Do we even need annual performance reviews?
I’m not the first person to bring this up, of course — a quick Google search will serve up articles from SHRM to BetterWorks to UPenn’s Wharton School of Business. And, of course, Vu Le of NonprofitAF has hit the nail right on the head too.
Spoiler Alert: I agree that most annual performance reviews are . . . crap.
But wait! Everyone from Joan Garry to BoardSource says we MUST do an annual performance review of the Executive Director. This is getting confusing. . . .
First, let’s make sure we’re talking about the same thing. When I (and others) say that most performance reviews are useless, we’re talking about traditional performance reviews. You know, the kind:
1 that use ratings systems (1 = poor performance, 5 = exceeded expectations);
2 happen annually;
3 where the supervisor has been trained to deliver criticism as a sandwich (say something good, then the bad thing, then another good thing);
4 where the supervisor lists all the things the direct report needs to improve on (and it’s solely on them to do it) and uses the number of “exceeds” expectations to determine whether the direct report gets a raise; and
5 that breaks the whole thing into siloed, separately graded categories (communication, leadership, etc.).
Look familiar? There is still A LOT of this type of performance review happening, simply because it’s always been that way. And it doesn’t take radical thinking to see why the above is a waste of time. Let’s look at that same list again, but this time, with a reality lens.
1 Using a ratings system . . .
is contrary to real world functioning — any single person’s performance in their job isn’t happening in a vacuum. Absolutely everything is a partnership and group effort, so rating individually is nonsensical;
psychologically forces supervisors into one of two categories:
“I must give my direct report a range of grades because no one is perfect, and it will look weird if I just give them all 4s and 5s”; or
“I don’t want my team to look like it’s behind Sue’s team when she’s always giving her team top grades, so I’m only giving 4s and 5s.”
is demeaning and infantilizing; professionals don’t need to be rated and arbitrarily compared to their peers (many of whom are doing different jobs) or to some standard that is almost always nebulous; they need real world partnership and collaboration (more on that below).
2 Doing reviews annually means that:
regular progress check-ins, necessary for smooth sailing, aren’t prioritized;
conflict avoidance is enabled (phew! don’t have to bring that up until the annual review!);
reviews often contain surprises, which creates unnecessary angst and confusion and sows distrust.
3 That “sandwich” is also known as a sh*t sandwich, which is no fun to make as the supervisor and no fun to eat as the direct report (see how to do it better here).
4 Using ratings to determine pay creates a system wherein, unless you are doing far more than your job description (i.e., “exceeding expectations”), you won’t get a raise — which, if you’re following the capitalism math here, means that unless you do more than we’re willing to pay you for, you won’t get a raise to bring you to the level that we should have been paying you — i.e., your pay will always be one year behind the actual job you’re doing — in other, other words — you’ll never get paid for the work you’ll actually doing. And don’t even get me started about the “performance raises” often barely equaling what the cost of living adjustment should be — i.e., a “raise” = barely maintaining your same relative salary.
5 Those siloed categories make no sense in the real world. All the skills we need to perform every aspect of our job are intertwined, and breaking it down into categories psychologically forces supervisors to nitpick instead of looking at the whole person. The silos and the ratings system also generously invite lots of implicit and explicit bias into the review process, wherein differences in cultural background, neurodiversity, mental health, etc. translate to being knocked down a peg or two in the communication category, for example.
A note on 360 reviews of CEOs/EDs.
For many boards, 360 reviews are a popular way to gather data for the annual review of the CEO/ED. In 360s, CEOs are reviewed by a sample of everyone who surrounds them (hence, 360 degrees), usually using a survey of staff, board members, major donors and funders, key volunteers, strategic partners, etc. If you use these, use them with a large grain of salt. These types of reviews:
invite people to think that they need to find something negative to say;
don’t include much context or nuance;
assume that only glowing comments mean good work by the CEO (but not all good decision-making will be popular);
don’t always provide much insight from the staff because there often hasn’t been enough attention paid to whether the staff feel safe answering the survey fully;
can be weaponized due to petty grievances;
don’t do a great job of differentiating between which respondents have the necessary insight to respond to different parts of the survey; and
don’t encourage open, ongoing dialog and mutual feedback between Board and CEO, staff and CEO, and staff and Board (i.e. they’re conflict-averse without actually being safer for staff, at least when the staff size isn’t in the 100s).
