Chapter 2

THE EIGHT FATAL FLAWS

I ASSUME YOU’VE PICKED UP THIS BOOK BECAUSE you’re already convinced that traditional performance management is broken and you’re looking for answers. But it’s also possible that you’re a skeptic, and you need more convincing that it’s time to try something new. Then again, you may be reading this simply because you were asked, encouraged, or arm-twisted into giving it a go.

Whatever your perspective, this chapter is for you. If you’re ready and willing to move on to something new, it will provide important context about the evils you’re moving away from. If you’re a skeptic, it will give you compelling data and insights from experts in the field that I hope will convince you that the old ways are not necessarily the best ways, and perhaps I’ll manage to unstick a few of your assumptions and beliefs. What I ask is simply this: consider these flaws in light of your own personal experiences. I have yet to find anyone who can’t relate to some, if not all, of the issues that arise from traditional methods of performance management.

In my years of immersing myself in this topic, I’ve read through the studies, research, and anecdotal evidence; I’ve explored perspectives from various angles; I’ve listened to my clients’ experiences; and I’ve worked with companies as they set out to find something better. Through it all, I’ve come to the conclusion that there are eight basic reasons that our old standby performance management process creates such distrust, disengagement, and wasted effort. In other words, eight reasons why traditional performance management is almost universally hated.

I call them the Eight Fatal Flaws.

Fatal Flaw #1: A theory without evidence is just a (bad) theory. There is no evidence that traditional performance management leads to improved performance.

I think we can safely assume that a primary and expected outcome of the time, resources, and energy we invest in performance management is improved performance, both for individuals and for the organization. Yet I’m going to tell you straight out that there is no sound evidence that supports this idea. Reflect on the research findings I shared in the first chapter, and you can only conclude that science has found traditional performance management to be untrusted and ineffective, and that its contributions are dubious at best. In fact, its true and realized impact is often counterproductive and utterly at odds with its core purpose.

There is a mismatch between what science knows and what business does. … Too many organizations are making their decisions, their policies about talent and people, based on assumptions that are outdated, unexamined, and rooted more in folklore than in science.¹

—DANIEL PINK, AUTHOR OF DRIVE,²
IN HIS TED TALK “THE PUZZLE OF MOTIVATION”

Common sense, as well as a good deal of research, tells us that engaged people and teams make for higher-performing organizations. Recognizing this linkage, it seems reasonable to assume that if performance management led to higher levels of employee engagement, there would be little reason to change our way of doing things. But here the connection breaks down. Performance management as we know it is not increasing morale, and it’s not driving engagement. If there were a clear connection, then logic dictates that we would see an increase in employee morale correlated with the expanded usage of conventional performance management. And we simply don’t. In fact, the data shows that the process is far more effective at creating disengagement.

In the context of neuroscience research, most PM practices turn out to damage the performance they are intended to improve.

—DAVID ROCK, JOSH DAVIS, AND BETH JONES,
“KILL YOUR PERFORMANCE RATINGS”³

The brutal truth is, we’ve built old-school performance management on beliefs and assumptions about how to motivate and improve human performance that are faulty and that fail to deliver on their promise. Best intentions, wrong tactics. In the pursuit of recognizing differentiated performance, we’ve created unhealthy competition and opportunities to game the system. We’ve built standardized processes and policies in the pursuit of fairness, but what we’ve wound up with are mind-numbing tick-the-box exercises that minimize the human side of a process that is essentially all about people. Seeking to drive manager-employee communication, we’ve trained people to time-box conversations that should be sought openly by both parties and that should happen in the moment. Dialogue that should be ongoing is instead relegated to a prescribed place and time with a defined agenda that too often creates an adversarial or banal tone. In the interest of accountability, we encourage people to set specific and aligned goals, but too often this system rewards those who undercommit and play it safe.

See where I’m going here? There’s no good reason to continue using techniques that have been shown scientifically to be unproductive or, in some cases, even counterproductive. It’s time to make our good intentions stick by switching to methods that have been proven to increase engagement, which is the key to driving real and sustainable business performance.

Fatal Flaw #2: Nobody opens up with the person who pokes them in the eye. Traditional performance management impedes the reception of feedback and limits honest dialogue.

Imagine that you’re an employee whose third child has just arrived. You really need just two things: more sleep and a raise. At your company, the possibility of that raise is tied to your yearly performance review, which is coming up in a few weeks. What do you do? You plan for that danged thing. You dredge up every last project you’ve completed and work to spin it so that you look golden. You collect evidence and forward it to your boss. You get yourself all amped up for the conversation ahead. You’re pumped. You’re going to kill it!

