“I understand that leadership requires transparency, but how do I do that? And should I be open about everything?”

Here’s a guide to transparency

Step 1: Co-create and publish a list of transparency rules (see below)
Step 2: Be transparent about your transparency
Step 3: Adjust as the culture evolves

Sometimes employees have the feeling, that the management just wrote a number (“the target is 14!”) on the inside of a glass cube, and all the employees can do is stand on the other side and see the number (“14!”). They cannot get an explanation, or a dialogue on how the number was derived. They feel alienated.You as a leader should strive to avoid this distance between management and employee.

What can I do to be transparent?

Transparency is perceived as fake without feedback, involvement, and dialogue. Transparency comes in three levels:

Performance reviews do not work, but what to do instead?

Let’s just briefly go back to why we – per tradition – are doing the reviews/appraisals in the first place:

1. Performance improvements: The overall purpose: Helping/pushing the employee and organization to get better results.
2. Feedback and acknowledgement: We wish to boost people performance and motivation by providing feedback and acknowledgement – and in the same time, point out undesired behavior or other wrong doings.
3. Compensation: We tie salary and bonuses to performance, and the review is supposed to be a fair way to calculate the compensation.
4. Talent management: Review scores are used to compare employees, keep records and act as base for decisions regarding promotions etc.
5. Poor performance. The review process and scores constitute a paper trail for performance improvement programs and termination.

It’s all good reasons, and in some areas it actually works. The individual goal setting strengthens focus on what is the most important, and ensures that people everywhere in the organization work on the right tasks. The management level get to discuss what good performance is, and what a good performer is like, so that we can recognize what we should push for. It also creates visibility and transparency on low performance – and it provides a ‘safe’ and fair way to deal with something that many finds difficult.

But the upsides do not even out the downsides, and what we should do is stop doing performance management, and start doing Performance Leadership instead.

Performance Leadership is about creating an organization based on people, rather than perceiving humans as a resource, and on commitment and enablement rather than commandment and control.

Here are 8 elements of Performance Leadership, that replaces the annual reviews:

1. Quit giving ratings.

At all.

2. Decouple salary and bonus from performance

Pay people fair based on market rates. Everybody in the organization play an important part in achieving the goals – and if they don’t, move them to a job where they do, or let them leave. The high performer can only do her stuff, when back office is supporting. Shift focus from pay to purpose, and from individual profit-optimization to collaboration and team performance.

3. Give regular feedback

Feedback should be given every time a task or a sprint is done, orally and/or in writing. Create a culture, where it is natural to both give and ask for feedback. Every PowerPoint presentation, workshop or any other kind of deliverable your employee is responsible for, should be rounded of with a few words. That means daily or at least weekly feedback. In agile projects weekly feedback sessions are already common (the retrospective).

4. Ask the organization

To capture what your employees are doing on projects and other types of tasks that may not be visible to you as manager, ask around, and perform regularly 360ᵒ evaluations, including all relevant stakeholders. Use this input as supplement to the personal feedback.

As an example, I have met companies, where they once a year ask everybody to (anonymously) give feedback on everybody using points. Each person have 1 point for every employee and can give one person all the points, or everyone 1 point. This highlights the ‘hidden’ high performers, and sees through the ones only managing upwards.

5. Handle poor performance instantly

Do not wait to handle low performance. Deal with it when you spot it, and handle it as part of the regular feedback. Find the best way to facilitate and counsel, based on the employee and the situation.
6. Talent management

Most managers knows who their talents are, without having to rate them beforehand; so build a separate process for this. Use also the input from the 360ᵒ feedback to discover any hidden talents.

7. Have moving targets

Keeping the strategic direction for the organization is as important as knowing the overall purpose; but how we get there should be flexible and adaptive to the changing environment. Set and reset targets on quarterly basis, keeping alignment with the overall direction.

8. Focus on the meaning

Make sure that the individual targets are meaningful for you and for the employee. Working on tasks that makes sense and have a meaning gives high motivation – and opposite: working on tasks that does not makes sense, is one of the major motivation killers, and why people leaves companies.

Having said that, there is no one-size fits all in this. Every company have to find their own pace and way forward, and what work in some organizations, may not work in yours.

What we normally advice is, that when the management team collectively have taken the informed decision to scrap performance reviews, you start experimenting with the different elements in performance leadership, and continuously adjust and evaluate it along the way.

Remember, performance leadership is about people, culture, commitment, and enablement.

You are doing it with the very best intentions, and I guess that you are doing them right now, if you didn’t finalise them just before Christmas. Performance reviews.

You probably do it to provide feedback, to appreciate and acknowledge the employees and their contribution, and to make employees improve their performance. You use it as a fair tool to distribute compensations, to evaluate and keep track of talents, and less positive: you may also do it to collect a paper trail in case you need to fire someone.

The secret – which your HR organisation very likely have discussed internally for some time – is this: It does not work (perhaps except for the paper trail-thing). In best case it is useless, but in most cases it downright demotivates your employees.

This is part 1 of 2, where I point out the problem. In part 2, I suggest a solution.

The problems about performance reviews

As I see it, there are three main problems with performance reviews:

1. The ratings
2. The timing
3. The managers

Lest go through them, one by one:

1. The ratings are demotivating

Most companies uses a 1-5 scale to evaluate the employees once a year. Since the distribution of ratings tend to skew against the higher performance and hence devaluates the rates (and we don’t trust the middle managers to be objective), some companies uses forced or ‘guided’ bell shaped distributions, like this one: