The Secret History of Performance Management

The annual performance review. It has been around since the beginning of time—or at least that’s how it seems. Kazoo examines the history of the performance review, how it has evolved, and ideas to help improve your company’s internal employee evaluation process.

A Brief History of Everything (or at least everything about performance reviews).

It’s a time-honored tradition. Your mother did it, your mother’s father did it, your mother’s father’s father did it ad infinitum, until a certain crafty manager in the third century A.D. decided to evaluate members of China’s ruling family, gained the title of Imperial Rater, and was summarily criticized in a move forever cited by management textbooks on employee performance appraisal: “The Imperial Rater of Nine Grades,” philosopher Sin Yu writes, “seldom rates men according to their merits but always according to his liking.”1 And since this time, employees the world over have been silently cowering at their desks waiting for the knell of their annual performance review.

The story’s not quite that simple, though. And information is pretty spotty. There are, however, accounts of an early 19th century Scottish cotton mill owner who probably first industrialized the employee evaluation process, assigning each worker a degree of merit denoted by differently colored cubes that hung over their workstations like Industrial Revolution-era Sims Plumbobs2. Toward the end of that century, the United States Federal Government began institutionalizing the practice with the Pendleton Act as a way to end favoritism and create a meritocracy. Within thirty years, the First Law on Appraisal would put in place a uniform employee rating system across all agencies in the U. S. Civil Service.

But the process wouldn’t necessarily gain wide-spread notoriety until the 1980s when General Electric’s CEO Jack Welch popularized an employee evaluation method some call “rank-and-yank,” wherein managers evaluate all their employees yearly, assign the top 20 percent the coveted ranking of 1, the middle 70 percent the value of 2, and the bottom 10 percent the rank of 3. The 3s, according to the Wall Street Journal, are the first to go in layoffs.

Over the years, the stack ranking performance evaluation style has been criticized for everything from inspiring a cutthroat corporate culture, to fostering rampant favoritism, to depleting companies of potentially stellar employees who arbitrarily fell into the bottom 10 percent simply because the company had so many great workers already. Despite the criticism, 60 percent of Fortune 500 companies still use the practice.

Stack ranking has other drawbacks. One challenge to running this type of annual review is the amount of time it requires from both employees and managers. At the high end, it can cost a company as much as $35 million in lost employee productivity a year. Then there’s the impact on innovation and creativity. “People’s fields of view actually constrict, they can take in a narrower stream of data, and there’s a restriction in creativity,” David Rock, director of the NeuroLeadership Institute, a group dedicated to evaluating leadership issues through neuroscience, said in an interview with the Washington Post. In addition, some argue that two-thirds of these types of performance evaluations misidentify a company’s highest performers3. What’s a company to do?

Enter performance management.

The earliest precursor to the modern day performance management movement finds itself in 1940s Connecticut, during a moment of interracial friction. In an effort to alleviate some of the tension, the researchers attempting to evaluate race relations stumbled their way into the discovery that individuals can evaluate themselves in the context of a group through other members’ live feedback and their own self-assessments. This process, which became known as T-group education, steadily moved its way through academic and organizational development/human resources circles. In 1959 the Esso Research and Engineering Company, now Exxon Mobile, began a managerial development program that, for the first time, allowed subordinates to evaluate their superiors to provide them with a better understanding of their own strengths and weaknesses.

Esso and 360 Degree Feedback
By the late 1980s and early 1990s, this ideal of multi-person rating became popularly known as the 360 Degree method, as it positioned employees to be evaluated from every angle. Not only their bosses but also their peers, subordinates, and any clients they may interact can evaluate them. And through self-evaluation, they can, too. This holistic view improved employee growth and performance while also dissipating any one individual’s favoritism toward a worker4.

The 360 Degree method may have been comprehensive, but it wasn’t necessarily the most efficient system, requiring a huge participant count, reams of paper for surveys, and more time and money than most HR departments thought they could afford5. In 1996, only 21 percent of attending organizations at the New York Chapter of the Society of Human Resources Managers reported employing any kind of 360 Degree evaluation6.

In recent years, the 360 Degree method has become incorporated into the hot developing field of performance management, a process allowing managers and employees to work together to set objectives and assess progress through ongoing feedback. Today, almost every Fortune 100 company utilizes some degree of the old standard of 360 Degree feedback7, and even once-stalwart advocates of stack ranking systems—from Accenture to GE itself—are phasing out the traditional annual review. In addition, a recent Bersin by Deloitte study found 67 percent of companies planning to purchase management programs aimed to buy into the emerging field of performance management programs8.

What changed?

The internet, for one. Suddenly surveys that took hours—if not days—to compile and score and interpret and present could be concluded with the click of a mouse. The second change—and perhaps the most crucial for the development of the performance management industry—was the arrival of Millennials in the workplace.

There have been countless articles written about the entitlement complexes of Millennials. (In fact, we debunked some of them here.) But their we-want-it-now-along-with-the-new-iPhone reputation does have some merit. They’re used to the frequent feedback provided by school testing, coupled with the ability to post a photo on Facebook and watch in real time as friends across the world like, comment, and share it.

It’s no wonder, then, that eight out of 10 Millennials yearn for regular feedback from their boss. That, combined with the fact that the average internet user spends 1.72 hours a day on social media platforms and that 41 percent of Millennials prefer to communicate electronically over face-to-face methods or the telephone, puts the future of performance management systems in the anytime, anywhere, social-network-style feedback systems.

That’s where products that both socialize and enable more frequent feedback thrive. In the case of Kazoo’s interface, coworkers and managers can easily recognize and reward good work in real time. This in turn reinforces behaviors aligned with core values and work objectives. Unlike a formal evaluation one-to-two times per year, the feedback is ongoing and supportive throughout the year. Three out of four Millennials want a mentor in their company, and this allows one mentor (often several) to reinforce them every step of the way, guiding their professional journey. Research shows both mentees and their mentors are more likely to stay with a company which, after all, is one of the core reasons we try so hard to boost employee engagement.

Employee Recognition Programs
The 360 Degree model is adapting and evolving to the 365 Day model. And there is evidence to support the effectiveness of frequent feedback when it comes to retention and overall company performance.

It’s an exciting space that, like so many other traditional ways of doing business, benefits from innovative advances in technology.

Struggling to decide which behaviors warrant real time feedback? Here’s 50 to get you started!


Additional sources:
1, 2Murphy, Kevin R. and Jeanette Cleveland. Understanding Performance Appraisal: Social, Organizational, and Goal-Based Perspectives. Sage Publications, 1995.