A performance appraisal is about believing that others hold the secret to your own worth.

—DICK RICHARDS, ARTFUL WORK⁴

Now let’s freeze-frame and look at your state of mind at this point. Are you going to be open to hearing anything your supervisor might say that doesn’t support your story? Are you in a mental place where you can take in and process feedback on your performance? No, you aren’t. According to research by David Rock, an expert in leadership neuroscience,⁵ when we receive a rating or appraisal, our brain shifts into “fight or flight” mode, which triggers our limbic brain. This shift—which happens whenever we feel threatened—immediately results in defensiveness. So the very act of executing a performance appraisal itself reduces performance.⁶

Your survival is at stake (or at least it feels like it is). Your focus is entirely on making yourself look good, on “winning” that performance review, and the last thing you’re in the mood to talk about is where you need more development.

When we analyze this scenario, we can see that the inherent dynamics of the situation have moved you away from a positive outcome in three major ways:

1. The review has made your boss an adversary. Heaven forbid she doesn’t agree with the rosy picture you’ve painted. Any whiff of disagreement between the two of you will only heighten the adversarial tension.

2. Your goal isn’t to have a dialogue. You’re thinking of it first as a sales job and then, if necessary, as a debate. You sure aren’t going in to have a heart-to-heart or to admit to any weakness in front of her.

3. The situation has placed the control in the hands of your manager. This reinforces the superior-subordinate relationship—the opposite of empowerment.

And what is on this manager’s mind? you ask. Well, let’s put ourselves in her shoes for a moment. Imagine you have seven employees reporting to you. Your team has had a solid year, but you have extremely limited resources to offer salary increases (or any other perks, for that matter). Even worse, your executive leadership has made it clear that if you rank too many of your people as top performers, you’ll be reviewed lower yourself for being too lenient and for violating “top performer” quotas. But there isn’t a clear “low performer” in the bunch: each has contributed well, collaborated with one another, and ultimately delivered great results. As the manager, are you going to go into this conversation with an open mind and as a keen collaborator in your employee’s success? Sadly, no. It’s likely that you will be defensive from the get-go. How could you not? You’re caught in a bind, denying rewards to employees you feel have earned them while defending a position and a process you don’t agree with. Talk about demoralizing.

Most performance review systems reinforce a paternalistic world, one built on distrust and the assumption that the boss knows more about our skills, abilities, and commitment than we do. This dependency works against empowerment.

—RICK MAURER, TOOLS FOR GIVING FEEDBACK⁷

But what about the rest of the year, when the performance review isn’t just around the corner? Isn’t everyone inclined to be more open then? Unfortunately, no. The superior-subordinate paradigm set up by the performance review process creates a permanent barrier to open dialogue between managers and employees. As Professor Samuel Culbert notes in his book Get Rid of the Performance Review!, “The conversation between the boss and subordinate is forced into a box that undermines straight-talk interactions and colors every conversation between the two of them for the next 364 days.”⁸

There is simply no way you as an employee can have an open and honest conversation about your own performance, hopes, fears, and goals with a person who is going to judge you, especially if her judgment affects such important aspects of your life as salary, recognition, and promotion. And that person who has to judge you? She’s not going to have an honest conversation about how you can grow and develop if she knows that she has to keep your expectations low, or dash them altogether, often for reasons that have nothing to do with the quality of your performance.

The result? Open communication doesn’t stand a chance.

Fatal Flaw #3: Nobody remembers the good work.
Performance reviews generally emphasize the negative, rather than focusing on strengths.

If you have any doubt that people tend to fixate on negative events and experiences, just take a look at the nightly hit parade of shootings, fires, and high-speed chases on the local news. This same tendency may explain why it feels much more natural for a manager to think about what an employee has done wrong than to focus on how to build on his strengths. That project he stubbed his toe on, the one that required you to step in and clean things up, delaying launch by a week? You never seem to totally forget that. The fact that he’s a really good natural negotiator and might be trained to use that skill to contribute to the company’s bottom line? That might easily get lost in the shuffle.

Humans are hard-wired to focus on the negative, so balanced feedback always leaves us concentrating on the bad parts.

—PETER CAPPELLI, WHARTON CENTER FOR HUMAN RESOURCES⁹

Author and business consultant Marcus Buckingham has conducted extensive research on performance and how it relates to an individual’s strengths. He’s found that only 25 percent of employees say their supervisors discuss their strengths at all in performance conversations.¹⁰ And we wonder why employees tend to loathe this process.

