Truth and Consequences

Why tough ''360'' reviews and employee ranking are gaining fans.

Working as a senior finance executive at Boeing would be a pretty great job, right?

Before you answer, consider what would happen during your annual review: CFO Michael Sears would gather all your direct reports in a room, where they would discuss your strengths and weaknesses. Then he would confront you with their opinions, citing examples to back him up.

Few finance executives — or anybody, for that matter — would be completely comfortable with such a review process. But Sears swears by it. As far as he knows, it hasn’t scared anybody off, he says, and he’s used the approach for more than 10 years.

“Some people look good from the top down,” says Sears, “but they don’t look so good from the bottom up. And if you just gather paper data on a person, it’s hard to get at some of the real issues.”

Sears isn’t the only one complaining about the limitations of traditional paper-based evaluations. What’s wrong with older processes, many HR experts say, is that they tend to quantify what employees do, rather than how they do it. At best, traditional reviews identify and grade skills, while offering little real qualitative insight into performance. At worst, they deal with irrelevant skill sets, and burden managers with rafts of evaluation forms that lack correlation to company goals. Such failings might explain why, according to a study conducted by the Society for Human Resource Management, only 61 percent of HR managers are satisfied with their overall evaluation systems. Indeed, many managers have been scrapping their old systems altogether.

It’s no surprise, then, that alternative performance-evaluation techniques have been gaining ground. In addition to Sears’s technique — a particularly intense version of the 360-degree peer review — some companies have adopted ranking schemes, employee-driven appraisals, various hybrid skills assessments, and an approach that might be called the enlightened nonreview.

HR experts suggest that despite employee fears, and, in some cases, controversy over their use, alternative techniques can be worth considering. Even though the methods take more time, management energy, and interpersonal communication than do traditional reviews, they can effectively identify true competencies.

The 360 Terror

Competency-based performance management, in fact, is the backbone of most of the alternative approaches. Competencies, associated with the “how” of an employee’s style, are “a set of personal traits or habits that are related to superior job performance,” says Michael Schwalberg, a Scarsdale, New York- based clinical psychologist and co-author of Leverage Competencies, published last year by the Financial Executives Research Foundation. In contrast, the far-narrower “skill” elements describe what an employee can do: negotiate a contract or prepare a budget, for instance.

Particularly in vogue these days is the “360,” through which employees are evaluated by their direct manager, their own direct reports, departmental peers, and others within the organization — as well as customers and suppliers, perhaps. A William M. Mercer study indicates that last year, 26 percent of companies used such “multirater performance management,” up from 11 percent in 1995, and that another 20 percent are considering it.

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