Goldman Sachs is bringing back its dreaded performance review system, which has been used in the past to identify and potentially cull the bottom 5% to 10% of employees. The bank argues that its annual performance review system helps to refresh talent and keep employees motivated, but it’s long been a sore spot for employees who complain that reviews are biased and a source of tension within the workforce.
Performance reviews have long been a unique element of Goldman Sachs’ culture before management suspended them during the pandemic. The reviews were notoriously tough and derided for being biased against women and people of color.
“A lot of the feedback [from managers] was around how well you’re dressed, and how good you are at entertaining clients,” says Eve Halimi, cofounder of the startup trading platform Alinea and a former Goldman Sachs intern. “It felt like a lot of women were used as entertainment and were rarely promoted.”
Halimi was an intern on the cash equities desk in 2017 while a student at Columbia University. She says her days started at 5 a.m. and ended around 3 a.m., a 22-hour day, taking clients out until early morning. Several employees told Business Insider that the review process was stressful, labor intensive, and fostered a cutthroat culture since employees had to evaluate one another.
Those workers might be onto something, according to management experts, who say that such performance reviews can be damaging to a company’s culture. Goldman Sachs did not respond to a request for comment.
The firm’s reinstatement of performance reviews comes at a precarious time: The bank posted significantly lower year-over-year earnings in two divisions during the second quarter. It has also slowed hiring, hinted at impending layoffs, and is struggling to bring employees back to the office full-time after setting a strict attendance policy in February.
Goldman Sachs CEO David Solomon has strongly advocated for a full return to the office, previously telling Fortune that part of what makes the company special is its ability to attract thousands of “extraordinary young people” who are able to collaborate with and learn from more experienced colleagues.
Though Solomon acknowledged the efficacy of remote work, he cautioned that normalizing this work model would “start to fray the foundational things that make the place so unique.” After shutting down during the Omicron wave late last year, the bank boss mandated that all employees return to the office, effective Feb. 1. Just half, or about 5,000 of the building’s 10,000 workers, returned to its New York City headquarters.
Reinstating performance reviews could push more workers—wary of job cuts and tightened purse strings—back to the office. Employees who have been working from home might make an effort to return to the office and get face time with senior leaders, fearing they’ll be scored more harshly for their lack of office presence or seen as unproductive.
But the implication that the bank needs to cut employees to improve its business prospects will “create animosity, fear, anxiety, and potential resentment against other employees,” says Jared Pope, a former employment attorney and founder-CEO of Work Shield, an issue management platform. “When that happens, culture takes a downward shift inside any organization.”
Pope warns that even if performance reviews identify low-performing employees, reviews should not be instituted as a vehicle for workforce reductions.
“Obviously multiple people in the organization signed off on the hiring of this individual, so there must be something there,” says Hooria Jazaieri, assistant professor of management at Santa Clara University. Companies and their leaders should instead help workers who fall short of expectations to reach their full potential, she says. “This practice of hiring, and firing, and backfilling takes up a tremendous amount of resources and it truly hurts employee morale.”
If it were up to Samuel Culbert, professor of management and organizations at UCLA, performance reviews would be extinct. (In 2010, he wrote a book calling for an end to the practice.)
“Reviews are stupid if you want esprit de corps, teamwork, and people owning up to their errors,” Culbert tells Fortune. Management’s role is to get the best from employees, yet too few managers see an individual’s underperformance as their failure, he says. “If you have someone who’s underperforming, you ought to be working overtime to learn about that person and what his or her strengths are,” then create better conditions to enable their success.
At Goldman Sachs, the idea that a percentage of high-potential employees are labeled as underperformers, and put on the chopping block should the company choose to enact layoffs, does not seem to have much backing in any organizational theory or labor-market data. The practice also puts tremendous pressure on managers to rank their team members and defend those decisions, when they should be focused on empowering people.
“Exemplary leaders are not going to give up on low performers, but rather they are willing to invest the time and resources to try and strengthen those people,” Jazaieri says. “Obviously it can’t go on forever, but the idea of arbitrarily deciding 5% or 10% of people are going to be [reprimanded for underperformance], I don’t think that seems sincere.”
Sign up for the Fortune Features email list so you don’t miss our biggest features, exclusive interviews, and investigations.