Let’s look at it from the employee’s point of view. Let’s say “Employee You” goes to a professional photographer. Fifty or sixty pictures are taken. Some are great, some are lousy. You pick your favorite and bring it with you into your manager’s office. You present the picture and say, “This is me. I’m looking pretty good, don’t you think?” Your manager brings out another picture, one that was taken when you were eating a chili dog in the cafeteria. Your mouth is open and a big blob of chili sauce is running down your shirt. Your manager says, “I think this is a more accurate picture of you.”

And this, in essence, is what the annual review process feels like to a lot of people. They head into the session feeling pretty good about their performance over the past year, only to find out that their manager (who in many cases hadn’t talked to them much throughout the year) has a different view. And sure, the image their manager holds may be only one negative event or instance, but it’s heavily influenced the way he thinks of you and is likely to influence his approach to your annual review and to the downstream decisions of ratings, advancements, and project assignments. I’m not talking just about bad managers here; even the good eggs can fall into this trap. But how?

First, we commonly apply a strategy that assumes feedback is a motivator. News flash: it is not, for anyone. Researchers have found that even those who are inclined to seek learning opportunities don’t like feedback—they may just dislike it a little less than others.¹¹

Then there’s the fact that differing expectations and sensitivities can undermine real communication. Even when we mean to be complementary, we may send signals that are interpreted negatively by the receiving individual. Expressing something as simple as “You were the second-highest-rated person in the company” may seem like a worthy compliment to the manager, but the employee may be thinking, “How can I not be number one?”

Finally, the system itself can get in the way. When operating within a forced distribution system or ranking system, managers may tend to focus more on justifying their assessments than on engaging in a healthy career-oriented conversation that looks to the future and engages the employee in what could be rather than what has been.

The more our value feels at risk, the more preoccupied we become with defending and restoring it, and the less value we’re capable of creating in the world.

—TONY SCHWARTZ, HARVARD BUSINESS REVIEW¹²

Fatal Flaw #4: No man (or woman) is an island. The focus is on the individual, even though system or organizational challenges often have a significant influence on individual performance.

Let’s tell another story here about Employee You. Suppose you’re in product development. At the end of last year, the organization put in a new system of checks and balances in order to provide better quality control of the end product. These checks and balances take a lot of your time, so your productivity has plummeted. Then there’s the additional rigor concerning product design that’s inhibited some of your usual out-of-the box creativity. But your end products comply much better with the company standard, and you’ve created some solid sellers. So how does your manager respond to this mixed bag of results? How can he separate out what’s in your control (and therefore fair game for discussion) and what’s not? The answer is that he can’t.

If we cannot segregate the impact of the system or the situation in assessing an individual’s performance, we need a new theory.

—TOM COENS AND MARY JENKINS, ABOLISHING PERFORMANCE APPRAISALS¹³

Unfortunately, performance management is currently designed to focus on the performance of the individual and only the individual. This assumes, first, that improving the performance of each individual will drive an aggregate improvement of the organization (which is not necessarily the case), and second, that reviewers can discern the difference between the impact that a situation has on an individual’s performance and the actual work of the individual being reviewed. Needless to say, this is a nearly impossible task.

Current research shows that the system (how work gets done in your company) actually has more influence than the individual can ever hope to have on the performance of both the individual and the organization as a whole. A recent Harvard study showed that only 46 percent of the sampled investment analysts were able to reproduce their performance in a new company, despite the fact that all of them were star performers at their previous banks.¹⁴ One reason? According to the study, “The success of individual star performers is rarely the result of raw talent alone but also builds on the support structure around them” (italics mine). In other words, the situation, the environment, and the surrounding team are a large part of what makes a star performer. This means that your company might gain greater benefit by focusing on improving the system than by trying to improve the individuals who make up that system.

Fatal Flaw #5: We are not machines. Fairness and standardization in ratings and the judgment of performance simply cannot be achieved.

We are all human. Even the best and brightest among us are astonishingly fallible. Unfortunately, the traditional system relies heavily on the concept of an impartial, omniscient individual who can, without bias, unfailingly assess human output across a variety of roles and occupations. It’s a stretch to assume that even one such person exists, much less to expect that every manager possesses that kind of objectivity and wisdom. And it’s especially ridiculous when it comes to stack-ranking systems, or systems that require number ratings. I’ve seen rating systems that extend to two decimal places. Two decimal places?! Who in their right mind really thinks they can tell the different between a 4.35 performer and a 4.36? Yet in traditional performance management systems, advancement and salary decisions may very well rest on such infinitesimal and arbitrary distinctions. It’s ludicrous.

An objective performance review is an exercise in self-delusion, the fantasy created by bosses who are convinced that they can somehow rise above the biases that make us all humans.

