Chicago Booth Review Podcast Should Performance Reviews Be Scrapped?

Stacey Kole: Well, I think performance evaluation has heightened importance because people know, oh, it could be tied to their compensation, it could be tied to promotion opportunities. So, because we have this valuable asset, performance evaluation, let's think about what we can get out of it.

Hal Weitzman: Many of us react to the term performance review with a shudder. It's that awkward periodic conversation in which we have to hear feedback, share our assessments of each other, and occasionally clash with our colleagues. But do performance reviews have to be like that? Welcome to the Chicago Booth Review Podcast, where we bring you groundbreaking academic research in a clear and straightforward way. I'm Hal Weitzman, and today I'm talking with Chicago Booth's Stacey Kole, an economist who teaches a course on managing the workplace. Does she think that performance reviews are worth saving? And if so, how can they be revamped?

Stacey Kole, welcome to the Chicago Booth Review Podcast.

Stacey Kole: Pleasure to be here.

Hal Weitzman: So, we're going to talk about performance reviews, and let's face it, no one, not the person who has to give the review, nor the business being reviewed, likes performance reviews, and management doesn't really like performance reviews either, or does anything with the information. Are they still worth doing?

Stacey Kole: Well, I think we have to start with why do firms do performance evaluations? There's a lot of different reasons why you might want to use them. One is just to track performance. One is to figure out what skills people are developing so you could match them to jobs. One is to help people develop. I mean, there's many, many reasons. And so, the firm has to start with, why are we doing this? And lots of firms don't.

Hal Weitzman: And so, they don't start with why we're doing this, and so why are they doing it if they're not asking that question? Is it just a sort of pro forma thing?

Stacey Kole: Yeah, I think that, well, there's legal reasons why you might want to have a record of how someone-

Hal Weitzman: You mean if you want to fire someone, you have to...

Stacey Kole: ... If the market turns bad and have overextended and need fewer employees because of your customer orders, yeah, you have to have a defensible way to decide who stays and who goes. So, performance evaluation, if done right, can be that record that companies can draw on. But that's the most negative view, I think, of performance evaluation, probably the one the lawyers like best.

Hal Weitzman: Okay. And so, you say the organizations don't know why they're doing them, but you had a reason why they should do them?

Stacey Kole: Yeah, so let me give you a symptom. Sometimes companies have a lot of questions. I mean, in the old days, we used to have a dozen questions or so on a student evaluation of a course. And many of those questions-

Hal Weitzman: You're talking about here at Chicago Booth?

Stacey Kole: ... Here at Chicago Booth. And many of those... So, our alums might remember filling them out. And many of those questions were really related to the effort of the evaluator. How many times did you go to class? How often did you read the materials before you got there? And all of that was interesting information, but it wasn't really relevant for the, directly relevant for the performance of the faculty member because we weren't sorting out, we weren't ruling out the people who didn't come to class. We were counting every single evaluation.

Hal Weitzman: And I should explain at this juncture that you were one of our deputy deans here at Chicago Booth.

Stacey Kole: You shimmied it down. Right? Yeah. So during... In the old days, we decided, what is the objective? What do we want to know? What will help faculty be better performers? And so, we really threw away a lot of questions that were interesting but not helpful in achieving our learning objectives. Ex-post, you can't slap them on the wrist because they didn't go to class or you can't say, "Well, you should have come to class." Great information, but it wasn't relevant for the task at hand.

So, a lot of companies have to ask themselves, what is the task at hand? What do we want to gather? Is it purely to be a record? Is it the foundation of performance development, professional development? And so, I think there could be multiple objectives, as I mentioned. Communication is one, matching is another, this legal record. But because those objectives can clash, you have to decide what's the primary one and how to build performance evaluation to deliver what you want.

Hal Weitzman: And so, in your experience, are companies, are organizations, are they doing that? Are they asking the why, or are they just kind of inheriting the system and getting on with it, trying to make it as painless as possible?

Stacey Kole: Well, there's lots of variation, as you might expect. You'll see, most frequently, someone will walk into a setting, inherit a performance evaluation scheme, just like they inherit other policies that drive behavior, and ask themselves, is this achieving what we want? So, I have this story I often tell students. One of our alums stepped in to serve as a CEO of a huge food company, Brazil Foods. And when he walked in, the company had just gone through a merger, there was a lot of conflict inside the organization, and managers were asked to fill out performance evaluations with over 100 questions. 100 questions. I mean, how could they all be useful? So, what he did was ask his senior team to sit down and say, "What are the relevant questions here? What do we want to know and what can we convey to employees with the questions we ask?"

