Performance appraisal is a waste of time if you are looking for business results.

My History with Performance Appraisal

Our evolved instinctive approaches to living in tribes makes power-based interpersonal relationships very much part of the way that we work together. We like tribally defined hierarchies. We need leaders and followers. We need to know where we stand in these tribal power structures. Performance appraisal does a fine job of addressing these needs. But it does nothing at all to increase an organization’s ability to generate results.

I have personally appraised dozens of direct reports. I have directed the building of innovative computer-based performance appraisal systems. I have led the implementation of such performance appraisal systems in large IT organizations (> 1500 professionals).

But I now accept that very little of my work around performance appraisal contributed to improving the results we delivered in the organizations for which I worked. I now know that backward-looking performance appraisal simply does not justify the energy it takes to do, and the anxiety and mistrust that it creates in the people who were appraised.

Future Looking Performance Contracting – The Better Way

Forward-looking performance contracting is different. Performance contracting means looking ahead, not looking back. It consists of the following steps.

  1. Negotiating what an individual will do in the coming months and year.
  2. Clarifying how this relates to what others, including the person whom the individual is dependent on, are doing.
  3. Agreeing on how the results to be delivered by the individual are going to be measured by both the person and the boss. They each need independent access to the data that makes up the measures;
  4. Getting together regularly to review delivered personal results against the agreed upon performance objectives.

Managers who contract for future performance in this way lead at work. They inspire. They shape the future through the actions of the people who work for them. 

My Experience with Performance Contracting

It worked for me. I have twice created IT organizations that outside auditors independently judged to be “world class excellent”. In both organizations, I did performance contracting with my direct reports, and encouraged them to do so with the people who worked for them. Together, we supported the cascade of this approach down our organization.

Performance contracting is not easy. The boss must make a personal commitment to simultaneously treating the people who work for the boss as problem-solving peers and as results-responsible direct reports. Doing so involves accepting and working with the dynamic contradictions between these two roles. As problem-solving peers, the two people share power and a kind of equality. As direct report and boss, they are in a clearly defined power hierarchy. Recognizing and respecting these differences, and dealing with the conflict they create, takes self-awareness and emotional self containment (EQ) on the part of the boss.

Bosses must discipline themselves to continuously clarify when they are behaving as a problem-solving peer and when they are behaving as a results-evaluating superior in their interactions with direct reports. You cannot do both at the same time. You need to create clear organizational rituals which signal when you are in which mode.

Power, Taking Responsibility for Communication Breakdown, and Performance Evaluation

At times, bosses must negate the “power surge” that comes from being a results-evaluating superior so they can effectively coach as a problem-solving peer They must resist the temptation to use the power component of the relationship to simply dictate the solutions to problems when the two of them engage as problem-solving peers. They must accept that simply telling does not always lead to understanding on the part of the direct report. They must act as if this is the boss’s failure, not the direct report’s, when this occurs.

At other times, particularly at the end of the performance period, bosses must take on the tough challenge of carrying though on negative consequences when the direct report’s performance has been lacking. This is not easy if the boss has developed a “liking” for the person through working with the individual as a problem-solving peer. It will be even harder if the boss has failed to coach effectively in the regular review meetings between the two.

Human beings’ instinctive approach to managing performance in organizations – power-based performance appraisal – is much easier, especially on bosses That is one of the reasons it persists in organizations. Almost all well-established organizations use performance appraisal as part of their people management tool set.

The real problem is that performance appraisal just does not motivate the folks who are appraised to produce “above every day” or excellent results. So, if you are interested in getting people to perform, abandon performance appraisal. Train yourself in the skill needed to be a future-looking performance contractor instead.

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