—SAMUEL CULBERT AND LAWRENCE ROUT,
GET RID OF THE PERFORMANCE REVIEW!¹⁵

In fact, it’s the use of ratings that seems to draw the greatest ire from the critics of traditional performance programs. I’ve found that most tend to agree on five main points:

1. It’s difficult to distinguish differences in performance, except in the case of exceptionally good or bad performers.

2. The more diverse the job responsibilities, the more difficult it is to rate or compare performance. Someone working on a factory line putting two gee-gaws together to build a widget is a lot easier to rate than a manager of a large project with multiple responsibility areas. Then there’s the case of people with jobs that might look similar on paper (say, two management positions), but could nonetheless involve dealing with vastly different projects, stakeholders, geographies, vendor partners, or technology platforms.

3. People will attempt to fix the results by manipulating and distorting ratings to get to a desired number.

4. There is a whole host of biases, prejudices, and personal quirks that influence a person’s appraisal of others. Research shows that approximately 60 percent of any given performance rating actually has to do with the traits of the person conducting the evaluation and not the person being rated, a phenomenon known as “the idiosyncratic rater effect.”¹⁶ While we think our ratings are telling us something about the ratee, they’re actually revealing far more about the rater.

5. Even for those raters who are trying their best to remain unbiased and fair, it’s almost impossible to remember the whole year with equal acuity. It’s only human to put more weight on an event, whether it’s positive or negative, that happened just last month than on one that took place almost a year ago.

By expecting one human to assess another in a system that borders on the robotic, we fail to take our essential nature as humans into account, both our strengths and our shortcomings. We are not machines, so why have we become so resigned to assessing human performance in such a mechanical way?

Fatal Flaw #6: We are not machines, redux. Review output is unreliable for making talent decisions.

So if it’s virtually impossible for managers to make fair, unbiased judgments on the performance of their employees, why do these reviewer inaccuracies err so often on the side of leniency? Believe it or not, 90 percent or more of those reviewed end up in the Meets, Exceeds, or Significantly Exceeds category.¹⁷ In short, managers tend “to be more ‘nice’ than ‘accurate.’”¹⁸

I’ve been telling you how demoralizing reviews are, and I’ve been saying how we all tend to focus on the negative, and now I tell you that most people are actually getting scored higher than they should? Does that even make sense? Well, let me explain. When it comes to scoring people—giving people a rating that’s going to be documented in their employee record—we generally tend to be more lenient than accurate (unless we have to stack-rank people, but that’s another story). However, when it comes to talking to people and trying to give them feedback, human nature leads us to focus on those areas we see as weaknesses—for the simple reason that we see them as the areas that need the most improvement. If you think about it, we’re simply having a breakdown of coaching skills; without some training in what to do instead, most of us genuinely don’t know how else to help people. Or we’ve been raised to believe that negative feedback is the way you make people grow (the performance management version of “spare the rod, spoil the child”). So the result is that, in person, we tend toward more harsh assessments of performance, but when rating, we tend toward more generous assessments.

So here’s the problem: performance management scores traditionally supply the data for all sorts of important business functions, such as compensation management, succession planning, development goals, and employee performance reporting. If the data is inaccurate, then you’re making business decisions based on faulty foundations, and your ability to make the best choices about investments in your workforce and organization is limited. The problem is that you still have to make these decisions, whether it’s with good data or not. But does that mean that traditional performance programs (the ones that are just spitting out numbers) are your only option, even though they’re actually getting in the way of good decisions? No, they’re not.

How about if we tried allowing people to make these complex decisions in a manner that didn’t come down to a figure in a box or a number based on something as ridiculous as how an employee was measured on the ambiguous value of “integrity”? I can tell you that just about every one of my clients is seeking to drive more differentiated recognition, and most are failing because the current process is limiting their ability to make better decisions. This process is used by humans and for humans; and for all our faults, it’s actually good to be human—to ponder complexities, seek other people’s input, and make thoughtful decisions. If we want better outcomes, we must move away from designing systems that attempt to eliminate our humanity from the equation and relieve leaders from making tough talent decisions. Simply put, any performance management system that is designed without people at its heart is doomed to failure no matter how many times you try to reboot it.

Fatal Flaw #7: Let me introduce you to your competition—now play nice together! Comparing people against one another erodes efforts to create a collaborative culture.

Imagine you’re competing with your coworkers for a limited number of salary increases and promotions—or worse, just to keep your job (yes, some companies infamously let the bottom-ranked people go every year). Now imagine that the main factor in that competition is your yearly review score. Perhaps your company uses a five-point scale, and anyone below a four is unlikely to see an increase or advancement. Maybe your company falls into that grim group of stack rankers, so you’ll soon be given your annual ranking against your peers. When the stakes are this high and the means of assessment are so arbitrary, it’s the rare person who is indifferent. Most fall into one of two groups: those who resolve to claw their way to the top and those who resort to curling up into a metaphorical fetal position.

