Reviewing The Annual Review

Nation's Business, Sept, 1998 by Michael Barrier

For many business people, Jeffrey Pfeffer suggests, doing an annual performance review of their employees is comparable to "filling out your income-tax form. It's not a process that anybody likes, but you've got to do it."

The problem is, "if you're doing it in that spirit, it cannot possibly have any positive effects," says Pfeffer, the Thomas D. Dee professor of organizational behavior at the Stanford Graduate School of Administration.

Written performance reviews have been an important tool for managing employee performance for decades. According to The Wall Street Journal, retailer Lord & Taylor was the first to use them, in 1914. But surveys in recent years suggest that many companies do in fact find them about as helpful as income-tax forms.

For example, a 1997 nationwide survey of human-resources professionals by the Society for Human Resource Management, based in Alexandria, Va., found that only 5 percent of the respondents were "very satisfied" with their organizations' performance-management systems, while 42 percent were dissatisfied to some extent.

The anecdotal evidence of discontent with performance reviews is even stronger. Says Tom Morris, president of Morris Associates, a Washington, D.C., consulting firm that has provided career-management services to many companies: "Almost universally, the bosses are late getting them done and hate doing them. I think they're the ones who have a bigger problem with them than the employees."

Jeffrey Stoner, a senior consultant with Personnel Decisions International, a Minneapolis-based consulting firm, concurs. "Giving good feedback, and giving performance feedback, is not a natural act," he says. "It's something that managers will avoid if they can."

"It's Hard To Be Honest"

Performance reviews are hard to do well, says John Challenger, executive vice president and general manager of Challenger, Gray & Christmas, a Chicago outplacement firm. "In any kind of human relationship," he says, "it's hard to be honest." Beyond that, "you certainly can send some people reeling, and worsen their performance, by being brutally honest about their faults."

Because performance reviews can inflict such pain, an employer might be tempted to ease off in a written review and soft-pedal criticisms- and that can be a fatal mistake if an employee is subsequently fired and brings a suit for wrongful discharge.

Says James A. Burns Jr., who represents management in employment cases as an attorney with the Chicago law firm Katten Muchin & Zavis: "In every case in which an employee was terminated for unsatisfactory performance, the refrain I hear from the employee in the deposition is, 'Nobody ever told me what I was doing wrong.'

"Any time you discharge an employee based on performance," he continues, "Exhibit A for the employee, once the lawsuit is brought, is performance reviews. If the performance evaluation is different from what the employee has been told orally by the manager, if it's not complete, if it's trying to shade things to protect somebody's feelings-because nobody likes writing nasty things about employees-that will be a powerful tool for the plaintiff's attorney."

Management lawyers thus advise their clients to document employees' shortcomings-a course that isn't without hazards of its own, since an employee who gets a negative review may blame that on some forbidden motive. "Sometimes managers are afraid someone will allege discrimination," says Jonathan Segal, an attorney with the Philadelphia firm Wolf, Block, Schorr & Solis-Cohn, "so they don't give them the feedback they need."

In today's litigious climate, Segal says, "I don't think employers can avoid claims altogether. I think it's a question of managing them, not avoiding them."

When a legal challenge of a review process is involved, Stoner says, fairness and consistency are the key words. "Where organizations get themselves in trouble," he says, "is by making a process change midstream, applying it to one or two people, and using that as the justification for the decision."

Such problems arise, Challenger suggests, when companies try to make performance reviews serve too many purposes- encouraging a "constructive dialogue," on the one hand, while providing legal protection on the other (and controlling wage costs, too, since a poor performance review can be offered as justification for denying a pay increase).

"The performance review is being asked to shoulder all of those different aims," Challenger says, "and they're contradictory."

Burns agrees: 'There's a tension between trying to provide feedback-which everybody agrees is a good idea-and falling into the trap of trying to create a paper trail to justify some potential future decision."

Pfeffer, author of The Human Equation: Building Profits by Putting People First (Harvard Business School Press, $24.95), believes that employers who try to use performance reviews to protect themselves from their employees often defeat their own purposes.

"Any time you have a relationship of distrust, you're going to have more lawsuits," he says. "Any company that takes advice on how they manage their people from their lawyers, I want you to tell me about them, so I can short the stock."