If Managers Don’t Give Performance Reviews, What Happens?

There’s a great comment to my recent Management Myth: Performance Reviews Are Useful. The writer has these questions, which I have paraphrased:

1. How do bonuses work?

Here’s the problem with bonuses in a team-based organization (agile or not). How can you tell who has done which work? Who actually knows who has contributed what?

The team does. This is true whether the team is agile or not. The team always knows who has done great work, who has pulled done whatever, or if someone is hiding. It’s easier to know if someone is hiding in agile.

The team always knows who has done what. The manager can try to know, by asking for status. The manager can try to know by asking for accomplishments. But the team knows.

That’s the first problem.

The second problem is why is any knowledge worker’s pay based on a bonus? This smacks of management by objectives. You know the kind, “We’ll increase our sales by x% over this year.” All other objectives flow from that. By the time they get to you, your bonus is supposed to be based on you completing a specific project your managers were supposed to fund at the beginning of the year.

Did you read all of those “supposed to” in the previous paragraph? That’s what happens with traditional project portfolio management and big-bang funding. That’s part of the reason you end up with multitasking which makes everyone crazy. People are trying like crazy to fulfill their personal bonuses (optimizing at the lower levels) instead of doing what the organization needs. This is one of the reasons I wrote Manage Your Project Portfolio.

How many of you missed out on a bonus because some salesperson screwed up? (My hand is up.) We completed our technical projects. Sales sold stuff we didn’t have. Sales didn’t sell stuff we did have. Management didn’t decide on a reasonable strategy, even though we completed our projects. Somehow this was our fault as technical people? Come on. We did our parts. No bonus for us. This is fair? Nope.

When you provide individual bonuses, you do not guarantee better results. We have data that proves this. Read Dan Pink’s Drive: The Surprising Truth About What Motivates Us, Pfeffer & Sutton’s Hard Facts, Dangerous Half-Truths, and Total Nonsense: Profiting from Evidence-based Management, and Hope’s Beyond Budgeting: How Managers Can Break Free from the Annual Performance Trap.

If your company is basing your compensation partly on bonus, it’s because they are cheap. They are trying to tie part of your compensation to something you have no control over: revenue. Revenue sharing is fine for retirement funding. Not so fine for regular compensation.

2. How can a company know who is contributing and who isn’t?

Ask the team. They know. Who else needs to know and why?

This is why you want to push the responsibility for feedback and coaching into the team. This is why you want the manager to be a servant leader.

When the manager is a command-and-control leader, no one knows nothing.

Why would anyone step forward and take responsibility? It is no one’s interest to do so.

3. Without paperwork we introduce possibilities of lawsuits, particularly for big companies?  If a man is paid less than a woman and it is found out, using your logic, discrimination lawsuits are reasonable since there is no ranking.  HR likes this paperwork to try to protect the corp.  Granted Netflix has a solution of 6 months severance, but do you have any other alternatives?

Let me separate this one. You don’t need paperwork to know if people are paid comparably.

You can have salary ranges for each level. You can group each level and see what you get. I did this at one of my jobs. I discovered that when I was the only female manager, I was the  one paid $10k less than the men. I brought that to my manager’s attention. He hemmed and hawed. I persisted. I said the word “discrimination.” They gave me a raise to bring me parity.

I wasn’t ranked. I grouped people by salary range, that’s all. I didn’t need ranking to see this. I needed a spreadsheet.

I hadn’t done this to look at my salary by the way. I had done this to look at all of Engineering, at the request of my boss. The question is this: What problem are you trying to solve?

HR doesn’t need ranking. They need common sense, which I admit, isn’t all that common.

Paperwork doesn’t solve problems. Paperwork protects HR from lawsuits, maybe. My paperwork proved that the company was discriminating against me. I didn’t intend it that way. But that’s what it proved.

4. You are arguing that management doesn’t need to exist in the traditional sense (since paperwork has been a big part of the job).  If agile has killed the ability of the manager to know what is going on and can’t review the employees, why have a manager at all?  Why not replace people-oriented managers with project-oriented managers?

