Why we fail at grading our workers

"LOOKING forward to the year-end performance review," said no one ever. For most employees, the annual workplace ritual tends to elicit the same kind of reaction that students get when they receive their year-end report card - either cold sweat or casual indifference, depending on how much they value their job.

It's not a process that supervisors relish either, with some having to deal with dozens under their charge, countless hours of administration, and making - and defending - difficult decisions. Angst from bosses and subordinates aside, common complaints that have frequently been pointed out include the fact that conventional appraisals are prone to bias, demotivating, and do not effectively raise overall performance - making it a process that is more form than substance. Yet, companies are reluctant to seek alternatives. This week, we evaluate the performance appraisal system to see if it still works and whether a revolution is needed.

Where we stand

For many employees, the yearly performance review is already so deeply ingrained in their psyche as a fundamental part of work life that they cannot quite imagine a time before it.

But the concept of an appraisal - now ubiquitous in corporate Singapore - did not emerge from a vacuum.

Eugene Chang, senior principal at Korn Ferry, explains: "The conventional performance management system is often touted as best practice - this is because the large American corporations, seen as best in the world, first adopted them and made them popular."

"We continue to use them as it has become the norm. This doesn't make it the best."

David Leong, founder and managing director of HR consulting firm Peopleworldwide, notes that the assessments are neither a science nor an art - mostly mixed with intuition, bias and preferences.

He is more sympathetic to what he deems a necessary evil: "The performance system for people is never perfect, but some measurements with quantitative tools are still better than none."

"Employers and HR had to devise a system to benchmark (workers) and hence KPIs (key performance indicators) have become important lamp-posts for measuring individual performance... at least, such measurements will be more clinical and can be scored quantitatively."

In many workplaces in Singapore, the entire appraisal process has hardly changed since the start of its implementation and follows a very predictable pattern.

It usually goes like this: Once (or twice) a year, employees scratch their heads trying to fill in a form where they are forced to grade themselves on their performance.

The self-evaluation forms then reach their supervisors for them to compare with their own assessment and account for any variances. Following which managers get together to duke it out and rank the workers - often based on a bell-curve - before submitting to HR.

Depending on how much back and forth there is between management and HR, as well as how digitalised the system is, the process could take weeks or months before getting finalised.

At the end of it, workers get called into their superior's office to discuss any findings from the appraisal.

But with managers on a deadline to complete the process with their many subordinates, and the supervisor's office the equivalent of a drive-through during the time of the year, such sessions tend to be brief or even generic.

Broken but still not fixed

The conventional performance evaluation system is universally abhorred for many reasons.

For one, the amount of time and work spent on carrying out a performance review is enough to strike fear into the hearts of the most unflappable manager.

Leong Chee Tung, CEO of HR startup EngageRocket, noted that performance assessments take up a "huge amount of bandwidth" - on average, managers spend up to 210 hours per year on performance management, or about 10 per cent of their time.

"The effort that goes into executing the exercise is so massive that running it once or even twice a year becomes a huge administrative hassle," he observes.

But for him, the biggest bone he has to pick with traditional evaluation methods is the subjectivity of such reviews. For example, the performance across different business functions cannot currently be perfectly calibrated and ranked against one another, he notes.

"It's difficult to agree whether someone's performance in the Finance department this year contributed more or less than someone's performance in Operations," he explains.

Even within each function, business priorities and the relative importance of various projects shift throughout the year, making it difficult to quantify and rank performance, adds Mr Leong.

And because the performance review system is expected to play a role in deciding how to distribute a limited pool of rewards, this poses real problems in practice. "Because of the subjective way performance is captured, leaders who are more persuasive tend to make a better case for their teams under them, resulting in biases based on a managerial trait that may have little to do with actual business impact," he says.

According to Korn Ferry's Mr Chang, the heart of the problems surrounding the traditional appraisal system is much more fundamental.