And that exercise of pulling together the team, asking what do we want to know and why, and then how do we use that to communicate with employees, basically set the foundation of their strategy going forward, right? The senior leaders how to talk about what is the goal, what's the vision? Is it shared? They had to talk about how do you convey that through performance evaluation to employees, and then what do they want to hear back from employees to understand where there's conflict? So, his team ended up with a new performance evaluation with fewer than 20 questions. Much more effective, clearer messaging to employees, and off they went.

Hal Weitzman: And it's been a success?

Stacey Kole: It has. He's no longer the CEO, this is back in 2015, but I think it was an amazing catalyst and an example of how you can use performance evaluation strategically. I think that's often lost. I think a lot of people think of it as going through the motions. As you started us off, nobody likes doing things mostly because of the interpersonal conflict. I have a vision in my mind of how well I'm doing, and then you sit down and tell me the facts, the honest observations. And when they don't align, it's painful. It's painful for everyone, and most managers aren't sufficiently compensated to bear those personal costs.

Hal Weitzman: Well, particularly not if there's 100 questions. That seems over the top.

Stacey Kole: Yeah. Well, and you can't even imagine that people would take those questions seriously. It's just tick, tick, tick, tick, tick. Kind of like when you go to the doctor, tick, tick, tick, tick, tick on all those questions.

Hal Weitzman: Right.

Stacey Kole: They have meaning, individually they have meaning, but yeah, you're just blowing through them to get it done.

Hal Weitzman: Yeah. And so, it sounds like perhaps one of the reasons this happens is because I feel like performance reviews are sort of the purview of the HR department rather than the C-suite. So, it's not the CEO saying, "We need to do this because of..." It's sort of the HR department, as you say, saying, "Legally, we better cover our butts and do these."

Stacey Kole: Yeah.

Hal Weitzman: Is that right?

Stacey Kole: I think that's a fair assessment in a lot of organizations. I really don't like the storylines that kind of paint HR in this negative box because I think they can be important partners in these processes. So, you want to engage them, for example, with the C-suite in asking, how do we use performance evaluation more effectively? So, I think relatively few senior teams, if they haven't taken managing the workplace here, think about performance evaluation strategically. And so, if there's any message in this conversation, it's to ask managers to think hard about are they getting the most out of performance evaluation?

Hal Weitzman: Because, I guess I wasn't trying to put down HR so much as to think that if it's about HR, then it becomes about development of people, right? So then, it's about what courses would you like to take to improve your skills, or would you like to move to a different kind of position within the organization, or is there anything else we can do to make your life easier? The way you were talking about it was more like, what does the organization want to get out of it in terms of conveying information or gathering information, which is a bigger dimension that I suspect that many organizations don't get to. Is that fair?

Stacey Kole: That is fair. And so, I have limited time. And so, I think the developmental component of performance evaluation is something we all know, right? So, why turn on this conversation if that's what you're going to hear? The part few people talk about is the part that I think can be very powerful. And in a lot of organizations, managers either are handed processes from HR or delegate some. Give me the interview questions I'm supposed to use, or delegate to HR some process to make sure there's fairness and equity. What I'm suggesting instead is to ask, what do you as a manager want to get out of performance evaluation, both as a way to communicate to employees and to bring information back up to you?

Hal Weitzman: So, you talked about the information that organizations want to convey using the performance review process. What is an example of that?

Stacey Kole: I think I used Deloitte as an example, or it's a very commonly used example. They distilled their performance evaluation to five simple questions that were all questions that you, Hal, might ask about my performance. So, one question would be, Hal, would you promote Stacey if you had the opportunity to do so today? If it was your money, would you give Stacey a bonus? Would you, Hal, encourage your teammates, your peer partners, for example, to put Stacey on a project? And so, those questions, yes, they make it easier and simpler to do performance evaluation, but they also send a very clear message to the employee that you're not just an individual performer. You need to make your team better. You need to colloquially play well with others and make sure that when you're working on a team, that you are supporting the objectives of the team.

Hal Weitzman: Okay. So, what are the kinds of information that, if we're in the C-suite-

Stacey Kole: Yes.

Hal Weitzman: ... and we think, "Hey, you know what? We should be in charge of this process. We need to revamp it." What are the kinds of things, pieces of information, pieces of data that it would be good to collect in a performance review process that we couldn't collect in another way? Or is it that we could collect it, but we're doing these anyways so we may as well use them?

