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Performance Reviews That Work

I can’t think of any ritual in American business that is more widely despised than the annual performance review.

Employees fear and loathe reviews that are vague or inconsistent, (How can one manager love you for showing initiative, while another lambastes you for failing to seek direction?) or that are used in some opaque way to determine compensation, or that, worst of all, are coupled with a rule that says the “bottom X percent” will be fired each year, even if everyone happens to be performing satisfactorily.

Managers detest systems that force them to evaluate employees on a checklist and rating scale that resembles an elementary-school report card, especially if they are required to issue grades along a bell-curve distribution that, in the manager’s eyes, does not reflect reality. However, managers also often dislike systems that allow a more free-form expression of views, or that require them to painstakingly document employee shortcomings so the company can defend itself against potential claims of discrimination or wrongful discharge.

Many managers also hate being forced to sit down with their staff to review the review. Managers, like most people, would rather avoid face-to-face conflict. That’s why some people who politely wait their turns to check out at a grocery store will not think twice about cutting off a dozen fellow drivers to jump the line in a toll lane. This sort of manager is perfectly happy to rip his staff in confidential memos to higher-ups while he pretends in their presence to be their buddy.

It does not have to be this way.

I saw the good and bad aspects of performance reviews when I worked for large organizations early in my career. At The Associated Press in my era, it all boiled down to your bureau chief, who was your supervisor. My first boss, Montana Bureau Chief Hugh van Swearingen, was an excellent manager, who diligently completed the evaluation report card, but who did not see performance reviews as a once-a-year exercise. If you did well, he praised you on the spot. If you fouled up or got out of line, he told you about it right away, but in private. His criticisms were always professional and specific, never personal or vague. More than that of anyone else, his management style became a model for me once I finally matured enough to recognize how good he was.

Other bureau chiefs were more lackadaisical. They saw themselves as newsmen, not managers, and they saw me as a newsman, too — generally a pretty good one. Since most of what I did was OK, and since I did not create a lot of problems for my bosses, my evaluations were glowing but sporadic. I did not have a problem with it at the time. Looking back, I realize that I would have benefited from more attention to my weaknesses and more preparation for the day that I, too, would become a manager.

The problem at Arthur Andersen, the big accounting firm, was that I had no particular boss. Like most people in the New York office’s tax department at that time, I worked for a variety of partners and managers, all of whom might evaluate me. A partner also was assigned to be my career counselor, but he only knew what he read in the evaluations. Evaluations generally suffered from rampant grade inflation, so although mine were very good, my weaknesses were seldom articulated or addressed. The lack of communication worked to the firm’s disadvantage. Since there was little dialogue about my future, my bosses never had a chance to dissuade me from leaving to start my own firm.

We do things differently today at Palisades Hudson. We start with the idea that nothing in an annual performance review, particularly nothing negative, should come as a surprise to the employee. We also run the firm with the notion that anyone who is performing well and who is happy here is someone we want to keep for the long term. This allows us to turn the performance review into a career counseling exercise — and, because it is built on trust and on goals shared by the employee and the firm, it is a dialogue that is strikingly honest and open.

Our process begins with a “personal development plan” that each full-time employee prepares in the fall. Employees design their own PDPs, but they have compared notes over the years and follow fairly similar formats. Most start by reviewing their various assignments in the past year, particularly the ones they found most interesting or most difficult. Often, they talk about the tasks that cause them the most stress, and this frequently includes writing for publication in Sentinel or on our website. We mostly hire financial types, after all, so they did not go to college expecting to become writers. But sharing our thoughts effectively is critical to our business. We have brought writing coaches to our offices several times to work with the staff, who have responded by saying, more than once, that those were the best training sessions they ever attended. Many of our staff have come to enjoy writing as part of their work.

We circulate PDPs to various supervisors, who provide the reviewer with their own notes about the employee’s experiences over the years. The reviewer, who until this year has always been me, then uses both the PDPs and the supervisor notes to write the performance review. Mostly, I talk about areas that the employee has mastered, areas where we want the employee to get more training and experience, and possible long-term career directions tailored to the employee’s personal skills and goals. My assumption is that every employee who makes it past a brief probationary period is someone we want to try to develop and retain, and that this requires collaboration between the staffer and Palisades Hudson to make certain both parties’ goals are met.

How do I know employees are being open and honest? In part, by the frank self-criticisms they often offer, which are frequently sterner than anything their supervisors write. And in part, because they are willing to tell me when I am doing something that is making them unhappy.

Last year, I dropped a longstanding annual target for hours to be worked by managers. This decision came after several managers and staff said it was having unintended negative consequences, making even non-managers feel that they needed to stay late every night because managers were doing so to meet the target.

My original purpose in setting the target had actually been as much to prevent managers from overworking themselves (by assuming I wanted them to work more than I actually did) as to give everyone some guidance about what I thought was appropriate. I did not mean for the target to affect non-manager hours at all. But our staff told me that the target was doing more harm than good. After some collective soul-searching in a memorable manager meeting, I eliminated the target and told managers just to work whatever hours they deemed necessary to serve their clients. I probably should have done this sooner, but the fact is that our PDP process, in which people began to complain about stress and burnout, finally got me to respond.

A lot of businesses offer platitudes about how their employees are their most important asset. If they really believe that, they ought to establish performance review systems that help to retain that asset and make it more valuable. This is a goal that employees and employers naturally have in common. Systems that turn workplace partners into adversaries are likely to do more harm than good.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, The High Achiever’s Guide To Wealth. His contributions include Chapter 1, “Anyone Can Achieve Wealth,” and Chapter 19, “Assisting Aging Parents.” Larry was also among the authors of the firm’s previous book Looking Ahead: Life, Family, Wealth and Business After 55.