in the company’s success through profit sharing.
• Adjust salaries based on the current market rate for skills and roles.

Another reader posed the rhetorical question, “So all certified scrum masters earn the same amount?”

Performance is a function of the person and the environment. Systems thinking and lean production at Toyota tell us that gains in productivity come from inspecting and adapting the system, not from focusing on individual performance. An improvement mindset, thinking for the long term, eliminating waste, respect for people, and removing impediments bring high performance.

Still, there are people who are clearly outstanding performers (both outstandingly good and outstandingly poor), who outperform the limits of the system. Once again, pay increases based on performance ratings is only one way to accomplish the goal of recognizing outstanding individuals.

People—and their jobs—evolve over time. A ScrumMaster may start off coaching a team on the basics of Scrum, and over time, take a bigger role working on systemic issues that hinder the team. Or he may develop exceptional coaching skills. If someone is truly performing above others within the same job it may be time to promote him or reclassify his job so that it’s at a higher pay level.

How do we know who to promote or fire?

Other readers asked, “Without yearly ratings, how will we know who to promote?” Looking at how a person has evolved in his job and the level of responsibilities is one way. Another option is to treat promotions as

seriously as hiring: create a rigorous internal application process that involves interviews and auditions.

The truth is that many outstanding performers aren’t doing it for the money. They stay for love of their work and are most rewarded by new and challenging assignments.

The reverse question came up, too: “How will we know who to fire?”

It doesn’t take a rating to fire someone. If someone isn’t doing his job, there’s no reason to keep him on the payroll until the annual review cycle comes around. A ScrumMaster will know when someone isn’t doing his job or is making it harder for other people to do their jobs. He can coach the person, or if coaching is not or is no longer an option, work with a functional manager to move the person off the team. (Some teams manage their own team membership, and people who need to go move off the team, without a manager’s involvement.) And, poor performers will hang onto a job even if they aren’t receiving raises. They won’t be improving, though. They’ll be harboring resentment and telling themselves that they really are above average.

As with identifying outstanding good performers, consider the environment, as well as individual skills. Ask whether someone is truly underperforming, or whether the system is limiting his performance.

I spoke with a new agile coach recently who was beginning to doubt he was in the right role. “I just can’t get this group moving in the right direction,” he said. “Maybe I should go back to being a developer.”

When he described the situation to me in detail, I began to wonder if any new coach could move this group in the right direction. The project has several stakeholders who disagree about the direction of product. The team is split into three factions, which swirl around a long standing conflict between two team members. One member of the team is skeptical of agile methods and baits the coach at every opportunity. When he’s not baiting the coach, he’s working to bring other team members to his point of view. The new coach is struggling in his job. The person who is supposed to mentor him is missing in action. I don’t think firing him—or giving him a low rating—is the answer.

It would be more fruitful (and more difficult) to look at the system that assigned a brand new coach to this project and failed to provide support.

How do people know they need to improve?

How will people know they need to improve if they don’t have an annual review? The answer to this question is simple (though not easy): their ScrumMaster will tell them.

A letter or number rating or ranking is an evaluation. It may tell someone he needs to improve, but it doesn’t tell him what specifically he needs to do differently. In order to improve, people need clear behavioral descriptions and they need to understand the impact of behavior or results. Some managers provide specific examples along with the letter or number evaluation grade. However, most humans resist labels, so they may be busy with the emotional response to the rating, and not ready to fully listen as the manger gives examples.

Scrum runs on frequent feedback loops. That includes feedback to people on their work interactions and work results. Feedback on an annual cycle is worse than useless and is totally out of congruence with agile methods.

When organizations adopt Scrum, sooner or later they bump up against the problems caused by asking people to work collaboratively and then measuring and rewarding them for individual effort. But Scrum is all about making issues visible, so we can inspect and adapt. The time has come look at the evidence about pay and appraisal systems. We may want to succumb to the allure of the “merit pay” words, but performance appraisals are a barrier to delivering valuable software; it’s time for them to go.

Further Reading

Out of the Crisis. W. Edwards Deming

Hard Facts, Dangerous Half-truths and Total Nonsense: Profiting from Evidence-based Management. Jeffrey Pfeffer & Robert
I. Sutton

An Alternative to the Yearly Performance Review by moi.

Should a Scrum Master Give Performance Appraisals by moi.

This article first appeared on scrumalliance.org.

(c) 2007-2010 Esther Derby

A ScrumMaster recently asked me if he should take over responsibility for year-end performance evaluations since he was closer to the work than the functional manager for the team. It’s not the first time I’ve heard this question, and as more companies begin to use Scrum, I’m sure I’ll hear it again.

It does make sense for a ScrumMaster to give feedback. But when it comes to taking over (or participating in) the annual appraisal, ratings, or rankings, my answer is “No. No. No!” There’s a fundamental conflict between coaching to improve effectiveness and evaluating for ratings, rankings, raises, or promotion.

Yearly appraisals, performance reviews, and evaluations emphasize hierarchy and differences in status. ScrumMasters are in service to the team; they don’t manage the team. Creating a higher status position (evaluator) is an impediment to the team self-organizing—and to the team learning how to give each other feedback and manage their own performance.

