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The complicated and troubled history of the annual performance review

Companies have spent billions of hours ranking, filing, and giving workers feedback. In the end, does it really motivate?

The complicated and troubled history of the annual performance review
[Photo: Thomas Drouault/Unsplash]

“Yay, it’s time for my annual performance review!” said no worker ever.

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While the yearly assessment handed down from manager to staffer has become something for both parties to dread (and prompted some companies to abolish it entirely) the approach to appraise workers’ progress has a long history that’s ranged from practical to problematic.

There is no definitive source that points to the very first performance review. Some suggest that the Industrial Revolution’s focus on worker productivity may have contributed to formalizing a standard for judging how well people did their jobs based on their output alongside machines like the cotton gin and the spinning jenny. If so, that’s a dark part of the annual review’s history, as it can’t be separated from slave and child labor and the unsafe working conditions that plagued factory workers before unions were organized to protect them.

Flash-forward to WWI and WWII, when the military started using metrics, first to identify and dismiss poor performers and then to rank enlisted soldiers based on their potential to ascend to leadership.

In between the wars, in 1927, Elton Mayo, an Australian-born psychologist, implemented a socioeconomic experiment that studied the female employees of the Hawthorne Works factory of the Western Electric Company in Cicero, Illinois. Their productivity was measured by changes in their hours, wages, rest periods, lighting conditions, organization, and degree of supervision and consultation to see what would affect the way they did their jobs. They found, perhaps unsurprisingly, that performance wasn’t tied to money, but to the fact that someone was paying attention to their conditions.

But that finding was short-lived, at least according to Peter Capelli and Anna Tavis. They reported in Harvard Business Review:

By the 1940s, about 60% of U.S. companies were using appraisals to document workers’ performance and allocate rewards. By the 1960s, it was closer to 90%. Though seniority rules determined pay increases and promotions for unionized workers, strong merit scores meant good advancement prospects for managers.

Theory X and Y

At first, they observed, giving feedback that focused on improving performance was an afterthought. But along came social psychologist Douglas McGregor, whose Theory X and Theory Y would change the approach to assessments. While Theory X suggested that no one really wants to work and therefore they need strict supervision, Theory Y holds that employees should be trusted and empowered. It was a radical departure of viewing workers and leadership. As such, managers and their staff were seen in a collaborative way and performance could be positively influenced by encouraging development. “The limits on human collaboration in the organizational setting are not limits of human nature but of management’s ingenuity in discovering how to realize the potential represented by its human resources,” McGregor concluded.

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The rise of middle managers

By the 1960s, General Electric and other companies embraced this approach to the performance review and began implementing developmental feedback. However, when companies started to feel the crunch of inflation in the 1970s, they resumed appraising people in order to scale back merit raises. And under Jack Welch’s leadership, GE started ranking employees to promote top performers and pink-slip those who were just coasting.

As the decades passed, with more middle management having more direct reports at larger companies, the investment in individual performance reviews started to get out of hand. For example, by 2015 a report from the Harvard Business Review revealed that at Deloitte it took 1.8 million hours across the firm. And at CEB, managers reported 210 hours for appraisals (that translates to 5 weeks per year). Adobe scrapped the practice after calculating that 2,000 managers were in for some 80,000 hours when dealing with performance reviews. Talk about a counterproductive way to spend the workday.

But it wasn’t just the hours that put the performance review on deathwatch. As Capelli and Tavis noted, research proved that workers “would rather be told they were ‘average’ than given a 3 on a 5-point scale.”

Researchers at Kansas State University, Eastern Kentucky University, and Texas A&M also looked at how negative feedback during annual performance reviews affected employees and (shocker) it didn’t help them improve. But surprisingly, even positive feedback got misconstrued and failed to motivate.

As for the future of the performance review, the bad news is that it’s not totally going away. But as Capelli and Tavis point out, there is a better way. “Ideally, conversations between managers and employees occur when projects finish, milestones are reached, challenges pop up, and so forth–allowing people to solve problems in current performance while also developing skills for the future,” they write. “At most companies, managers take the lead in setting near-term goals, and employees drive career conversations throughout the year.” Sounds like a much more productive and empowering way for everyone to spend their time.

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About the author

Lydia Dishman is a reporter writing about the intersection of tech, leadership, and innovation. She is a regular contributor to Fast Company and has written for CBS Moneywatch, Fortune, The Guardian, Popular Science, and the New York Times, among others.

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