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16 JULY 2011
Dumping the dreaded performance review
by Joris Luijke

Do you ever wonder whether (and how) you could call a halt to your performance review process? Do you think traditional processes are marred by the distribution curve and its forced rankings, huge time investments and low impact on performance improvements? Maybe you agree that your processes have their faults, but you also think that it’s not sensible to abolish performance appraisals altogether or replace them with coaching sessions.

Keep reading: let us be your guinea pig. Our organisation, Atlassian, is conducting an open review of our new performance review model for everyone to see.

From speaking to HR executives, we’ve learned that many people face similar issues with their current process. Often, they think their organisation’s review and reward culture is too entrenched in their organisational processes, that it would be hard to change the performance review model without any evidence and alternatives. We hope that other growing (or even established companies) can learn from our experimentation, challenges and results.

Beyond best practice

Atlassian is an Australian company with offices in Sydney, San Francisco and Amsterdam. We develop software and collaboration tools for teams. More than 22,000 companies use our issue tracking, collaboration and software development tools to work smarter and deliver quality results on time.

For years, Atlassian’s performance review model for our own employees was in line with what was considered ‘best practice’ in the human resource profession. Twice a year, people would review themselves and their peers via 360-degree reviews. Managers would review their team members and determine final performance ratings on a simple five-point scale that determined bonuses.

So, what was the problem? In short, twice a year the model did exactly the opposite of what we wanted to accomplish. Instead of an inspiring discussion about how to enhance a person’s performance, the reviews caused disruptions, anxiety and demotivated team members and managers. Also, even though our model was extremely lean and simple, the time investment was significant. If you ask your managers and staff to invest time and money in a process, it had better be worth it. And our opinion was that ours wasn’t – well, not in its traditional format.

In order to improve our system, we first analysed the traditional performance review model in detail. We asked what made people perform better and what parts of the reviews worked well. We talked at length with other tech companies about their experiences and asked if the negative aspects of reviews, mainly related to de-motivation and the high levels of anxiety, tend to disappear after a while (they don’t).

The triggers for this experiment were that we found nothing out there to copy – that would have been much better and easier. Sure, there are books and blogs dwelling on the negatives of performance reviews, but their solutions are too impractical to implement and often ignore the need for solid performance feedback. Also, there are systems that have a new approach to performance reviews, but no HR system supported our approach. We needed to start from scratch.

Make major changes

We made some major changes to the performance review process and suggest the following to you:

1. Rip apart the traditional performance review.

We replaced the traditional performance review structure with a more lightweight, continuous model. We incorporated the constructive aspects of reviews in our existing one-on-one meetings. Atlassian managers already have weekly one-on-ones with their team members. Now, every month, one of these meetings is dedicated to a discussion on how individuals can enhance their performance and play to their strengths. We removed the unconstructive focus on ratings and got rid of the distributed curve.

2. Stop paying individual performance bonuses.

Instead, we gave everyone a salary bump. Similar to Netflix’s approach, we prefer to pay top market salaries rather than bonuses. However, we continue to pay an organisational bonus as before, so people will share in the company’s success. Also, we’ve recently given every staff member stock options, so they will benefit from the company’s growth and increased value over time.

3. Create bite-sized chunks.

Despite good intentions, our traditional review focussed mainly on the manager rating and the employee’s weaknesses. Of course, the first thing people were curious about was their rating (which also affected their bonus). Even if a person received a good rating, most of the time in the review was consumed by justifying why the person didn’t get an outstanding rating. We wanted to introduce a continuous model of conversations designed to remind people to talk about topics other than daily operations. Specifically, we changed the following:

  • All sections of a review should receive equal attention. We think that the 360-degree review feedback can better be discussed in a separate conversation. This also goes for performance ratings, strengths, weaknesses, career development and so on.
  • We split the sections into separate conversations with their own coaching topics. Every month we allocate one of our weekly one-on-ones to a coaching topic.
  • We created conversation guides to help everyone stay on topic and to supply tips and tricks on how to facilitate the conversations.

4. Continue to evaluate performance, with some crucial changes.

We think it’s important not to shy away from giving honest performance feedback. Some ‘anti-performance review’ books suggested skipping that altogether, but we think it’s an invaluable element in every manager-employee relationship. In two of our monthly conversations, managers will still check in with their reports to evaluate performance. However, we made a few crucial changes:

  • No exact rating: We prefer people not to concentrate on rating definitions but rather on having a good and honest conversation on how they have performed in the past six months. However, there is no rating on a numerical scale. Instead, during the check-in, the manager indicates roughly how often their report has demonstrated exceptional performance.
  • Two axes: In addition to an evaluation of performance and achievements, we’ve added the scale of ‘how often you have stretched yourself’. Put simply, the reason for using both scales is to acknowledge both effort and results. Two people can deliver similar results; yet one of them has solely focussed on their normal work responsibilities while the other has devoted extra energy to improving things outside their normal job, which has made a real difference to the company. Feedback from managers indicated that they wanted to acknowledge this effort.
  • Focus on frequency of behaviours: In order to focus the conversation on how to improve the frequency of certain behaviours, rather than on a rating, both staff member and manager decide on the person’s position on two scales. When a position on the axis is chosen, the logical subsequent question is: “Why didn’t you position me more to the left or right, higher or lower?” This approach also encourages a better coaching-style review conversation.