Stacey Kole: Well, I think performance evaluation has heightened importance because people know, oh, it could be tied to their compensation, it could be tied to promotion opportunities. So, because we have this valuable asset, performance evaluation, let's think about what we can get out of it. So, for example, some leaders are very effective talking about the vision for the company and the future and strategic goals. Some not so much. And so, performance evaluation is a way to, it's a mechanism to test whether people really understand where the company's going. So, questions like, do you understand how your individual performance helps the company achieve its goals? Do you understand how our team does that? And ask people to articulate those aspects of their work and its importance. And if they can't, that tells you something about how messages are moving through the organization, but also they can't deliver the behaviors that the senior leadership wants if they don't know where they're supposed to be headed.

Hal Weitzman: Right, and it's also presumably a way of tying individual tasks, which particularly nowadays, thinking in the age of remote work-

Stacey Kole: Yeah.

Hal Weitzman: ... it's harder to have corporate culture spread and corporate mission spread. So presumably, the way you're reframing it is this is a way to tie individual work to bigger work, and there's some good work being done here at Booth about how people actually work. They're much more productive if they know about the purpose of the organization-

Stacey Kole: Exactly.

Hal Weitzman: ... and the mission.

Stacey Kole: Right. Yeah. I mean, so we had a dean here a number of years ago, Ted Snyder. And when he would speak, you could almost parrot the words that were going to come out of his mouth because he really wanted all the staff to focus on relationships that mattered. Very short phrase, but I'm sitting at my desk, I have an hour left. It doesn't matter whether I'm a junior person in a team or a very senior person. You heard Ted's voice saying, "Focus on the relationships that matter." And so, you could evaluate the work on your desk and say, "I should lean into this one." Was it perfect every time? No. But the message, the strategy was very, very clear, and it permeated the entire organization. I think if organizations could be as effective conveying the overarching objectives, individuals would make better trade offs, which is ultimately what we want. Economists want people to use their time most efficiently and make the best trade offs for the organization, not just themselves.

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So, Stacey, we talked about performance reviews, how they can be used strategically to uncover information, bring information back to senior managers, and it strikes me that you want that flow of information all the time. You don't want it to come in a torrent once every six months or whatever. So, are performance review is really the best cadence for these kinds of strategic objectives, or should we be doing this all the time? And you want your managers to be constantly talking to their teams and understanding what's going on and how they can help them, not just once every six months.

Stacey Kole: Very fair question. I think on a regular basis, employees should know how they're faring. Did I miss the mark? How did my input, did it positively contribute to the team? And so, saying to someone, "Good job," or, "We're glad you... That was a great question, you moved the conversation along," that type of feedback is very, very helpful. But I think performance evaluation done right really forces the manager to focus on central themes. I noticed that when you attend meetings, you often hesitate to participate, and I've seen that over the last three months. Let's try this tweak, let's focus on this and then let's revisit it after we've had lots of observations. So, if I just kind of give you feedback one day at a time, you might think I don't get any feedback. But if I focus it and use this more structured format, you're more likely to get the message through.

Hal Weitzman: Okay. And presumably, it also serves the more formal legal purpose that we talked about in the first half.

Stacey Kole: The paper trail. Yes.

Hal Weitzman: Yeah. The evidence that we're collecting, yeah, the more sinister side of it. Okay. Now, we said right at the beginning that everybody hates performance reviews. Now, I know that some organizations are just getting rid of them, or some are revamping them, many are getting rid of them. Why are they getting rid of them?

Stacey Kole: They're time consuming. And the question is, could you use your time as a manager, as a supervisor better? And so, a lot of organizations, I think Deloitte is the poster child for this, tried to do a calculation. They said they were spending some number of millions of hours on performance evaluation and felt it was not, they could be billing some of those hours, felt it wasn't a good use of their time.

I think it's fair to say that performance evaluation will go in and out of favor, but it's not going away. And it's not going away because individuals would like feedback, positive and constructive feedback about how they're doing, because performance evaluation can lead to behavioral changes that make a good employee a better employee because it reconnects managers to what's happening on their teams and helps them understand, are they in fact guiding this troop forward in a positive way? So, there's a lot of information to be captured that if you totally abandon it, people overweight random comments.

Hal Weitzman: They overweight random comments. I'm thinking if there are also organizations that are into radical transparency where, I'll tell you, I think this podcast is going well. How do you feel? This sort of constant. Does that become too, I mean, some people hate that. It becomes too much and too intimidating.