"The conventional performance management system was meant for an industrialised world," he explained. "Today's world has shifted from command and control to innovation and agility."

This means that tracking performance has become a lot more complex. In the past, workers could be evaluated based on production and delivery in terms of sheer numbers, but now it is a lot more ambiguous.

As such, he describes the system as inflexible and failing to fit the faster, more agile needs of businesses today. This could also have a serious impact on talent attraction and retention, he warns.

The lack of frequency and growth can be demotivating to employees, especially with the millennial workforce, he adds.

It is a stark mismatch in expectations: Younger employees have grown up in a digital environment where feedback is immediate. But once they enter the workplace, they fast realise that feedback can be like squeezing water out of a rock.

Feedback that comes once a year conducted by harried bosses who conduct appraisal meetings just to satisfy HR policy, and not from a desire to mentor, is of little use to anyone.

Many managers are also not equipped to mentor or to carry out performance reviews, rendering the process even more irrelevant.

EngageRocket's Mr Leong points out: "Besides allocating scarce rewards, an important component of tracking and reporting performance is to support mentoring and coaching conversations to improve each individual's respective skills over time."

"Without a system to support managers in executing this, companies leave people management to random variation in their managers' skills."

The dreaded bell curve

The component of performance management systems that has faced the harshest criticism is the dreaded bell curve. Mr Chang describes it as an "evil" construct that mainly drives pay distribution concerns and not performance.

Grading on a bell curve forces workers into a normal distribution model where there are a small number of higher performers and an equal number of low performers. Most people will fall into the average range.

In reality, the performance distribution of the team is unlikely to fall into such neat categories.

EngageRocket's Mr Leong describes it as an "imperfect solution" and a means to an end, namely resource allocation.

"Bell curves reward relative performance instead of objective performance... real performance may not follow a bell curve," he explains.

For example, if a team has five people and all five are equally excellent, the bell curve will force one to get the lion's share of rewards, while the one at the "bottom" could be left with nothing.

He adds that such a practice removes transparency and can be used to cover up poor management practices, such as supervisors being unwilling to have difficult conversations with underperformers.

It is also not quite possible to use the same bell curve across different departments.

The implication of the bell curve is that it does not seek to promote performance improvement as most people can just hide in the middle instead of striving to fulfil their potential. There is little impetus to grow and do better.

While bell curves can identify relatively non-performing staff, Peopleworldwide's Mr Leong cautions that it could be a blunt instrument if not used with "care and sensitivity".

He explains that eliminating workers based on a bell curve will have a "psychological impact" on self worth. "Tools should be used to measure and to improve (workers) and not as sole elimination tools where people are not groomed but eliminated," he said.

"We have to be careful how tools are used to measure and appraise people."

Case studies: Deloitte and Adobe

The good thing is, more leaders are now recognising the need to get the process right and becoming an "increasing business priority", says Mr Chang.

Two forward-looking companies that are paving the way are Adobe and Deloitte.

According to Seah Gek Choo, talent partner, Deloitte Singapore, the firm realised more than five years ago that its system was increasingly "out of step" in today's evolving business and talent landscape.

"It was more about rewarding performance already exhibited, but not focused on improving performance," she explains.

With millennials and Gen Z making up over 80 per cent of its workforce, such an antiquated system can no longer bear up to scrutiny.

"They need more frequent development-focused feedback and leveraging of strengths instead of a once-a-year performance assessment involving lengthy documentation that tell our people they are average by force-fitting them in bell curves," she said.

Deloitte designed its own performance management system that is in real-time, nimbler, and more individualised - something squarely focused on fuelling performance in the future rather than assessing it in the past.

Started in other Deloitte offices around the world since 2015, the new system was adopted by the Singapore office in September this year.

At the core of its reinvented system is more regular check-ins between members and their team leaders about work priorities, performance, and alignment to strengths.

"We believe that if you want people to talk about how to do their best work in the near future, they need to talk often," says Ms Seah.

