With thanks to Chris Wilkinson (ex Depop, OneFineStay), Matt Bradburn (ex Lyst, Peakon, Qubit) who contributed to this article.
Performance reviews are nearly universal, and yet widely hated by both the people going through them, and managers who have to conduct them. So why do so many companies persist with performance reviews?
In theory, a performance review should provide a number of benefits to the employee and their company, calibrating and improving performance, removing bias from pay and promotion discussions, and creating a forum for setting and reviewing goals.
In practice performance reviews often consume huge amounts of time and despite the documentation created, deliver none of the intended benefits. When conversations about personal growth, compensation and company targets are combined, none is addressed effectively, because each requires a different set of information and a different tone. A poor outcome for the effort invested creates frustration and lowers morale, while a confused objective leads to the process being framed in a patronizing way that no one appreciates. No wonder performance reviews have a bad reputation!
This article sets out a pragmatic approach to running performance reviews focused on improving an individual’s performance, and improving their relationship with their manager. Our performance review template provides a roadmap to having high quality, low effort conversations to help people achieve their potential. We’ll also outline in more detail why calibration conversations and goal setting are important, but best handled separately.
Format of performance reviews
A performance review is a structured conversation between a manager and an employee to help the employee perform better - that is, to help them create more value for the business and its customers.
More mature companies tend to increase the preparation required for these conversations in an attempt to reduce bias, and this can easily end up in several hours’ work for the manager, the individual concerned and many of their peers.
The actual nature of performance reviews varies widely from company to company, depending on how mature it is and its overall philosophy towards performance management. In particular, you see a lot of variation on the three axes:
- Frequency - Does this happen once or twice a year, quarterly, or on an ad hoc basis?
- Involvement - Does this include just manager feedback, is there an element of self review, or is there feedback from peers and other colleagues as well?
- Formality - How much evidence is gathered to support the conversation, and is feedback structured or graded in any way?
In general, the larger the company, the more people involved and the more formal the process, whilst startups tend towards a lightweight, more casual approach.
Benefits of performance reviews
Companies do performance reviews for four key reasons:
- Improve performance - increase the quality, leverage and amount of work done by someone
- Increase motivation - increase how much someone wants to do good work
- Calibrate salaries and titles - increase retention by making sure that people are fairly rewarded when compared to others both internally and externally
- Set goals - make it clear what success looks like, and establish very clear expectations for what they should be doing
It’s worth spelling these benefits out, because the pressure to enforce a “high performance culture” can lead to a heavyweight process that is highly visible and performative, but actually fails to deliver on any of these four points. You end up in a place where “performance management” is a catch-all term for all of these themes, but is actually counter productive in reality.
That’s because what you need to do to effectively improve employee performance and motivation is actually quite distinct from what you need to do to set compensation and titles fairly, or set clear goals and run effective progress check-ins.
Why compensation and performance don’t mix well
One of the biggest sources of pain in performance reviews is conflating discussions calibrating pay and titles with conversations about performance. Intuitively these fit perfectly, so it’s no surprise that they are lumped together, but in reality there are several problems with combining these into a single conversation:
- Fundamentally, money is surprisingly poor at motivating people.
- What really drives retention and engagement is how strong your overall employee value proposition is, which includes your mission, team culture, development opportunities, the level of security and working conditions.
- Performance feedback needs to be both frequent, and follow on quickly from behavior to be effective. Giving people feedback a couple of times a year doesn’t do much to improve their performance because the advice is stale by that point.
When compensation and performance conversations are mixed, you end up with a calibration conversation, under the guide of a performance conversation. That means a lot of talk about personal growth and development opportunities, when actually all the process of gathering feedback and placing people on career ladders is focused on making sure that people are paid the right amount and have the right title. Compensation calibration needs to happen, but when it’s framed as a performance conversation, it‘s disingenuous and patronizing. It ignores the employee’s career goals and doesn’t actually help them progress in their career.
A sensible approach to compensation might involve having a clear philosophy on how you pay vs. market (e.g. top quartile / median / etc.), and then regularly (likely annually):
- Benchmarking externally to understand market rates for different roles (ideally by geo, level and company peer group)
- Calibrating people internally, so you can apply your pay philosophy fairly
- Proactively adjusting people’s salaries on this basis
Why goal setting and performance doesn’t mix
Similarly, it generally doesn’t make sense to mix together goal setting and progress reviews with conversations to improve individual performance. In the case of product management the problem is particularly clear as
- Product is a team sport. Product managers can’t ship anything on their own. Goals that deliver impact are achieved by a whole team, whilst performance conversations are very personal in nature.
- Check ins on progress need to be focused around the action required to ship features and create user value. This is a task based perspective that contrasts with the holistic and individual-centric view a performance review should take.
Whilst there’s obviously some overlap between what a person achieves and the performance conversations that you have with them, a delivery review or sprint review is a more effective way of checking in on progress, and holding teams to account. Group check-ins like this give you better visibility on what is going on, are more frequent, and are more effective meetings to unblock the team, as all the relevant people will be present.