Managers exist to create an environment that helps people do their best job. Managers exist to create and refine the strategy and to organize with purpose. Managers provide coaching and meta feedback. Managers initiate communities of practice. Managers manage the project portfolio. Managers provide servant leadership.

Even if managers did performance reviews, they didn’t do reviews every day of the year. They didn’t rank every day of the year. They certainly didn’t keep their eyes on “their” employees every day of the year. (Okay, the micromanagers did. But most traditional managers were not micromanagers. They were poor lost souls who didn’t know what else they should be doing.)

Project managers help a project get to done. People managers should not interfere with that. In a matrix organization, that is precisely what happens. I’m not sure what happens where you are.

I have a coaching client where the people managers are the project managers. They are also doing a form of agile. It’s their form of agile. You wouldn’t recognize it as by-the-book anything. But, because the VP is in charge of all of Engineering, he can see when the system is working and when it isn’t.

We had a conversation last year, and I suggested their stories were too big. It was too difficult for the managers to make project portfolio decisions. It looked as if some people were slacking off and some were working very hard. I suggested my coachee might not have enough data.

“If you make the stories smaller and the work flows through all the teams more evenly, you won’t need as many experts. The teams will be able to complete their work, and be able to finish their work more reliably. You will have more data on the teams. They will have more data on each other. You won’t have to pluck people and move them from project to project, which makes things worse. Before you decide some people are better or worse, why not try improving the system, first?”

They decided to do that. It was quite difficult for them. It went against everything they knew how to do: architecture, estimation, planning, implementation, everything. But they decided to try. Their managers were also their project managers and guided the teams to success. My coachee, the VP, learned that the people he had thought were great were good, but there were some shining stars he had not known about. The shining stars kept their mouths shut and kept the company running. All invisible work to the VP. Not invisible to the project managers. Who happened to also be the people managers.

There is no Right Way to organize. There is no One Right Way to manage. I lean towards servant leadership, because I don’t see how to have an effective organization without it.

How can we expect people, who are responsible adults, who have mortgages, children, and enter into contracts every day of their adult lives to turn off their brains at work? Why would we want them to?

Managing knowledge workers is not trivial. You try something, you get some feedback.

But performance reviews and especially ranking? No. Give me feedback on my work on a regular basis. Not performance reviews. Not paperwork. Not ranking. Don’t compare to other people. Tell me when I’ve done something useful. Tell me when I’ve done something not as useful, and why.

What do you think about these four points, especially about the role of the manager?

About Johanna Rothman

I help managers and leaders do reasonable things that work.
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16 Responses to If Managers Don’t Give Performance Reviews, What Happens?

  1. Sam says:

    Have you seen Ryan Carsons “No-Manager”-Company?
    http://ryancarson.com/post/61562761297/no-managers-why-we-removed-bosses-at-treehouse
    Of course they still manage stuff, just differently, but maybe this is an interesting case to have a look at for you?

  2. rich stone says:

    The people manager’s job is to build and maintain the team. That means hiring and developing and sometimes firing.

    Feedback is a valuable tool for team development. Performance reviews are really designed to support decisions, comp and separation.

    A manager can use different tools to support those decisions. We use different tools for contract staff without questioning it, right?

    I Learned on my first management role in 1990 that perf reviews were “loaded”. Employees know that comp depends on it, so they try to game the numbers. They resist feedback because they feel it hurts their number. The underlying framework of comp and termination impedes the actual process of performance management, which itself is a bad idea. Perf mgt as a manager activity should be replaced with developing capacity. That is a much better framework for staff evaluation. It reframes the question from what have you done for me lately, to what can you do for me now?

    That’s my two cents…

  3. Sam, thanks, I had not seen that. Fascinating reading. Thank you for the pointer.

  4. Rich, thanks for reminding me about contract staff (face-palm). Of course!

    As a manager, I always wanted to assist my staff in developing their careers, if they wanted to do so. Not everyone did. I still wanted to build my capacity as a manager.