Another component of Deloitte's system is performance snapshots, otherwise known as simple assessments of a team member's performance at a given point in time, based on the day-to-day experience of working with them.

Carried out every quarter at the minimum or after a major project is completed, this enables the organisation to gather a team leader's first-hand assessment of the member's performance.

It entails four future-focused questions about each team member that concentrates on what the leaders would do with each member, rather than what they think of the individual, explains Ms Seah.

These data points are aggregated over the year, and produce a "rich stream of information" for leaders' discussions of what they will do in terms of succession planning, development paths or performance pattern analysis.

She cites statistics that in countries that were early adopters of the new performance management system, 75 per cent agree that check-ins are a valuable use of their time. Some 66 per cent of leaders say that the data enables them to develop their people and 60 per cent agreed that they can make better decisions at the end of the year.

Deloitte's transformation process is somewhat similar to Adobe, which started to revamp its process way back in 2012.

Sarah Dunn, head of Employee Experience, Asia Pacific, Adobe, says: "We realised that we were not really helping people improve their performances, or encouraging faster innovation, or meeting their career objectives."

Adobe made the bold move to abolish the usual bell curve appraisal through more lightweight and productive "check-ins". The abolition of rankings also meant that employees are compensated against how well they accomplished their developmental goals.

The new check-in system does not delink performance from rewards, but encourages a more holistic approach for rewarding individual contributions to the team, she explains.

Even as managers are more empowered to make such decisions, they are not left to their own devices.

Ms Dunn explains: "We have also invested in training the managers and guiding them to focus on goals, objectives, career development and strategies for each individual's improvement, instead of dwelling on the individual's shortcomings."

Managers' skill sets also had to be built around compensation planning for the annual rewards check-in process so that they can differentiate pay based on employee performance and market conditions, she adds. And while the idea of frequent check-ins seems like a hassle, data has found the opposite to hold true instead.

"With check-in, we are saving more time now as there are no stringent steps, no prescribed timings and no forms to fill out for submission to the HR team," she explains.

"This also means no more late nights for managers scrambling to write detailed reviews for the record, and no more competitive motives underlying teammate interactions (due to the bell curve)."

Since its rollout, the introduction has helped Adobe Asia Pacific reduce the amount of time spent on the process by up to 5,000 hours annually. They have also seen a drop in voluntary attrition, at a time when they cannot afford to lose talent, she adds.

The future of work?

While the two companies seemed to make it look easy, both acknowledged that changing a legacy system was no walk in the park.

Ms Dunn says the biggest challenge Adobe had to overcome was in the mind: "Some employees were initially uncomfortable with the idea of a performance management process that had so little structure and documentation."

To overcome this, she says the firm "invested heavily" in change management to help managers take ownership of the process and establish a culture in which employees would welcome and act upon ongoing feedback.

Deloitte's Ms Seah points out that for many firms out there, they fall prey to the idea that if it isn't broken, don't fix it.

"By and large, the legacy performance review systems have been in place and have worked for so long. People generally like the predictability of the process and that there is an eventual rating that a person can easily benchmark to an expected compensation," she says.

But the reality is that the workforce is evolving, and that organisations need to consider redesigning them now rather than later.

This is in order to "bring out the best in their people" which will translate to success for the business in the new world of work, said Ms Seah.

But before firms leap blindly into a performance management system revamp, Korn Ferry's Mr Chang's advice for employers is to figure out what they are trying to achieve.

He asks: "Is it just for differentiating performance between employees or does it have a part in raising individual performance, employee engaging, culture shaping and so on?"

Next, listen to employees and managers who are using and being subjected to these systems if a redesign is in the works - often a forgotten step in the process, notes Mr Chang.

Finally, he suggests introducing technology to augment the value that managers bring and support them well through training. "There are no simple formulas as even the best companies are trying to figure out the best way forward," he notes.

But one thing is for sure - it will become a part of the unique competitive advantage of companies as they find more ways to increase performance and to win the talent war.