Posted by: Will | October 22, 2008

The Performance Review and Candor as Culture

Dr. Samuel Culbert from the UCLA Anderson School of Management published an article entitled “Get Rid of the Performance Review” in the Wall Street Journal this week. His main point is that the traditional performance review is a thinly veiled mechanism used by a boss to intimidate and maintain a power advantage over his or her employees.

Dr. Culbert supports his thesis with several arguments. One is that performance reviews encourage employees to be less forthcoming about their areas for growth, limiting the ability for a boss to coach and support professional development. Another argument is that performance review structures can be one-size-fits-all, and by design hurt some employees more than others. A third argument is that performance reviews are an HR device, whereas pay increases are actually determined by budget and finance.

I support some of the points made by Dr. Culbert, but I believe he is over-dramatic in his expression and too broad with his criticisms.

At MIT Sloan, I took a seminar class with Jack Welch, the former Chairman of GE. As illustrated in his book Winning, Jack believes that employees must be evaluated on their performance and that managers must be candid with critical feedback so that employees can improve or find another job. He acted on this philosophy during his tenure at GE, cutting 100,000 jobs from 1981 to 1985 and earning the nickname “Neutron Jack.”

Having spent time with Jack Welch, however, I discovered subtleties in his management ethos that really make sense. I’d like to illustrate two main takeaways here and contrast them with Dr. Culbert’s point of view.

1. Candor as Culture

I learned from Jack that a manager must be responsible for building the culture of his or her organization, and that this culture must be centered around candor.

Communication is critical to team success. When I evaluate candidates for a position, communication skills are my first consideration. I don’t require someone to have the eloquence of Barack Obama or the writing ability of a professional journalist, but a candidate must be willing and able to communicate issues, status, and needs clearly and efficiently.

A manager must create this culture of candor from the beginning. When talking about issues facing the company, a manager must be truthful. When discussing expectations of employees, a manager must be clear and straight to the point. When providing critical feedback, a manager must not dance around his or her concerns to protect feelings.

By building a culture around candor, a team will have increased productivity because there is less time lost to misconceptions and back-channeling.

2. Evaluating Performance and Values Together

Performance v. Values

Chart: Performance v. Values

On the first day of class, Jack drew a chart like the one depicted here. The Y-axis represents performance and the X-axis represents values. When evaluating an employee’s merit, a manager must look at both dimensions simultaneously.

Person A. Many managers reward high performers, even when these employees are detrimental to the rest of the team. This is a mistake. One fantastic worker cannot outperform the potential of a highly functional team. When a strong performer grows arrogant he or she may adopt an attitude that damages the productivity of other team members. It is critical to warn this person that this type of behavior is unsustainable.

Without candor as culture, Person A would be shocked to hear that his or her attitude is detrimental and may retreat deeper into his or her own misconception, creating a rift with the manager that is nearly impossible to resolve. If Person A was accustomed to candid feedback, this conversation would occur earlier and be much easier.

Person B. An employee who fits really well with the values of the organization but does not meet job expectations needs to be coached on how to become a stronger performer, or else managed out of the organization. Although it is heartbreaking to see a good person leave the organization, it would be worse to let other employees become frustrated because of this weak link in the chain.

Often times this can occur when a veteran employee who is paid well starts to coast. More junior employees will start to grumble about how this veteran is receiving a bigger paycheck but not carrying his or her own weight. A manager must be candid with the under-performer and set new measurable goals.

Person C. An employee who is not performing well and is not a great fit was likely a bad hire. It’s time to move on.

Reaching the Ideal. The ideal employee is one that embodies the values of the organization and knocks assignments out of the park. These rock stars are hard to find, so a manager must find ways to turn these ideal employees into role models for the organization.

The whole team should be aware of the goals and who is best achieving those goals. Some organizations use a leader board to instill productive competition. For example, Kayak.com has established its values to be highly customer-centric. All engineers must read and respond to customer feedback on an ongoing basis, and no lines of new code are written until customer complaints are remedied. In the office, there is a leader board showing who is best responding to customer feedback, both in efficiency and quality. Kayak’s management effectively creates role models who strengthen the values of the organization.

Putting It All Together: The Performance Review and Candor as Culture

There is neither surprise nor intimidation in a performance review conducted in an organization where candor is tightly woven into the culture. The performance review is a scheduled opportunity to acknowledge what is already known: where the employee currently sits on the performance and values axes, and how well the employee has met goals. But moreover, the performance review is a time for the manager and employee to jointly decide on new goals.

I will acknowledge that there are many organizations in which candor is nowhere to be found and HR is a necessary evil. In these organizations, Dr. Culbert’s criticisms are fair. However, for new and growing organizations, managers have a choice (and responsibility) to establish a culture based on candor. In this way, the performance review can be a very effective and important step in professional development.


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