You’re doing performance reviews wrong (and so were we)

Joe Bast is the VP of People & Operations at Thoropass

I recently hosted a panel discussion with Confirm, People People, and HR Chief entitled “You’re Doing Performance Reviews Wrong…and How to Fix It.” Needless to say with such a provocative title, the conversation was lively and the event was well attended.

However, the large audience also meant that there were lots of questions and experiences to share, but never enough time to address them all. In addition to viewing the original webinar (you can watch the entire thing here), I’ve written this follow-up post in order to dive deeper into why my company, Thoropass, has committed to an approach championed by Confirm.

By understanding why we turned to this innovative approach, and what we’ve learned along the way, I’m confident that other companies and HR experts will be able to replicate our success and further our collective discussion around performance management.

But to do so, we must first step back and examine how we got to the point where performance reviews are what they are today.

A brief history of performance reviews

Here is the context for any modern discussion of performance reviews:

• Typical performance reviews are the offspring of a structure that was developed more than 100 years ago by the U.S. military largely to identify who should be promoted. Mainly this was accomplished by a manager rating an employee’s performance independently.
• About 50 years ago (in the 1970s) this approach was adapted to help large companies evaluate broad populations of employees and determine not just who should be promoted, but also who should be rewarded in some way.
• The 1980s saw that goal evolve into including (and in some cases foregrounding) who should be “let go.” Famously, “Neutron Jack” Welch (former CEO of GE) made the “stack ranking” process well known by publicly committing to eliminating the bottom performing 10% of people in every performance review cycle.

Needless to say, with a history like this it’s no wonder performance reviews have a bad reputation. Every detail outlined above continues to reverberate in the processes, feelings, and understandings of performance reviews today.

That being said, the 1990s saw a more “humane” evolution of the process that is still echoing into today as well. It was then that 360-degree feedback was introduced as a way for a manager to see a broader view of employee performance. By asking an employee’s peers, colleagues, internal customers, direct reports, and others to provide ratings and describe employee performance, a manager could get a more holistic (360-degree) perspective on an employee’s performance.  

While the data that this innovation provided was rich, the process was very time consuming and proved to be too much of a “heavy lift” to expect an organization to commit to on a regular basis as it had with an annual (or more frequent) performance review cycle.

In the new century, the concept of “continuous performance management” was revealed.  Again, the goal was to get away from the heavy lift of a scheduled performance review window while still getting the employee what they needed in terms of feedback and direction. In large part it got some of it right, but it failed to provide ratings or other data points for decisions around promotion or rewards. As a result, past practices and expectations continue to fill the gaps left in our imperfect system.

The goals of performance reviews

Let’s look back at the goals of a performance review process that the last 100 years have so elusively tried to pursue. Performance reviews aim to:

1. Provide performance data or ratings to support employment decisions (like promotions, terminations, or rewards).
2. GIve the organization insight into performance of employees across regions, departments, or functions, thus allowing for workforce planning.
3. Provide employees feedback about their skills and performance to guide their learning and development.
4. Draw a straight(er) line between performance and rewards.

Expecting one system to do all these things is daunting, if not impossible. However, each of those goals are admirable and critical to helping an organization perform and align their talent and workforce. 

Other than 360-degree feedback and continuous performance management, performance reviews have not seen a significant innovation in more than 30 years. Innovation in this space is well overdue even if many couldn’t fully articulate it.  

Examining Confirm’s ONA

Armed with expertise and data gleaned from direct experience, Confirm answered this innovation gap with their “Organizational Network Analysis,” or ONA.

Put briefly, ONA allows organizations to take a broader look at employee performance. It widens the lens so that manager ratings aren’t the only way in which we evaluate performance without introducing an intensive 360-degree feedback process.

With ONA, each employee is asked to identify up to five people in response to each of these three questions beginning with “Over the last six months… “

1. Who energized you?
2. Who did you go to for help and advice?
3. Who is doing great work and deserves a Gold Star?

Unlike manager-based performance ratings (typically using a 1-5 scale, which results in a skewed, but mostly normal curve), these ONA nominations result in a “power curve” or “hockey stick” distribution. Through plotting the number of nominations each person receives, you quickly identify your top 15-20% of performers who are doing 80% of the work.  Ratings bias is spread out as you are no longer dependent on a sole manager providing ratings. Rather, the whole organization has the opportunity to nominate their colleagues who are energizing, advising them, and/or doing great work.

What’s the impact?  First, because the rating process is a lighter lift, more performance reviews get done more quickly. For example, at Thoropass we’ve recently had 95% + of our employees completing their reviews within just one week. Secondly, once the top 15% are identified, we understand that we need to take action to ensure they are both getting rewarded and are being retained.  

We aligned our compensation and reward systems with these ratings. For our top 15% (about 27 people in a recent round at Thoropass) we gave some double-digit percent raises, spot bonuses, promotions, or equity grants. We also ensured that each of them had a 1:1 conversation with one of our founders (a “stay” interview) about what was working for them, what we could do better, where the company was going, and why our leaders appreciate them.

Assessing the impact of innovating performance reviews

In the following 12 months after instituting ONA, we lost none of our top 27 performers, perhaps not surprising given our proactive actions to engage and retain them. What was surprising though, is that our voluntary attrition across the entire org also dropped into the single digits.

Remember: people join companies, but people quit “bosses.”  

To put more of a fine point on it: when people have great relationships, they stay. We simply asked the whole company who energizes them and who advises them. Those 27 people who were nominated by the majority of their peers are connected to a larger proportion of the organization than most. Since those performers stay, advise others, and keep energizing others, the rest of the organization is more likely to stay as well.

Of course no performance review process is without possible drawbacks or blindspots. This approach has opened the door to discussions about valuing skills and contributions in differently abled employees or those who are introverted or interact with less people on a regular basis. These are important conversations, especially as we continue to innovate and reach for more equitable ways of achieving the performance management goals outlined above.

But no concern yet has outweighed ONA’s benefits, especially when you consider the significant baggage that past approaches bring. As a result, not only has ONA been a better, easier way to complete performance reviews and identify/engage top talent, it’s also been a huge lever which has given us insight into how to engage and retain our entire workforce. 

Based on this success, I’m confident that it can bring new perspective to other organizations and HR leaders, too. In the end the calculus is quite simple: The more top performers you keep, the more their performance can influence the full organization.