It makes no sense to talk of team- and partnership-oriented cultures, which our marketplace is now demanding, and still hold on to this artifact called performance appraisal.

— PETER BLOCK, IN FOREWORD TO
ABOLISHING PERFORMANCE APPRAISALS¹⁹

Let’s think about it. As a manager, are you going to inspire these two groups of people to give you their very best? Well, obviously, the people who are petrified instead of motivated by the process won’t perform to their full potential. In his book Punished by Rewards, Alfie Kohn summarizes this better than I possibly could: “Competition creates anxiety of a type and level that typically interferes with performance.… Those who believe they don’t have a chance of winning are discouraged from making an effort; having been given no reason to apply themselves except to defeat their peers, and convinced that they cannot do so, these people are almost by definition demotivated.”²⁰ Well said, Mr. Kohn.

“But,” you say, “I don’t want those people, anyway. I want people who throw everything into the work they are doing, like the competitive people. I’ll bet they work hard.” Well, yes, the people who are trying to claw their way to the top are going to work their tails off, or at least make it look like they are, but at the cost of their fellow team members. Remember, it’s rare to get really great business results from employees working in a politically charged environment. It’s pretty well established at this point that teamwork, communication, and collaboration are necessary ingredients to achieving real business success. Some may say that it’s a dog-eat-dog world—maybe so. But I’m challenging you to consider that the methods dictated by traditional performance management define cultural norms more than we might care to admit. If we truly want creative, agile organizations in which people with diverse skills and backgrounds and perspectives can collaborate and are willing to take risks, then we must dismantle the competitive constructs that erode those ideals.

Fatal Flaw #8: We are not Pavlov’s dog. Pay for performance does not deliver improved performance.

What gets you motivated on a rainy Monday morning in the middle of February? Do you push harder on your project to have a chance of making a bit more money next year? I doubt it. Sure, you’d like the raise (money is nice; nobody turns down a raise), but aside from a hot cup of coffee, what is really going to get you digging into your inner reserves on that cold morning and hunkering down to excel is the fact that your work fulfills you and you feel it’s important.

Traditional performance management is based on the assumption that extrinsic motivators (those things you do to avoid punishment or get a reward) are the best way to get employees to work harder and better. But we know now that people are much more motivated by intrinsic rewards and that they work harder and better when they are doing things they find personally rewarding.²¹

In the corporate world, this translates into things like enjoying the work itself, feeling like a valued part of the team, or being motivated by the company mission. It doesn’t translate into worrying about getting a bad review or whether or not you’re going to get a 3 percent raise—at least not for sustained periods. People don’t hold performance hostage to rewards. In his extensive research, Alfie Kohn concluded that “no controlled study has ever found long-term enhancement in the quality of people’s work as a result of any kind of rewards or incentive program.”²² A study by the American Compensation Journal conceded that financial incentives don’t improve performance quality; contrary to popular thought, money just isn’t the greatest motivator. (In fact, when it’s perceived as being unfairly distributed, money is a great de-motivator).²³ Furthermore, studies show that for people with satisfactory salaries, nonfinancial rewards are more effective than extra cash in building long-term employee engagement across sectors, job functions, and business contexts.²⁴

Extrinsic motivators are a poor substitute for the satisfaction derived from doing good work you’re genuinely interested in. So maybe, rather than letting budget constraints define the limits of our rewards program, we should unleash the potential of our people by rewarding them with more opportunities to love what they are doing.

Houston, We Have a Problem

When only 6 percent of CEOs feel that their annual performance reviews improve organizational performance,²⁵ we know that traditional performance management isn’t working, and we have a pretty good idea why. The inherent system is broken, having been built upon unfounded, archaic, and poorly conceived assumptions—the Eight Fatal Flaws.

I can’t think of a better voice to sum it up than that of W. Edwards Deming. In his book Out of Crisis, he pulls no punches:

[The annual review] nourishes short-term performance, annihilates long-term planning, builds fear, demolishes teamwork, nourishes rivalry and politics.… It leaves people bitter, crushed, bruised, battered, desolate, despondent, dejected, feeling inferior, some even depressed, unfit for work for weeks after receipt of rating, unable to comprehend why they are inferior. It is unfair, as it ascribes to people in a group difference that may be caused totally by the system they work in.

—W. EDWARDS DEMING²⁶