People who receive high ratings may bask in the glow of affirmation. However, psychologists know that 80 percent of people believe their performance is above average. Statistically that can’t be true; yet, on an emotional level, that is what most people believe. When people receive a lower rating (or an unexpected rating), they focus on the reasons they deserve a better rating. That impedes honest discussion about skills and behavior.

A number or letter rating doesn’t provide sufficient information for a person to know what or how to change. Even when the rating or ranking is followed by a description of specific behaviors, the person on the receiving end is focused on “the number,” (and the reasons they deserve a different number). That’s a barrier to improvement.

When people only have serious conversations about performance once a year (or even once a quarter) it leaves too much time for problems to fester. Why let a problem continue? Why suppress team productivity? When a team member is doing something that’s detrimental to the team, the time to tell him is now. When a team member’s work isn’t what it needs to be, the time to tell him is now. When people receive that information long after the fact they wonder, “Why didn’t he tell me sooner? Doesn’t he want me to succeed?” That erodes trust, and trust is a prerequisite for effective coaching.

Participating in individual rating telegraphs the message: “I say we’re a team, but I don’t really mean it. I’m still looking at individual performance, not team accomplishment.” That undermines the ScrumMaster’s role in improving productivity, helping the team self-organize, and improving the life of the team.

“But,” you may say, “the ScrumMaster is closest to the day-to-day performance of people on the team.”

That’s true. So, by all means give feedback on day-to-day performance and patterns of behavior. Provide clear, specific information about what you observe. Help people understand the impact their behavior and work results have on the team. That’s information that will help team members make choices to continually improve their skills, professionalism, and contribution to the team. By all means, coach people as they learn new skills. Help the team learn to self-organize by holding up a mirror on their processes and challenge them to think and decide on their own.

The ScrumMaster and team members know how each other are performing. When the ScrumMaster and the team are committed to giving each other congruent feedback, there’s no need for a performance evaluation: people know how they are doing and are working to improve every day.

What can you do if, as a ScrumMaster, you are pressured to provide input for a performance review? Explain that you have been giving feedback throughout the year (or quarter). Give examples of how you have provided feedback and seen changes day-to-day (without naming names).

Don’t provide feedback for the manager to pass along, even if it’s feedback you’ve already given to the other person. The manager won’t have the context to provide clarification or answer questions. “Pass along” feedback—especially when it’s new information—creates a tattletale dynamic. The recipient of pass along feedback wonders why the ScrumMaster didn’t give the feedback directly, and that damages relationships. Explain to the manager that everything that needs to be said has already been said directly.

Explain that the work is interdependent, so it’s impossible to pull apart individual contribution. You are focusing on improving the performance of the team and that individual performance evaluation will detract from that focus.

Create a team performance review where the team members discuss how the team is doing and where the team needs to improve. Do this as a face-to-face discussion, not through anonymous comments or ratings (I’ll say more about how to do this in a future column). Provide the team’s own assessment of their performance to the manager. The manager can then choose how to apply that assessment in the mandated performance appraisal process.

Managers believe they must engage in the ritual of annual evaluation—because they’ve always done it. HR may have targets for percentage of reviews completed. Neither has a thing to do with actually improving performance. Individual performance evaluations and annual reviews are an impediment. Steer clear of them—they are a vestige of command and control that Scrum can do without.

This article originally appeared on scrumalliance.org.

At the start of my series on Performance without Appraisal, I listed the goals that organizations hope to achieve with annual performance appraisals and so-called performance management systems:

improve individual performance
improve organizational results
determine pay/promotion

These are legitimate concerns.

The data shows, and my experience tells me, that annual appraisals fail miserably with the first two goals. The ratings and rankings that come out of reviews may provide justification (or cover) for so-called merit pay and bonuses–but merit pay has its own problems.

In the next series of posts, I’ll discuss ways to meet those goals.

In order to improve performance, we need to look at both the person and the environment. P = f (p,e).

People need information in order to improve their performance. Receiving that information at the end of the year (or even at mid-year) isn’t timely. Worse, ratings and rankings are evaluations, not the sort of concrete examples of results/behavior and their impact that people need to improve.

If you really want people to have information when it will do the most good, build feedback and opportunities for improvement into the system.

Agile (when it is done properly) does this quite well. Some examples:

Programmer tests

Continuous integration and build with automated tests

Testers on the team

All of these agile practices provide information that allows individuals to find errors early.

The following agile practices provide information that allows not only individual level improvement, but team-level improvement as well.

Pair programming (especially with frequent pair changes)

Daily stand-up (whether done sitting or standing)

Task boards

Information radiators

Retrospectives

Product demos

On site or near customer

Feedback from the system may allow people to work more effectively within their current process (single-loop learning). But if you add reflective processes (e.g., effective retrospectives) teams can examine the process and the assumptions behind the way they work. That’s an opportunity for double-loop learning.

If you really want individuals and your organization to do better, you need both. And you need them more than once a year.

Next: Make interpersonal feedback about work and working relationships business as usual, not an annual or semi-annual event.