Generally, if your whistle-blower, grievance, and anti-harassment policies and processes are solid, and you’ve built a TACTful workplace, you will know if a problem concerning the CEO is brewing from the staff viewpoint. And if external partnerships are blowing up due to the CEO, you’ll hear about in your network or see it on the balance sheet. At that point, you might need surveys to investigate what’s happening, and you might need to bring in an external expert to help you navigate what to do next.
So, your performance review of the CEO can follow the same principles as the performance tracking of everyone else on staff (see below).
I know that none of the above is a surprise to you, because you’ve probably thought all of this every time you’ve received or delivered an annual performance review. Yet, organizations often get stuck in “but this is all we know and we HAVE to review.”
So to untangle that, let’s look at why we think we have to do these formal annual performance reviews.
1 How else will we determine raises and bonuses?
2 How else will our employees and their supervisors know what their goals are and whether they are meeting them?
3 What if the person is really performing poorly (on the whole, or in particular aspects), how else could we prove it?
Those are all valid questions. Performance reviews in the U.S. in general may have started during WW1 by adapting military rating systems to worker performance, lending itself well to factory settings wherein widgets out = rating. And if the goal is just churn, churn, churn out metrics for your shareholders, maybe it makes sense? Nah, all of those questions, even in a factory floor, assembly-line setting, can be answered without traditional performance reviews.
1 We’re all likely to have pretty differing views on raises and bonuses. Here are mine. All organizations and companies should be paying their employees fair, equitable, competitive wages for the job they are actually doing. In the non-profit world, this often means striving to reach that point and to unwind the many decades-long practice of underpaying nonprofit professionals.
Once at fair wages, if the job is staying the same (same level and scope of responsibility), then wages should always go up each year by the cost of living adjustment (COLA) to avoid the salary actually decreasing in value every year. If the job responsibilities increase in scope, then a concomitant additional raise is due — if the scope increases enough, then a larger raise and promotion in title are due. Pretty simple. Pay for the job being done and keep up with inflation.
How do you determine the raise amount? By checking your Pay Scale Policy that should tell you what the pay is at each level of responsibility. What if someone is doing a ton of extra credit? Unless that extra credit was forced on them (in which case, it’s actually an increase in job scope — see previous), then they still get paid the same as the person doing exactly the job and doing it competently. No more punishing those who refuse to overperform and give the company more of themselves than is actually owed. And if you need more out of people, pay them for it and change the title to match the work.
In the nonprofit world, I generally caution against using bonuses at all, especially since base salaries are often unfairly depressed. If bonuses do happen, they should be distributed across the entire staff, with the highest proportions going to the lowest levels and the CEO getting the lowest proportion. If you’ve had a year with a major gifts bumper crop, it took the whole team to make it happen. Otherwise, use bonus money to instead work on phasing up to more competitive, sustainable base salaries.
2 Annual Reviews aren’t necessary for setting goals and tracking progress. For sure, everyone needs to know what they’re meant to be doing. Set annual goals together, between supervisor and direct report. Those goals should neatly line up with the Annual Operational Plan, which itself neatly lines up with the 3-5 year Strategic Plan. Remember that goals don’t need to be something new and innovative; there’s always important, ongoing work to be done — don’t leave it out to focus only on the new, or you’re just overloading plates. Include milestones to be met along the way, and agree on qualitative and (if applicable) quantitative metrics to measure progress.