Stacey Kole: Yeah, I mean, different cultures attract different types of people, right? And so, when I think of culture, I think about the implicit or explicit policies that drive behavior. And if I take this explicit tool of performance evaluation off the table, and I just have you sharing your feelings and someone else not, I end up with a distorted view of how I'm actually doing.

Hal Weitzman: Okay. But do you think, we talked in the first half about the information, that these are information rich environments and you can collect a lot of data. Are there other ways to get that data? We talk, for example, about you want the people to understand that the jobs they're doing, filling out the spreadsheet is actually important because whatever, we'll grow market share if we get all these things right. So, I mean, are there other ways to get that? A survey or some kind of other assessment? Why does it have to be in this, wrapped up in this thing, which as you say, we all know in the back of our mind, could be used to get rid of us one day.

Stacey Kole: Which is, yeah, the inherent tension. I think that, and this is not the domain of economists, it's a personal opinion based on observation. Managers vary in their communication skills. And so, the performance evaluation process nets out some of that noise and makes the message, the signal that you get at your performance evaluation stronger as a message about the company's assessment of you rather than just the manager's assessment of you. And that removal of noise I think can be helpful, especially if your organization, for example, is growing and you want to use what information is housed in the performance evaluation system as a way to identify future people to plop into a new opportunity. So, that I think of as a situation where matching is going to be important. You want to make sure you have this tool that sort of standardizes. If matching is not that important, you need that list. So, again, it's really back to why are you gathering data, how are you going to use it, and are you making the most of the time you spend?

Hal Weitzman: So, Stacey, for an organization looking to revitalize its existing performance review process, many of which I imagine need revamping, what advice do you have?

Stacey Kole: I think the first piece of advice would be to ask, does everyone agree why you're doing performance evaluation? And is there a way to make the process more efficient and effective as a communication tool? So, take less time to make it happen, and send clearer messages about the goals of the unit, opportunities in the future at the company, so that employees have a better understanding about their role and how meaningful their work really is. So, that would be, yeah, first one. Second, I think, is to make sure that performance evaluation has this dimension of what I'll call procedural justice. If you evaluate me and I don't get an opportunity to respond in any way, it just goes in a file, that's not going to build trust. And so, thinking about how your current performance evaluation scheme is interpreted by employees, is it seen as fair? Do I have an opportunity to weigh in before things get written down and put in the file?

That could go a long way to telling employees they really matter and this isn't just a process to put something in a file, like to fire you later, but one that's really designed for us to help you develop. And then, one of my favorite things is to encourage managers to keep a journal, like positives and negatives, right? Because we have this problem with recency. I sit down and I want to tell you how you're doing, and the most recent conversation I had about your work with someone on the team or someone in another unit comes to mind. But if I have this journal, I don't have to spend a ton of time on it. But I could say, "Hal asked a really thoughtful question in this meeting. I should make sure I thank him for that." And then, you look at it and you find that, in fact, Hal's been asking thoughtful questions for many months in these meetings. How come nobody's recognizing that? How come we're not using that curiosity effectively in his role?

And so, yeah, I would encourage managers to have just a feedback journal that they keep. And then, sometimes I do this. When you finish a class, you have interactions with a student. And this happens, for me it's happened a few times with international students, where they're not as familiar with the norms, behavioral norms. And I've sat down with students and said, "I would like to offer you a gift. It's a gift of feedback. I know that you really want to be successful. I think you're super talented." Right? So, the positives, setting the stage for why they should receive this.

"But I want to offer you three examples where you unintentionally were quite disrespectful to me, and you are going into this particular field," and the case I'm thinking of, it was a student going into investment banking, "And that's not going to be heard well. So, let's talk about how you could rephrase those comments in each of those three examples and then try it out, see how it goes." And I can tell you that students have been extremely open to that and very grateful. So, I think inside of companies, if we saw more of that type of, I observe this, don't criticize without a plan, here's the plan, try the plan, let me know how it goes, I think that can be very powerful.

Hal Weitzman: Okay. Well, Stacey, hopefully you've found the questions thoughtful today. We definitely enjoyed hearing your responses. So, thank you very much for coming on the Chicago Booth Review Podcast.

Stacey Kole: Thank you.

Hal Weitzman: That's it for this episode of the Chicago Booth Review Podcast, part of the University of Chicago Podcast Network. For more research, analysis, and insights, visit our website at chicagobooth.edu/review. When you're there, sign up for our weekly newsletter so you never miss the latest in business-focused academic research. This episode was produced by Josh Stunkel. If you enjoyed it, please subscribe, and please do leave us a five-star review. Until next time, I'm Hal Weitzman. Thanks for listening.