    I bet the people who want to “build themselves” are more likely to join a place like Treehouse (see previous comment) than a “normal” place. Then you might get the best of both worlds…

  5. Jim Grey says:

    I have been thinking a lot lately about a series of posts over on the Leading Agile blog, especially these two:

    http://www.leadingagile.com/2014/01/business-model-good-fit-agile/
    http://www.leadingagile.com/2014/01/make-commitments-face-uncertainty-2/

    They speak of emergent and convergent business models, the former being companies like Facebook or Google who aren’t selling the product they make, but make their money off the product in other ways; and the latter being companies that sell their product. I’ve always worked in convergent companies, where there is always pressure to deliver featureset x by time y because of commitments the company made. There is always pressure to fix all three legs of the quality triangle, to try to force predictability and repeatability onto something that is not inherently either.

    It is this kind of thinking that leads management to want to use bonuses as motivation. I’m a director of QA and am under bonus, and routinely I don’t get all of my bonus because I’m deliberately focusing on behaviors that deliver the best possible product at the best possible time rather than enslaving myself to behaviors that maximize my payout, because frequently those behaviors have long-term and non-obvious negative consequences for the company. I can drive my team to take all sorts of sly shortcuts to hit a date. I think it serves my company better to tell the truth about the quality of the code we’ve received from dev so it can make the best compromises that balance quality and timely delivery. But that’s not measurable; it’s a behavior that I can exhibit to varying degrees.

    My last company gave bonuses based on how well the company did. It was framed more as a sort of profit sharing: if the company did well, you got a nice check at year’s end; if the company didn’t do well, you didn’t. This was better, but I still didn’t think it was great, because it was a great demotivator and struck fear in my team’s hearts when the checks were small or nonexistent, because it made them wonder about the company’s health.

  6. Hi Jim,

    I’ll address the bonus part first, because that’s easier. Bonuses don’t work as motivation, unless you are not paying enough. If you don’t pay people enough money, you have already broken the social contract with your staff, and they are only there for the money anyway. So, bonuses might work. But everyone’s motivation is intrinsic, not extrinsic. When managers to game the system with bonuses, they almost never get the results they want. This is optimizing at the lowest possible level of the organization.

    That Mike Cottmeyer is one smart guy. Thanks for pointing to his posts. He’s onto something.

    Part of the problem is that many managers have much of their compensation tied up in bonuses. The company has to do well in order for them to earn their compensation. What does that mean? They want predictability around what projects will deliver (features) and when the projects will deliver it (date). This creates a positive feedback loop (in the systems dynamics sense) of wanting something that is unknowable, asking for it, thinking that a bonus will help them get it, optimizing at the lowest possible level of the organization, etc.

    What if, instead, the managers said, “We know we have uncertainty? What if we managed for uncertainty, for ambiguity? What then?” What if their bonuses were based on how well they managed for uncertainty, rather than on hitting dates?

    Too many companies reward management for the wrong things with their MBOs. It’s broken (turtles) all the way down. That’s why you have seen what you have with bonuses and demotivation.

  7. Danny Faught says:

    I’m curious about the case where you knew you were earning less than all the men. How did you get that salary data? Do you recommend that we find out how much our peers are earning?

  8. Danny, that was funny. I had salary ranges, not actual data. I was creating job ladders for Engineering, as part of my management responsibilities, to make sure everyone had career development plans. I was the only female technical manager. I was the only one managing (at the time) SQA and Support. I noticed that I was paid significantly less money than the male managers. As you can tell, I did much more than manage SQA and support.

    I created a list of my value and accomplishments over the previous six months. I brought it to my manager and asked for a raise. He said, “Hmm. I don’t know.” I said, “Discrimination.”

    I didn’t realize there was a management shakeup in the works. I had a new boss six weeks later and the first thing he did was give me a big raise.

