The news these days is full of discussions of proposed corporate tax increases, something business leaders want passionately to avoid, except for a few multi-billionaires.  Yet there is another activity that rivals paying taxes for the sense it evokes of doing the utterly thankless and truly distasteful—performance appraisals.  How draining, demoralizing, and unproductive they usually seem to be!  Consequently, most companies take one of three approaches to this annual ritual of self-punishment:

  1. Conduct performance appraisals according to the traditional approach and dread it.
  2. Tweak the traditional approach with additional employee participation and still dread it—maybe more.
  3. Drop or neglect performance appraisals all together and feel almost as guilty as tax evaders with a conscience.

Fortunately, there is a way out of this miasma of misery and wasted energy.

Recently, I had the good fortune to speak with Gary Markle, author of Catalytic Coaching: The End of the Performance Review, which maps some bold and creative solutions. Markle is a former senior HR executive for Exxon, Shell, and other major companies, and has presented over 800 workshops on his ideas worldwide.

Before outlining his solutions, it is worthwhile to briefly review a few of the main problems with the three approaches listed above, using both frequently documented results and Markle’s insights.

TRADITIONAL—The manager grades each employee on a series of behaviors and characteristics as well as results.  There is limited input from the employee.  Most employees believe themselves above average, which is statistically impossible, and so feel demotivated if the manger is honest.  If the manager inflates the ratings, employees expect higher raises, or feel underpaid, and HR pushes back at ratings that will bust the salary increase budget.

TWEAK THE TRADITIONAL—Much like the above, except that the employee’s self-ratings are requested before the manager and employee meet.  Markle calls this a game of “tell us how high you rate yourself, and we will tell you why you are wrong.”   Even with  more emphasis on coaching, the manager’s final ratings are either demotivating or inflated.  Like the traditional approach, this one takes a lot of time and emotional energy, with little payoff.

DROP OR NEGLECT—Why would managers feel guilty about this option, given the above?  First, Markle says, every MBA program teaches that sound management demands periodic employee appraisals. Also, the employees often request performance appraisals, confident that they will obtain high ratings and thus more leverage to negotiate high raises.  Finally, labor lawyers sometimes claim that appraisals are needed as documentation in the event of legal challenges regarding termination.  Yet, I have seen zero instances in which appraisals have provided useful documentation in such cases.  Quite the opposite.  Due to ratings inflation, they often cause management paralysis.  When a behavioral problem arises, a well-designed discipline system needs to be put into play.  This will provide the needed documentation if the issue is not resolved.

PARADIGM SHIFT

Markle says his system represents a “paradigm shift.”  This term is often overused, without recognition that it implies a radical change of thinking.  The prime historical example is the 17th century shift from a belief that the sun revolves around the earth, the scientific consensus at the time, to Galileo’s view that the earth revolves around the sun.  Markle’s proposed new paradigm may be as equally difficult for some to accept, since it similarly repudiates the prevailing expert view.

His new paradigm could be summed up as follows:  Grading and scoring are appropriate functions of schoolteachers, not corporate managers.  The latter’s job is to attain, maintain, and enhance good employee performance.  Most performance appraisals contribute little to this end and usually undermine it.  Coaching, counseling, and mentoring, together with candor must take appraisals’ place. Markle calls his growth enabling system, “Catalytic Coaching,” which we will refer to as CC,

For the traditional system, Markle says, the main “customers” are HR and Legal, who demand production of “stuff in files.” The whole framework is expensive to operate and provides little benefit for the company or employees.  With CC, the customers are the employee, in terms of growth, and the company, in terms of increased bottom-line results.  CC also breaks the link between pay and performance management, discussed further below.

Many managers will need to step up their coaching skills to implement CC.  However, the process should not require more than five hours of manager time per employee per year, and not all at once.  This averages 25 minutes per month and works in organizations of all sizes.

What do CC coaching sessions look like?

FOUR MEETINGS

In the first meeting, the employee gives feedback.  The manager’s job is simply just to listen, take notes, ask questions, and give little or no feedback at all. The employee prepares for the session by completing a one- or two-page form divided into five sections: a) accomplishments, b) disappointments, c) personal growth, d) career aspirations, and e) other background data.

Occasionally the employee’s main feedback may be, “I am underpaid.”  Markle says this is fine and suggests the following as a response: “If you want a raise, don’t bring me a violin.  Bring me data.”  He emphasizes that competitive pay is essential for high performance, and if there are salary data to show the pay is not competitive, the company needs to know that.  If there are no supporting data, the manager might ask, “would you like me to coach you to take on additional responsibilities so that you can qualify for higher pay?”

At a second and later meeting the manager has prepared a one-page form for his or her feedback to the employee, divided into a) strengths, b) areas for improvement, and c) development recommendations.  The latter could include training, mentoring, different job experiences, etc.  Interestingly, areas for improvement are subdivided into 1) performance impacting; 2) potential enhancing; and 3) job threatening.  Clearly, the idea is not to avoid tough conversations if they are called for.

At a third meeting, the employee comes prepared with another one- or two-page sheet entitled “Personal Development Form.”  The employee is expected to demonstrate responsibility for his or her own job growth.  The manager has input into the finalized plan, of course, but it has power only if it is “owned,” that is authored and chosen by the employee.

The fourth and final part of the CC process is “owned” by the manager and is called “Stewardship.”  This includes the kind of follow-through that is usually lacking in the traditional performance appraisal.  It simply means meeting with the employee as appropriate to track progress and fulfillment of commitments on the part of the employee and further coaching when appropriate or necessary.

SUMMARY OF BENEFITS

Markle sums up his system in saying it is “not just different but better” by producing the following results:

  1. Positive behavioral changes
  2. Increased motivation
  3. Reduced turnover
  4. Increased promotions
  5. Minimum legal exposure.

THE “BIG LIE”

Perhaps the most controversial part of Markle’s new paradigm is that it dispenses with a venerated part of performance management, “Pay for Performance.”  In his book, Markle refers to the latter as “The Big Lie,” an “illusion,” and part of corporate “mythology.”  At the most, he says, top performance results in larger increases “only for a while.”  The truth is that once a person nears the top of the pay grade for the job, the raises for top performers will be only a small amount greater than those for average performers.  For the CC system to work, competitive pay is a given, and so is discussing the truth about salary philosophy with employees.

RESISTANCE AND OPPORTUNITY

The greatest resistance, Markle finds, comes from salary administration managers who are used to fitting employee ratings into a salary matrix to determine increases.  Without employee ratings, they have difficulty evaluating recommendations for raises or promotions.  Markle recommends instead documentation on various achievements and commendations.

Since entrepreneurial firms usually have no salary administration managers and bureaucratic salary plans, they may be in the best position for adopting Markle’s CC plan.  Many HR managers or directors will support this.  Markle cites a December 2016 Harvard Business Review report that 70% of surveyed firms have changed or plan to change their performance appraisal systems.

If you remain skeptical, remember that no new paradigm, however brilliant, has a monopoly on truth.  Even Galileo was only partly right.  He believed that the entire visible universe revolves around our sun, not just the earth and other planets.  But if you want to install an effective and satisfying management performance system, Catalytic Coaching is an exciting and mind-opening place to start.