Performance Reviews Waste Money, Time, and Emotional Capital

Companies spend approximately 2.5-3 hours PER employee each review cycle. If you use average US household income of approximately $60k per year - that's almost $90 per employee per review on a process that has proven to decrease engagement, increase turnover, and hurt the employee-manager relationship.

So why do so many companies hang on to it? Two words - manager hubris. Managers fall victim to the Dunning-Kruger effect, which essentially means they think they are much better at something (in this case, fairly evaluating performance) than they really are. Traditional reviews begin with the misguided and incorrect assumption that managers are the best authorities to judge whether an employee has achieved, missed, or surpassed his or her goals. Studies however have shown that up to 62% of a rater's judgement is a reflection of the rater, not the person being reviewed. In short, traditional reviews are terribly biased and therefore untrustworthy.

As if being inaccurate and biased wasn't enough, traditional performance reviews are also proven to destroy whatever emotional capital a manager has cultivated with an employee. In his book, Get Rid of the Performance Review, author Samuel Culbert asserts that the performance review is "intimidation aimed at preserving the boss's authority and power advantage." Whether it is intentional or not, placing the manager as the sole evaluator of someone's career direction widens the gap between manager and employee, creating a stronger power differential which destroys teamwork, collaboration, trust, engagement, and desire to stay.

So if you are still doing top-down performance reviews, you are wasting at least $90 per employee per review that in turn costs you millions in low engagement, millions in turnover, and decreases teamwork and trust. It doesn't make sense does it?

To be or not to be, that is the question. Whether ‘tis nobler in the mind to suffer the slings and arrows of outrageous fortune or to take arms against a sea of troubles and by opposing end them...[It] puzzles the will and makes us rather bear those ills we have than fly to others that we know not of...thus conscious does make cowards of us all.”
— Hamlet, Act 2, William Shakespeare

It takes courage to try something new. And ironically, the approach to feeling more comfortable with a new approach is the same approach that Ohos uses to replace performance reviews - crowdsourcing. The simplest explanation of crowdsourcing is asking others for their perspective or experience with a certain thing or person. When you ask for client references, that is crowdsourcing. When you look at Yelp for restaurant reviews, that is crowdsourcing. When you do an organizational survey, that is crowdsourcing. Ohos is an ongoing organizational survey about an individual's performance. And before you think the only reason people provide reviews is to be mean, passive aggressive, or overly positive...why are there so many 3 and 4 star reviews on those same sites? (Also, we have not seen it with ANY of our clients) Collecting data from others is the best way to mitigate against single rater bias, recognize people's strengths, highlight development opportunities, and put managers in the position of trusted coach instead of judge, jury, and executioner.

For the same cost of a process that hurts your organization, you could be giving them exactly what they want, what your organization needs, and what will move things like engagement, retention, and performance in a positive direction. But you have to have the courage to make the shift. Contact us if you are ready to save a TON of money and get unbiased people data.

Dave NeedhamComment