Let’s not kill performance evaluations yet

The long march to the boss’s office to get evaluated — it is a moment we all dread. Performance reviews are awkward. They are biased. They stick us in boxes and leave us waiting far too long for feedback.
It is no surprise that by the end of 2015, at least 30 of the Fortune 500 companies had ditched performance evaluations altogether. But let’s not throw the baby out with the bathwater.

The reality is, even when companies get rid of performance evaluations, ratings still exist. Employees just can’t see them. Ratings are done subjectively, behind the scenes, and without input from the people being evaluated.

Performance is the value of employees’ contributions to the organisation over time. And that value needs to be assessed in some way. Decisions about pay and promotions have to be made. As researchers pointed out in a recent debate in Industrial and Organisational Psychology, “Performance is always rated in some manner.” If you don’t have formal evaluations, the ratings will be hidden in a black box.

At Facebook we analysed our performance management system a few years ago. We conducted focus groups and a follow-up survey with more than 300 people. The feedback was clear: 87 per cent of people wanted to keep performance ratings.

Yes, performance evaluations have costs — but they have benefits too. We decided to hang on to them for three reasons: fairness, transparency and development.

Making things fair

We all want performance evaluations to be fair. That isn’t always the outcome, but as more than 9,000 managers and employees reported in a global survey by CEB, not having evaluations is worse. Every organisation has people who are unhappy with their bonuses or disappointed that they weren’t promoted.

But research has long shown that when the process is fair, employees are more willing to accept undesirable outcomes. A fair process exists when evaluators are credible and motivated to get it right, and employees have a voice. Without evaluations, people are left in the dark about who is gauging their contributions and how.

At Facebook, to mitigate bias and do things systematically, we start by having peers write evaluations. They share them not just with managers but also, in most cases, with one another—which reflects the company’s core values of openness and transparency.

Then decisions are made about performance: Managers sit together and discuss their reports face-to-face, defending and championing, debating and deliberating, and incorporating peer feedback. Here the goal is to minimise the “idiosyncratic rater effect”—also known as personal opinion. People aren’t unduly punished when individual managers are hard graders or unfairly rewarded when they’re easy graders.

Next, managers write the performance reviews. We have a team of analysts who examine evaluations for bias (after the managers’ names have been stripped away). For instance, are words like “abrasive” used more often to describe women—and how might that be affecting their assessments, their promotions, and their pay?

And last, we translate our ratings directly into compensation. Notably, this process involves a formula, so managers have no discretion in compensation decisions. It’s fair: If you excel, your bonus multiplier rises according to a predetermined equation, not someone’s opinion. This focuses managers on what they can accurately assess and allows the company to manage pay using compensation expertise. It’s also a huge time-saver. When other companies eliminate performance evaluations, they still spend many hours agonising over compensation decisions. For us, time invested in performance reviews is time saved on compensation.

Being transparent

People want to know where they stand, and performance evaluations offer transparency. They help employees understand how their contributions are seen in the organisation, and they make it easier for the organisation to effectively recognise and reward top performance.

Many companies that are abandoning performance evaluations are moving to real-time feedback systems. That is an excellent way to help people repeat their successes and learn from their failures. But it doesn’t help them—or the organisation—gauge how they’re doing overall.

Long before he won the Nobel Prize in economics, psychologist Daniel Kahneman worked with the Israeli army to evaluate hundreds of cadets. He found that even after they’d been rated on many specific dimensions, a global rating of overall performance added information. “A global rating is very good,” Kahneman says, “provided that you have gone through the process of systematically evaluating.”

For example, when managers keep a journal of key performance episodes, the quality of their feedback tends to improve, and their employees often react more positively to the evaluations. At Facebook we have experimented with various approaches to translating micro assessments into a macro performance rating, using categories such as “technical contributions,” “team contributions,” and “planning and execution” as key dimensions that contribute to the overall score.

In the CEB survey mentioned earlier, people whose companies had eliminated evaluations judged their performance conversations 14 per cent more negatively than those whose organisations still used them. (The people who had fared better under the old system were, understandably, the most miffed.) At Facebook a focus group participant said that ratings served as a punctuation mark, because they’re clear. Another participant said she liked “having the chance to be a unicorn.” We value outsize contributions—and those who deliver them should feel appreciated.

Developing people

Finally, there is development, the third advantage of performance evaluations. In a recent HBR article, Wharton’s Peter Cappelli and HR expert Anna Tavis argue that annual reviews favour accountability over development—and that can certainly be true. But when conversations about professional growth are near-constant and untethered by ratings, people get overwhelmed. Facing a barrage of feedback, employees often struggle to figure out which information matters most and what to ignore. A comprehensive analysis of 607 studies showed that more than a third of all feedback interventions backfired, decreasing performance instead of increasing it.

When people receive negative feedback, they often fixate on small points. Without ratings, they can spend weeks pruning a few trees while the forest is on fire. If a manager receives multiple pieces of feedback about being late to meetings but misses the larger issue of prioritisation, she might become the timeliest person to deliver mediocre results. Performance evaluations allow for an overall assessment that helps people to prioritise. Employees learn what their key strengths are and where they should focus their development efforts. Evaluations also serve as a forcing function to make sure that tough feedback is delivered rather than swept under the rug.

Trade-offs all around

We are not saying that performance evaluations are uniformly beneficial. We are saying that they involve trade-offs, and we’ve decided to keep ours to achieve the goals of fairness, transparency and development. Performance reviews were put in place for good reasons; discarding them entirely might be an overreaction to how they’re often executed.

Critics of performance evaluations have suggested that ratings automatically produce a fight-or-flight response. Actually, many people have stronger reactions to not being rated. Neuroscientists have found that highly anxious people have more-intense neural reactions to uncertainty than to negative feedback.

If we can make one general statement from neuroscience, it’s that the brain is remarkably flexible and adaptable. Some people may react strongly to ratings, but they can learn to respond differently. At Facebook we are trying to build a culture in which people approach ratings with curiosity and a learning orientation. When our senior leaders receive performance evaluations, they often share the feedback with their teams, normalising the fact that even people who consistently deliver strong results sometimes have lapses.

Another common critique is that ratings create fixed rather than growth mindsets. It’s true that when managers have fixed mindsets, they’re less likely to notice improvements or declines in performance (they’ve already locked people into categories) and less likely to coach people. But when companies eliminate reviews, managers actually devote less time to performance management.

The solution here is not to throw out performance ratings but to build a culture that recognises and rewards growth.