    I recommend that everyone assess their own accomplishments and compare those accomplishments to the published salary ranges. You need to understand your own value. Are you supplying the value the company needs?

    Open book management is not right for every organization or for every person in the organization. I only had access to salary ranges. I didn’t need specifics. I had enough information to know what I needed to know.

  9. Dave Gordon says:

    Re: your discovery about the lack of parity in your salary, I suspect that the principle reason companies want to keep salaries confidential is not the fear that some will realize that they are being underpaid, but that everyone will realize how many are overpaid. In the current highly competitive labor market, employers find that they must offer newbies more than they are paying the experienced people already on board. Equity (and retention) would support giving current employees a raise, but what have they done to merit it? And if merit is subordinate to the market, what is the basis for releasing a poor performer? Thus, management generally refuses to discuss compensation, not because they are being discriminatory, but because salaries are only rational from the point of view of the recruiter. Result: retention suffers, until the market equalizes across all employers, via a compensation bubble sort.

  10. Dave, well, that’s one opinion! It’s entirely possible many of the other people were overpaid. At the time, the web did not exist, so we didn’t have access to the salary comparison tools we now have. I can guarantee you that, yes, I was underpaid.

    Your point is a good one. For many markets, there is competition for new people. What do you do with the experienced people?

    This is where companies must decide what the value of the job is. That is dependent on the local geography, the local talent, and whether there is a local talent shortfall. It’s definitely a conundrum.

  11. Geoff Smith says:

    Any tips for figuring out the value of the job?

    I completely agree that performance reviews are bad and we have decent tools for giving people feedback and helping them develop. However, I’m struggling to figure out how to reach a fair compensation model.

  12. Geoff, I have some tips in Hiring Geeks That Fit, if you are the hiring manager. You need to do a job analysis. Just thinking doesn’t work. HR often has access to, or can buy salary surveys. You can look at glassdoor or theladders.

    Compensation is not an easy thing to wrap your head around. I agree. This is why it’s a strategic job. The act of performance reviews don’t make it easier.

  13. Geoff Smith says:

    I’ve found that salary surveys cover a very broad range of developer. In London for example the salary for a Senior .NET developer can range from 45k (GBP) to 75k according to itjobswatch.co.uk – I guess I need a way to drill down into that data.

    I’ll read your book – I’ll be back with questions :)

  14. Dave Gordon says:

    I’m sure you’re correct about being underpaid. Women in IT tend to have a lower comparatio than their male colleagues, at just about every level, in nearly every industry. After 20+ years of implementing and managing HR systems, I’ve decided that compensation surveys exist primarily to reassure employers that the guy up the street doesn’t know what he’s doing, either.

    All that said: I think formal performance reviews, which traditionally have ranged from wretched insults prepared by pointy-haired bosses to love songs written by grandparents, are finally benefiting from ties to other records, like goals and training. At a growing number of organizations, managers now have the tools to make useful observations and recommendations, and guidance on what to do with them. The missing link has always been collecting meaningful information and making it actionable; the leading edge seems to be getting there. Now let’s see how the Millennials influence adoption or rejection of it all.

  15. Geoff, this is where a great HR person can really help. They have access to the salary data and can help you slice it 17 different ways. I’m worried when I see a “senior” developer vary that much. That means that they counted bonuses, and that the range was quite broad. How many years experience is “senior”?? Oy.

  16. Dave, this is why I used one-on-ones and gave (and received) feedback every single week from my team. I found that feedback quite useful. Once a year I asked for feedback in an anonymous survey which was my version of a 360 review, since this was a gazillion years ago and my HR department didn’t know how to support me in doing this.

    My company “had no money” for formal training, so we trained ourselves. If I’d tied feedback, or heaven forbid, reviews to formal training, that would have been an obstacle to improvement.

    You have to work with what you have.

    I agree, I look forward to the Millenials (as if we can generalize!) and see what they choose to do.

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