Bumps along the road

We’ve learned a lot about how to improve the performance appraisal process, but it will probably take several iterations to get this right. Along the way, we bumped into several challenges:

Lack of best practice: There was no literature of best practices out there (or we couldn’t find it). Lots of books focus on the negatives of performance reviews, but they offer solutions that are too focussed on coaching and not enough on alternatives to the performance conversation. They also didn’t offer much guidance on how to structure coaching conversations themselves. We ended up merging different ideas, including suggestions from the HR industry, strengths-based coaching, motivational theories and different rating evaluation scales.

Missing systems: To my knowledge, there is no HR system that offers an integrated approach including regular on-on-ones, coaching one-on-ones and performance review check-ins. There are the heavy and traditional performance review tools such as Successfactors and SumTotal; conversely, there are some cool continuous-feedback tools such as Rypple. But, at this stage, no tool really meets our needs. We’re currently working with a group of people to develop something from scratch to help us.

Little experience with coaching conversations: Our managers (some very new to the supervisory role) had little or no experience in how to handle a coaching conversation. We ended up engaging an executive coach who trained our managers in how to have a good coaching meeting.

Teams too large: A small group of managers said they wouldn’t have enough time to discuss these topics once a month, and that highlighted a larger problem: some teams were plainly too large for one manager to handle. This meant that, while the team was productive and well-oiled, some people rarely met with their direct manager to discuss non-operational topics. That was one of the reasons we decided to form smaller, more agile teams and introduce a group of new team leads.

People feeling uneasy: People love numbers, because they are objective and easy to analyse. So, when we decided to take out performance ratings, many people felt uneasy. The truth is that people generally understand that, if their performance is indicated to be closer to the bottom-left corner of our performance/stretch axis, they have to step it up. You don’t need a rating or a number for that. Also, we noticed that salary reviews and talent management didn’t need an exact performance rating. As a matter of fact, we’ve never had a direct relation between salary and performance ratings. Other factors such as market salary movements, internal and external salary benchmark data, years on the job and skill set all help determine salary growth. Few organisations can calculate their salary reviews with a simple formula.

If you try this …

I think it is worthwhile to share our story to help other organisations that are considering changing their evaluation process. So, although it’s hard to quantify at this stage, some of our outcomes and ‘lessons learned’ are listed below.

Increase the focus on people’s strengths: Instead of only operational conversations, every staff member has now had discussions about their likes and dislikes in their current work. The uptake from coaching conversations has been awesome. Within weeks of launching this new approach, all staff members had conversations about their strengths and how to dedicate more of their time to things they love.

Change the motivation and recognition model: Instead of performance incentives that don’t work, our model has shifted to encourage desired behaviours through better coaching. Also, a ‘kudos’ model (in which every staff member can recognise great performance of co-workers without their manager’s approval) has been implemented to supplement the new performance model. This peer-feedback model has been extremely popular. Since launching this, already 150 peer-kudos gifts have been handed out. Seventy-five per cent of the staff who displayed outstanding performance were recognised by peers outside any formal process.

Prepare for the benefits of employee engagement: Atlassian has been acknowledged as an employer of choice internally and externally. Independent and internal staff engagement surveys have shown extraordinarily high engagement scores of 87 per cent and 83 per cent respectively. Last year, we won several ‘Best Employer’ awards, including one that names us as one of the ‘Best US Medium-sized Companies to Work For’ and an award in Australia for ‘HR Leader’s Employer of the Decade’.

As mentioned, what we are doing with performance appraisals is still a work in progress. The progress we have made, however, seems tied to at least three things we did quite consciously.

First, we challenged HR best practices. If the whole organisation hates something, yet you invest huge amounts of time and money in performance reviews, something is wrong, best practice or not. It is the job of Human Resources to fix these things.

Second, we didn’t let the lack of HR systems stop us. It’s very difficult to change your model when HR systems can’t support your ideas. Big HR system providers will encourage you to keep the current model and will present traditional reviews as best practice. Ignore them. Keep charging ahead; there are solutions out there developed by start-up companies.

Lastly, we made some bold decisions. Performance bonuses are ingrained in our compensation models, and staff ratings are the starting point of our talent management programmes. It’s hard to change these things, but be courageous.

Joris Luijke manages the Global HR/Talent team of the Australian Software Company, Atlassian. Read more about his work on performance appraisals and connect with him via his weblog, http://blogs.atlassian.com/news/jluijke/.

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