In 1950, Congress passed the Performance Rating Act. The law was meant to establish a method to rate federal employees. They were marked as one of three levels: outstanding, satisfactory or unsatisfactory. Private and public companies quickly followed suit, rating employees and recording compensation and rewards based on those reviews. Companies considered the performance review a way to protect themselves from potential legal squabbles.
But as Tom Coens and Mary Jenkins write in their book, “Abolishing Performance Appraisals: Why They Backfire and What to Do Instead,” data show that just under half of cases involving performance appraisal disputes favor the plaintiff, and about 70 percent of lawyers say appraisals don’t give a company an advantage in litigation.
In the April 2012 case Catherine Eno v. Lumbermens Merchandising Corp., the plaintiff, Eno, was terminated because the company said she had a poor attitude, among other reasons.
Eno argued this reason was a pretext, pointing to the lack of documentation supporting the company’s claim and relying on her mostly positive performance evaluations, in which her supervisor noted the plaintiff was “a pleasure to work with and handles herself in a professional manner,” and that she “hit the ground running in eastern and is doing an excellent job for that department. The staff in eastern is enjoying her presence.”
The court sided with Eno, finding that she identified sufficient evidence to contradict the defendant’s reason for terminating her.
Legal issues aside, many experts agree that traditional performance management programs have become organizational wallpaper. They exist in the background, but are seldom effective at what they set out to do.
“The problem is, employers think this is the only crutch they have,” said Katie Lemaire, vice president at management consulting firm Hay Group. “They worry that without it, they’re not ensuring leaders are having performance conversations, and without it documented, it’s a risky situation for HR, especially when it comes to compensation. It’s a control process for money — make sure you give more to the best, take from the rest.”
Samuel Culbert, co-author of “Get Rid of the Performance Review! How Companies Can Stop Intimidating, Start Managing — and Focus on What Really Matters!” and a professor at UCLA’s Anderson School of Management, said pay actually distorts performance reviews.
“Pay is not determined by performance, despite the fiction companies like to perpetuate,” he said. “Pay is determined by the economy, by a company’s bottom line, by the overall budget set by those higher up. None of that has anything to do with how an individual performed in the past year.”
Culbert said the performance review has become the story bosses tell employees to justify the pay that has already been set by forces beyond supervisors’ control. “In other words, the performance review doesn’t determine pay. Pay determines the performance review.”
Patrick Sweeney, president of Caliper Corp., an HR consulting firm, said the performance review should be a road map, something that connects employees’ potential, measured through a personality profile assessment, with where they are now and where they would like to go.
“When we think about performance reviews, both employees and supervisors get a lump in their throat as opposed to seeing it as an opportunity and saying, how do I grow in this organization? Or as a manager, how can I make sure every employee on my team is doing his or her best?” Sweeney said.
John Sullivan, a management professor at San Francisco State University, said managers often feel that lump or do not take performance reviews seriously because they are not measured or rewarded for excellent people management or for providing accurate and timely performance feedback to employees.
“The lack of accountability and the lack of negative consequences for inaccurate appraisals often results in managers being unwilling to write up negative appraisals that would require discipline or termination,” he said.