Philadelphia, Pa., -- A Business 21 Publishing survey of 120 HR executives suggests that managers at less than one company in five are happy with their company’s performance evaluation system. That’s a shocking statistic, given that performance and productivity experts believe that feedback is absolutely essential to getting results.
An equally intriguing statistic is that more than four in 10 respondents to the survey said they had no idea how managers felt about the system. One expert estimated in 2000 that a company with 1,000 employees spends $710,000 annually on performance reviews. In today’s dollars that’s closer to $850,000. Try to imagine any other product or service a company would spend that kind of money on without even paying attention to whether it was working. And yet the survey suggests that HR executives at 41 percent of companies make available to managers a performance appraisal system but have no idea whether it meets their needs or is even being used.
Why is this a problem? For several reasons:
1. Legal exposure: When managers dread giving performance reviews they do one of two things:
a) They sugarcoat the review because they have no faith in the system and lack the stomach it takes to conduct an honest (i.e., critical) evaluation. Or b) they just don’t do the review, for the same reason. Down the road when employees get fired for poor performance and sue for wrongful dismissal, the company will lack a consistent paper trail detailing the employees' deteriorating performance. Much to the delight of plaintiffs' attorneys.
2. Retention: Poor employees tend not to demand feedback. But top performers are as hungry for feedback as poor ones are averse to it. Stars want bosses who challenge them. Who critique their work. Who nurture them. Who care about their career advancement. When you’ve got a bad appraisal system, many top performers aren’t getting the feedback they need, and they’re heading for the doors. Your $850,000 per year system is really costing you millions in hidden turnover costs.
3. Productivity: How much more does a company lose per year in poor productivity when managers lack a credible method for conducting performance appraisal?