Performance Reviews: Maybe the best way to discourage employees

By Mike Cook
For The Bellingham Business Journal

Employees are unarguably the most valuable asset of any business. This currently accepted fact has not always been the case. Unfortunately, the manner in which businesses are evaluated relies heavily on established accounting principles, which were developed at a time when tangible assets—usually referred to as “bricks and mortar”—were the norm. For accounting purposes employees were intangible and considered simply an expense. This method of evaluation made sense in an economy where adequate performance required limited talent and most of the capital in any businesses was tied up in things like plants and property. In our current economy employers know the talents and skills they need are not always abundant.

So today, in our knowledge-based economy, how do your employees know how they are doing, know that you value their contribution? I hope you’ll say something more encouraging than “If they are still employed that should tell them they are doing OK…for today anyway.”

Authors Teresa Amibile and Steven Kramer in their book “The Progress Principle” make a very convincing case based on research they conducted that having the experience of winning, being told frequently that a good job is being done and performing meaningful work are some of the most reliable methods of encouraging and sustaining employee engagement and, thereby, optimal performance. It stands to reason then that employers/managers would be doing themselves a favor by making sure every employee knows how they are doing, experiences some measurable success on a regular basis and leaves work feeling their time has been well spent.

A 1984 study by Dale Jorgenson and Barbara Fraumeni, “The Accumulation of Human and Non-Human Capital asserted that “the value of human capital in the United States is five to 10 times larger than the value of all the physical capital in the United States.”

As you probably readily conclude, if that was true 30 years ago then today the value of human capital must be some multiple of that earlier figure.

The point is this: If the value to our businesses of the people we employ is truly such an unmistakable asset, then we need to do a stellar job of evaluating and developing employees. Generally, we don’t!

For the past 70 or so years what employers have been doing is “shaping” employees to be the “tools” needed by the business, at least in the minds of management. This shaping process, a product of the image of “employees as expense,” is an unintentional consequence of the inherited management mindset from the previous economy. Along with this mindset came the notion of the annual performance review. This practice made obvious two aspects of work life from that previous economy. 1) If you thought a once a year review of performance was sufficient the working environment could not have been very dynamic, and it wasn’t, and 2) since employees were viewed as expense, attention was paid primarily to making sure that they, as a resource, were being well used.

Think about this for just moment. Asset or resources, what’s the difference? Assets are intended to be grown; resources are expected to be used. The performance review was conceived as a means of reporting to the employee whether management felt they were getting their money’s worth for the expense they were incurring.

Consider this quote from Amibile and Kramer’s book, which stands in stark contrast to this “employee as expense” perspective:

Work that is devoid of meaning, interest, and joy can lead to lives that feel very empty indeed. Managers who realize this have a valuable opportunity. By taking actions that support inner work life, they can … build the long-term success of their organizations, and add meaning to their work as managers—which in turn will nurture their own inner work lives.”

Despite words like these and lots of other evidence the annual performance review, or some version of infrequent performance review focused mainly on areas for improvement, has proven extremely resilient. 

However, evidence is growing that there is a turn in the tide of historical practice, perhaps the emergence of a new management mindset. the July 24, 2015 issue of The New Yorker magazine ran a feature piece that included the following signs of change.

Lately, though, the annual performance review has been falling out of favor in some quarters. Microsoft and Gap are among several companies that have reformed their evaluation processes in recent years.”

In view of the facts, employees are no doubt the most valuable component of virtually all businesses today, maybe you owe it to yourself as an employer/investor to sit down with your assets and find out what they’d really like to do for your business that would make their employment more satisfying.

Mike Cook lives in Anacortes. His columns appear on every other Tuesday. He publishes a semi-weekly blog at and also facilitates a monthly business book reading group at Village Books.


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