The media have begun to notice that several big, famous companies – Microsoft, Dell, Accenture, New York Life, and many more – are abandoning one of the most loathed traditions in management: the performance review. The WSJ noted the trend a few days ago, and last month the Harvard Business Review and CNNMoney.com documented it. The theme is consistent: Hallelujah, performance ratings are dead.
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And I’d be cheering too, except for one problem. Performance ratings in their multiple forms are tools, and at many companies they’re despised not because the tools are bad, but because the users of the tools are inept. The danger is that leaders may conclude they can improve their organization’s performance by changing the tool, when the real issue, a much tougher one, is improving the skills of those who use any tool for helping employees get better.
Everyone’s favorite example in the bad-tool argument is the forced ranking system popularized by General Electric when Jack Welch was CEO: Every employee every year had to be placed in a category, high, middle, or low (the exact definitions of which changed as the system evolved) and had to be told where he or she stood. Many companies adopted the system when GE was flying high, and many of them had terrible experiences. Some employees were furious at how they were ranked, and some felt the system pitted them against one another: For me to be moved into a higher category, someone else must be moved out. Microsoft used the system until two years ago, and employees rejoiced when the company dumped it.
At that time I asked Dave Calhoun about it. A former GE executive, he was CEO of Nielsen and a fan of the system, which he used at Nielsen. His response was simple: The whole point “is to force a conversation,” he said. Many managers absolutely hate to tell employees, rigorously and honestly, where they stand. This is a way of making them do it. He had no quarrel with other means of making them do it – but experience has shown that if you give managers a half-inch of wiggle room to avoid giving employees an honest assessment, most of them will use it. In which case the employees never know how they’re really doing and stand far less chance of improving.
Many of the companies that are ditching the old rating systems are finding other ways to force that honest conversation. Adobe, for example, has attracted much attention with its “Check-In” system that requires feedback often, not annually. Other companies are adopting it.
In this as in so much else, the real issue for leaders is culture. In your organization is it culturally okay to be totally candid about performance, whether speaking upward, downward, or sideways? If so, your organization is probably an excellent performer. If not, then nothing else in the company will work well. Regardless of the evaluation tool being used, the culture needs changing. And change starts at the top.
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What We're Reading Today
Deutsche Bank to cut 35,000 jobs
The announcement came from new co-CEO John Cryan as he also relayed that Deutsche had lost $6.6 billion in the third quarter. The job losses will entail cutting internal roles, reducing the number of contractors, and selling some businesses overseas. The news comes as Deutsche splits its investment banking operation in two and commits to reducing the number of clients by half. MarketWatch
Pfizer, Allergan in talks for mega-merger
With Allergan's market cap above $112 billion, a proposed deal between the two pharmaceutical companies would become the largest in a busy M&A year. It would cap a recent spending spree by Pfizer CEO Ian Read, who noted on Tuesday that stock price declines in pharmaceutical companies doesn't change what they're worth in "a transactional situation.” The talks are early, though, and it's unclear if Allergan CEO Brent Saunders will agree to a deal. Fortune
Paul Ryan cleared to become House Speaker
The GOP voted yesterday to select Ryan as their choice for Speaker, succeeding John Boehner, with 80% of the Republicans in favor. He will have to clear a formal House vote this morning. Ryan has declared his intention to unify his fractured party, but exactly how is unclear. Washington Post
China lifts one-child policy
President Xi Jinping lifted the 35-year-old law that limited most Chinese families to one child. As China's economy struggles with an aging population, the Communist Party agreed to grant families the right to two kids. USA Today
Building a Better Leader
Time to rethink small talk?
Here are some options to start a conversation besides "What do you do?" Knowledge@Wharton
Getting fired doesn't mean your career is over
It's about how you bounce back. Fortune
To boost a sales team...
...you need the right balance of training. Too many lessons can hurt just as much as too few. Memphis Daily
At the GOP Debate
A chaotic debate and media attacks
The candidates spent about as much time debating each other as they did arguing with the CNBC moderators over the questions, which included whether Donald Trump's campaign is that of a comic book villain. Office holders like Senators Marco Rubio and Ted Cruz retook command of the stage from outsiders Trump, Ben Carson, and Carly Fiorina. Washington Post
There's still no clear leader
At times last night, poll leaders Ben Carson and Donald Trump nearly disappeared. It could have been an off night for the two candidates, or they might feel the pressure of not wanting to make a mistake as they find themselves atop the pack. Other candidates filled the void with no clear leader in a tight race. Former Hewlett Packard CEO Carly Fiorina didn't help her cause as she got lost amid the rancor of other candidates. WSJ
Marco Rubio bests Bush
Jeb Bush's fledgling campaign may have come down to an exchange between him and former protege Rubio. Bush tried to call out Rubio for his worst-in-the-Senate attendance record. Rubio shot back, "Someone has convinced you that attacking me is going to help you." Bush didn't have an answer and remained an afterthought the rest of the night. Politico
Up or Out
Baxter International has named Jose Almeida its next CEO as of Jan. 1. Chicago Tribune
Jon Winkelried, former President of Goldman Sachs, will become co-CEO of private equity firm TPG. Business Insider
3D Systems CEO Avi Reichental has stepped down after 12 years at the helm. Chief Legal Officer Andrew Johnson will serve until a permanent successor is found. Reuters
Fortune Reads and Videos
Google launches 20,000 air balloons...
...to try to provide rural Indonesia with Internet access. Fortune
Theranos restructures board
As it battles questions about its technology, Elizabeth Holmes's company has shrunk the board from 12 to 5. Fortune
A Facebook shareholder files suit over pay
The complaint argues Mark Zuckerberg didn't follow the right procedures when setting his own salary. Fortune
Carl Icahn calls AIG 'Too big to succeed'
The activist investor wants to split the company into three. Fortune
Today's Quote
“You know, these plans would put us trillions and trillions of dollars in debt. . . Why don’t we just give a chicken in every pot, while we’re, you know, coming up with these fantasy tax schemes?” - Ohio Gov. John Kasich ridiculing Ben Carson's and Donald Trump's tax plans during the GOP debate last night.
“He was such a nice guy. And he said, ‘Oh, I’m never going to attack.’ But then his poll numbers tanked . . . that is why he is on the end [of the debate stage] — and he got nasty.” - Donald Trump responding to Kasich's remarks. Washington Post
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