Do Agile Teams Have Performance Reviews?

How does the practice of performance reviews match an agile environment?

Sooner or later, most teams adopting agile come to an unanticipated discovery: the impact of this way of working goes far beyond adjusting to iterative development or learning some technical practices. It also profoundly impacts the way companies do sales, marketing or HR. In this post I’ll share my thoughts on one of the most important endeavors of the HR department, the performance review. But first, a little rant.

<rant>We really should rename this department. People are not “resources” that can be painlessly replaced with one another! Everyone of us has its own strengths and quirks which make us unique and irreplaceable. Make no mistake, whenever a team member leaves or joins, everybody else will have to adjust as a consequence.</rant>

The purpose of the performance review

To understand something, we must understand the purpose it was designed for. The performance review is supposed to help employees understand and improve their performance, get feedback and align with organizational goals. For managers, it provides a structured process for determining promotions, salary increases, training needs and even layoffs.

Some companies seek an additional outcome: the capability to filter the workforce. Middle managers are asked to sort their reports from best to worst. This should, in theory, help management identify who are the top and bottom performers. The top performers are seen as a key asset of the company and everything is done to keep them happy. The bottom performers are, depending on the company, either subjected to an improvement process or simply laid off.

Criticism

Even in non agile environments, this process has been shown to be ineffective and profoundly disliked. A study from 1997 revealed that only 5% of the employees liked the process, with less than half of the HR professionals saying the same. Another study from 2005 showed that 88% of the employees say that the performance review ”negatively impacts their opinion of HR”. W. Edwards Deming, a very important management figure of the twentieth century, famously included it as one of the seven deadly diseases of management: “Evaluation by performance, merit rating, or annual review of performance”.

The employee ranking practice that sometimes is attached to the performance review has even more damaging effects. Microsoft has recently ditched its own implementation, with Forbes, Wall Street Journal and Vanity Fair reporting how instead of helping the software giant, it actually caused a lot of harm.

Some of the reasons why the performance review is so unpopular include:

• It’s not timely. As feedback is provided once or twice a year, several months could pass until an event is discussed. This leaves the employee without the possibility of improvement.
• High degree of subjectivity. The evaluation is performed by a supervisor, so it will depend on their preferences. Poorly defined standards and poor measurements compound the problem.
• Mixed concerns. The process addresses feedback, performance improvement and salary negotiations at the same time. The manager might want to help an employee improve, but the employee will usually be more interested in negotiating a promotion or a better salary.
• Numbers do not help you improve. At the end of the process, you will get a grade, like 3/5. Unfortunately, that rating does not tell you what you should start doing differently.
• It’s costly. To do it right means investing a lot of time in defining measures, tracking them, writing and discussing the reviews. This time could be better spent elsewhere.
• It’s impossible to establish individual contributions in a team. Teams are complex adaptive systems. The results they get are not the sum of individual efforts, but the product of their interactions.
• Rating systems encourage individualism and competition. After all, if there is a limited amount of top ratings, they are competing with each other in order to get them. People are thus more motivated to focus on their own work than on helping a colleague.

Fixing it

So, what should we do then? Strong voices of the agile community, like Esther, Vasco, Naresh or Anders suggest ditching the process altogether. They propose replacing it with practices less common in most companies: establish salary increases based on current market, pay everyone equally or allow teams to fire low performing members. I agree with them. I haven’t used performance reviews in my last job as a manager. But I’ve seen that most companies are not ready for this type of leap.

So, if it’s an evil we’re not ready to get rid of just yet, let’s try to make this pill a little less bitter. Here’s what I recommend to managers:

Feedback

• Provide positive and negative feedback to your reports as frequent as possible. Instead of giving feedback with a yearly frequency, do it on a weekly (if not daily) basis. ‘Catch’ them doing well and acknowledge it. Positive feedback seems to be more useful than negative feedback.
• Ask for multiple points of view: from team members, ScrumMasters, the Product Owner and other stakeholders. Consider running 360 degree reviews. Include yourself in the group receiving feedback. Here’s a nice example from ebay.
• Have formal discussions about performance monthly.
• Encourage the ScrumMasters to provide daily feedback to their peers.

Team self-management

• Encourage the team to assign work so that the assignee can grow as a result of doing a task.
• Encourage the ScrumMaster to facilitate retrospectives based on team performance. Team radar is a good activity.
• Encourage the team to actively mentor each other
• Encourage the team to include learning and improvement tasks in each Sprint Backlog

Criteria and ratings

• Include ratings congruent with agile values and principles. For instance: contributes ideas for improving the work environment, focuses on quality, offers to help etc.
• Add a project performance component (quality, customer satisfaction, timely delivery) to the final rating. For instance final rating = 50% * individual rating + 50% * project performance.
• Update ratings monthly, so that they don’t come as a surprise at the end of the year.
• Negotiate criteria individually with each subordinate. They should be relevant to that person’s current situation.

Promotions and demotions

• Instead of subjectively selecting somebody for a promotion, consider creating a company job marketplace where interested candidates apply for open jobs.
• Clarify and publicize the skills, abilities and knowledge required for a certain job title.
• Allow the teams to exclude team members that don’t fit in.

Salaries and bonuses

• Adjust salaries based on current market averages and yearly inflation.
• Allocate bonuses to the team, let them decide the shares.
• Include a feedback loop from the product’s success, using e.g. profit sharing.
• Give bonuses as an exception, not as the norm. Don’t use large amounts.

Conclusion

Even if most of the managers and subordinates dislike the performance review process, it looks like it’s one of those evils that we still have to tolerate because we haven’t found a better way yet. Its effectiveness is however questionable.

On interdependent agile teams, individual contribution to the result cannot be measured, so it’s impossible to rate an employee objectively. To increase performance, managers should work as closely as possible with their teams, provide constant feedback and collaboratively define and review performance. Their main focus should still be to increase the team’s performance as a whole, rather than that of its individuals.

Do you do (or are subject of) performance reviews? What are the pluses and minuses? Let’s discuss in the comments section.

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Blog posts:

• http://www.estherderby.com/weblog/2009/09/performance-without-appraisal-part-i.html
• http://www.estherderby.com/2010/07/performance-without-appraisal-addressing-the-most-common-concerns.html
• http://www.estherderby.com/2011/11/supporting-team-based-work.html
• http://growingagile.co.za/2013/08/agile-performance-appraisals/
• http://kallokain.blogspot.ro/2009/06/performance-evaluations-business.html
• http://online.wsj.com/news/articles/SB122426318874844933
• http://5whys.com/blog/appraisals-and-agile-dont-play-nicely.html
  
• http://www.chicagobusiness.com/article/20131102/ISSUE01/311029980/the-end-of-valued-performers-at-motorola

Books:

• Punished by Rewards — Alfie Kohn
• Drive — Daniel Pink
• Measuring and Managing Performance in Organizations — Robert Austin
• Abolishing Performance Appraisals — Tom Coens and Mary Jenkins
• Hard Facts, Dangerous Half-Truths And Total Nonsense — Jeffrey Pfeffer and Robert I. Sutton
• Get Rid of the Performance Review! – Samuel A. Culbert