Make it a joint effort. The direct report will do X, and the supervisor will do Y to support success. Schedule regular progress check-ins for joint problem solving. If you’re not checking in regularly, then the whole effort will fall apart anyway, and a formal annual review won’t tell you why. In those check-ins, if an opportunity is identified to strengthen a skill or improve on an output, then jointly discuss how to make that happen, and make sure the resources are provided. Again, what good is it to only bring it up at the end of the year, when improvements could be made starting ASAP, all the way back in April? And we all have things we could improve — so why ding for not being perfect? Just focus on the positive means of improvement. We don’t need to be comparing whether Sue’s area for growth is bigger or somehow worse than Joe’s area for growth. Plus, if the Joe really dives in on that area of improvement and makes great progress by July, why ding him for it in December?
The same set-up applies to the Board managing the CEO as their collective boss. There should already habitually be myriad ways that the Board and CEO are working together and regularly checking in on progress, joint problem solving, and distributing tasks. This relationship should be so tight and layered that it’s too much to elaborate on in this article.
Suffice it to say that the CEO’s goals should also clearly align with the Strategic Plan and Annual Operational Plan. But don't fall into the common trap of holding the CEO personally responsible for the Strategic Plan goals. Those are shared by the entire organization, including the Board. Instead, the CEO's goals should focus on their operational management and organization leadership duties.
And, just like everyone else, feedback and opportunities for improvement should be provided in real time, etc.
3 In the case of truly poor or problematic performance, whether the CEO or another staff member, a formal process is necessary. Because someone’s job may be at stake (so, ethically, the Board or supervisor owes the employee proper attention to the matter), and because things could become litigious down the road (so the organization’s reputation, funding, and outgoing expenses could be gravely affected), attention to a transparent protocol is necessary. As explained above, the Board will know if something is seriously awry with the CEO — and they’ll know it before an annual review would tell them. For other employees, supervisors will know truly poor or problematic performance when they see it — again, before the annual review happens (which wouldn’t really reveal it anyway).
Regardless of what the end outcome might be, when you, as the supervisor (whether that means the Board supervising the CEO or the CEO or other staff supervising another staff member), start suspecting that something might be off, make sure everything is written down. Decisions made, conversations had, etc. Even emails sent to yourself with your notes and thoughts are often permissible should things take the legal route, especially if sent as close to when it happened as possible.
The formal processes for serious cases starts with the grievance, whistleblower, or anti-harassment policies — follow those to a T and document everything.
When it’s a less egregious issue but is still a case of significant underperformance, then create a Performance Improvement Plan (PIP). PIPs can range in tone and scope from something that resembles an in-depth professional development/coaching plan to a plan that, if not successful, ends in termination by a certain date.
The PIP should indicate what the issue is, how it should be addressed by the employee, how the supervisor and organization as a whole will support the employee’s success (within budgetary and capacity reason), the timeline, milestones, and terms for triggering termination (if applicable).
Consider also what may trigger a reduction in pay (even if temporary) or an unpaid leave-of-absence — e.g., if decreased work output is seriously affecting everyone’s else’s productivity or the balance sheet or if the issues could create serious public reputational harm. Make sure, as much as is possible, that these are written policies or, if so unique as to not be possible to apply to a general policy, make sure the reasons and actions are very clearly laid out in writing and voted on by the whole Board in the case of the CEO’s performance. In this way, rather than via a raise system that is always behind, employees who are doing the job competently are paid fairly, and those who are seriously behind are not necessarily paid the same — thus, obviating the argument that without performance-based raises tied to numerical scores, poor performers will be paid the same as super stars.
PIPs are more effective than Annual Reviews in addressing poor performance, because they are immediately implementable, specific to the issues at hand, and include the supervisor and organization as a whole in partnership with the employee. If the PIP is followed in good faith by all parties, and performance has not improved enough by the end to warrant continued employment, then the PIP serves as your legal and ethical cover.
If none of that has convinced you that Annual Reviews might not be as necessary as you previous thought, then I’ll ask one more question . . . . When has an Annual Review ever made you (as the supervisor or the direct report) feel more energized about your job, more valued by your employer or direct reports, and clearer in your or your direct reports’ professional development goals?
