We are in the age of the Agile revolution, even non-tech companies and non-tech departments are adopting agile practices and frameworks. The issue is that organizations are making these adoptions without changing the foundation that their companies are built on. One of these major pillars is performance appraisals and it is critical because it is very important to employees. We all want to do well, and get big bonuses, or even get that promotion that we have been working so hard towards. The issue is most companies do not have the Agile mindset and focus mainly on the individual and neglect the team aspect when it comes to performance. This directly hurts organizations that are looking to build mature Agile teams.
Performance Appraisals vs Performance Management
It is very common for people to use the term performance management when they are really thinking about performance appraisals. Performance Management is the term used to refer to activities, tools, and processes that companies create or apply to manage the performance of individual employees. Performance appraisals, which are a part of performance management, refers to the act of appraising or evaluating performance during a given performance period to determine how well an employee has performed relative to agreed objectives or goals.
Even though there are many important activities in performance management, most people care only about performance appraisals because it directly impacts their yearly compensation. If performance appraisals are done incorrectly it will lead to a lack of employee development, decrease in motivation, decrease in employee retention, and overall it hurts an Agile team’s maturity. Coupling this with the fact that employees themselves look at appraisals as a top priority along with what happens when they are done incorrectly really makes this topic important for organizations to get right that are on their agile journey.
Performance Appraisals Today
Everyone from managers to employees can agree that performance appraisals are the last thing they look forward to. They are time consuming for both parties and they usually don't end up with everyone happy. In technology, most companies do appraisals once a year and they are done through “Stack Ranking” where companies rank or rate individuals against the associates of the same level. A vitality curve is then created with those at the bottom placed on “performance improvement plans” or even let go. Bonuses and ratings are based almost purely on individual performance but even then employees are bucketed into set categories with set limits so only a certain number of people are given each rating. Each bucket has a rating attached to it that describes that individuals performance such as “needs improvement”, “strong”, and “exceptional” or a variation that mean mostly the same thing. These ratings are also directly tied to how much your bonus is and if you get promoted or get a raise. Even though the current appraisal process is supposed to focus on the individual, employees are still being marginalized due to being forced into buckets along this distribution curve.
For example, let's say two employees did exceptional but the bucket only allows for one of them to get that rating. The other employee is pushed into the lower tier bucket even though they performed exceptionally as well. Promotions are also very poorly handled due to the fact that they are usually decoupled from your rating and level. That means not only does it not matter how highly you are rated it also doesn't matter if you were the top at your level because there is a set amount of promotions that can be given and if there is another associate at a different level that is looked to be more critical in getting promoted by the leadership team then you are out of luck.
So what should Performance Appraisals look like in an Agile Organization?
Knowing how performance appraisals are handled today, we can see that it is not conducive to building mature Agile teams. Mature Agile teams are cross functional, self organizing, and unite together on a set of common goals. The current structure of performance appraisals directly goes against that because it values the individual over the team. Here are some things we can do in our organizations to help combat that.
1. Ratings based on anonymous team surveys
- Let's be honest, nobody knows the employees better than their own teammates.
- These surveys should be often enough that employees have time to improve before they get their actual end of year rating, but not too much where it adds overhead for the team
2. Performance Incentives (bonuses) tied directly to yearly team goals
- This would give teams direct motivation to complete their yearly goals along with uniting them together to get that prized bonus rather than the current system that hurts team cohesiveness
3. Performance incentives (bonuses) tied to positive Agile team behaviors.
4. Budgeting for promotions, bonuses, and salary be handled on the team level.
- This doesn't mean each team decided the amount of money or amount of promotions but each team has a set budget that they get to allocate across their team
- In doing this decisions can be made on the team level rather than at the leadership level where visibility into teams can be difficult.
5. Ratings being based off of employees current and past performance rather than comparing employees to each other.
- If companies stick to the mantra of “we only hire the best” then there is no further vetting needed amongst employees
- This helps give the employee gain more autonomy as well because their rating is only based on their performance.
These are just some of the things that could help move the needle in the right direction. Obviously the current structure at most companies is vastly different than this and it would require a lot of change all the way from the leadership level to HR to even the individual employees themselves. Even though changing a foundational pillar of an organization, such as performance appraisals, might seem like a tall task, we should not fear it. We need to start being Agile and stop just doing Agile!