What Makes a Performance Evaluation System WorkPerformance Evaluation Systems

Senator and Hall-of-Fame athlete Bill Bradley once said:

“Leadership is unlocking people's potential to become better.”

Americans have great, perhaps excessive, faith in performance evaluation systems in achieving this goal. Performance evaluations determine pay, continuation of employment and career assessment.

Because much rides on performance evaluations, most people get stressed out when receiving one, and people and organizations complain regularly about them. If performance evaluations are being more widely adopted, how do we make them work constructively, as opposed to destructively?

The paradox of performance evaluations is this: if they are focused on helping an individual maximize his or her potential, they will maximize organizational performance. If focused on organizational performance, they will maximize neither individual nor organizational performance.

When someone is a substandard performer over the evaluation period, the organization responsible for the evaluation has to make one of two judgments:

Unfortunately, most tend to be compliance exercises that do not yield insight for either the individual or the organization.

My overall observations

If leadership finds a chronic disconnect between exceptional talent in an organization and poor results, it is time to determine whether the operating model of the organization is flawed, as opposed to the talent.

Boards of Directors and management face the trade-off of determining how value can be delivered short term by paying dividends or repurchasing shares, or longer term by investing in organic growth, and doing acquisitions or minority investments. There is no perfect answer and the best answer changes over time. Our performance objectives were adjusted to strike the right balance between the short and long term.

What mattered more was how my team responded to this development, since it increased our cost of borrowing much more than anticipated. We made our budget that year, but the most important question was what people did to adapt to adversity.

Given the importance of career discussions, organizations must insure that they do not have insecure, mediocre people in management positions, because they will not perform satisfactorily in career counseling. Many will feel threatened by stronger talent and try to put them down.

This last point also indicates the criticality of more robust data. For example, professional sports are getting better at providing teams, agents, and players more robust data through which to evaluate athletes and teams against both objective criteria and other athletes and teams.

I love baseball’s Statcast, a combination of video-captured performance data and big data analytics introduced in 2013. It enables everyone to evaluate athletes in multiple dimensions, including the previously difficult dimension of defensive excellence.

In the past, we relied on human observation, which often was at odds with what the data ultimately showed.

Business should be emulating professional sports in seeking more continuous, robust data collection. Public companies do a poor job of gathering meaningful performance data, and often fall back on reporting in formats mandated by the SEC or by compliance-oriented auditors. As a result, we often do not know whether individuals are creating or destroying future value.

One of the most pivotal events of my life was a conversation with a high school debate judge, who told me that I was not very good, but that I could be good, if I had proper training, and he explained how the training would help me. He took the time to steer me toward a summer training institute that changed my life in giving me both the confidence and the tools to be quick on my feet.

I only wish that everyone could have that kind of feedback throughout his or her lives. All of us would realize our full potential, which, independent of how far we go in life, is the most satisfying personal accomplishment.

We should deprive no one of the opportunity to unlock his or her potential through great performance and career feedback.