The way most companies approach performance management is completely broken. Everybody knows it, yet there aren’t many companies or managers seeking more progressive approaches.

Leaders continue trying to put people in boxes rather than thinking about how they can create the opportunities for people to do their best work, maximize their potential and help the company achieve its aims.

Often companies don’t even define performance expectations, so they end up with a spectrum in which everyone is operating according to a different version of what it means to be performant.

And measuring potential is equally flawed—managers typically view potential through the lens of fixed hierarchies and static job descriptions. They rarely establish personalized growth goals with team members or set up opportunities for those goals to be realized.

As we’re approaching the end of a historic year of change and upheaval, now is a perfect time for rethinking how we manage performance.

What’s Driving Ineffective, Inhumane Performance Management

As with many of the fallacies I speak and write about, much of the problem stems from the outdated command-and-control model of scientific management.

You need to realize that performance is a consequence of how well outcomes are defined, adapted and refined as you learn your way through uncertainty, not necessarily how well a team member is executing the tasks you’re handing them.

The latter is productivity—a poor substitute for performance.

Here are the top mistakes I see leaders and managers making in their approach to performance management.

Lack of Clear Goals/Measures

“On performance, typically people are rated under-, medium-, and over-performing. But the question is, ‘against what?’”

Kim Atherton is co-founder and CEO of Just3Things, a software platform for aligning and engaging teams*. She’s also a trained occupational psychologist and former Chief People Officer at OVO Energy, which she helped build into one of the UK’s top energy providers.

“Most organizations don’t set clear goals,” she said. “And the performance assessment is usually a mixture of what individuals have achieved and how they’ve achieved it. This is a broken system that undermines the fundamentals of what you’re trying to achieve in an agile, nimble, experimental culture.”

When someone gets a positive review, the system might seem fine (although as we’ll see, goes unexamined) but when they get a review that’s not favorable, it often can’t be explained to them, because there was never a clear benchmark to begin with. This causes more stress and frustration, and it actually erodes the quality of your culture.

If you’re not going to put the effort into crisply defining the real outcomes and examples of what performance is for the individual, the team, and the organization—or what it means to maximize their potential—you’re allowing managers to be complacent and go with their gut thus making success totally abstract.

You get a situation in which nobody has a shared set of expectations of what’s to be achieved. This invariably leads to disappointment and low morale, and it hurts a high-performance culture because people are misaligned.

Individual Assessment

Another fundamental flaw with performance management is the almost universal practice of assessing individuals rather than groups.

Many organizations talk about having distributed decision making and moving more responsibility and accountability into teams. But it doesn’t make sense to set the units of work or performance at a team level and then manage individual performance.

Talking about playing as a team but measuring individuals sends a mixed message. If you need to manage individuals, fine—I’ll give you my tips on that and team performance in a moment.

Wrong Tools for the Job

Not only are employees assessed on their individual contributions, but the way those assessments are done is incredibly degrading.

Many managers and senior leaders fall back on the nine-box grid, a “talent management” tool in which employees are divided into nine groups based on their current performance and likely future potential.

It’s a dehumanizing process in which you label someone with disheartening terms like “Up Or Out Grinder” and “Dysfunctional Genius.” And the implication of most of the labels is, “This person cannot get any better.”

I think nothing can be less inspiring or more depressing. The whole premise is grounded in the assumption that only some people have growth potential.

If you have high performance but low potential, congratulations, you’ve reached your ceiling. If you have low potential and low performance, then you’ve got to be reclassified to a lower level, or maybe exited from the organization. Really?

“One of the things that I really hate about forms like the nine-box grid is that they undermine the team ethos that a lot of organizations try to create,” Kim shared. “I think it’s a good idea to have performance conversations with your direct reports, but not about, ‘I need to label you as a number or name in a box.’”

Putting people in boxes isn’t management; it’s mindless. Companies that take this approach are totally missing the fact that it’s a human being doing the performing that’s being judged—a human with a unique set of skills, desires, goals, and (often solvable) challenges.

As Katri Harra-Salonen, former CDO of Finnair said on our podcast, “Don’t put people in boxes. Boxes are for dead people. Embrace growth personally, professionally, and as your business strategy regardless of what others think”.

There is a ridiculous amount of potential squandered by this black-and-white, square-hole approach that fails to see and nurture the value of the round pegs that are working so hard to grow the company.

Simplistic View of Potential

Speaking of potential, most managers have a shallow and ineffective view of what constitutes potential.

“The potential element is broken because most people—in particular most managers—don’t understand what potential means. Most managers would classify potential as, ‘Can they do my job?’ And that’s it,” Kim said. “They wouldn’t say, ‘Do they have the growth mindset and self-awareness to think about the attributes they would need to perform at a different level of role?’“

Every individual has their own aspirations about how they want to grow. But how many leaders truly understand the aspirations of their team and what they actually want to develop?

If you take the time to find out, you can create opportunities and experiences for people to exercise the muscles that they want to build, in alignment with the company’s goals.

You define measures of success that you’re both accountable to, review progress monthly, and adjust accordingly. It might not be the right direction after all, but you can find that out within a few months rather than waiting til the end of the year and handing somebody a failing grade.

Annual Planning

And that brings us to the general over-reliance on annual performance reviews, which to me is lunacy—again an iteration cadence stemming from scientific management’s introduction in the 1880s to be unlearned.

We make up a number at the start of the year and keep people busy with work. Then, come year’s end, we pull out the contract and see how they performed against it. It’s like handing out a school report card for the year.

Employees spend the moment before reviews trying to collect or create evidence of how hard they worked during the year. It’s not tied to their development, the company’s goals, or any metric of value. It’s just retrofitting a story to show success in terms of busy-ness.

We work in a world, especially at the moment, that is so volatile and uncertain, that while we have to set a direction over a year, we also have to recalibrate it every month based on what we’re seeing and learning.

If you’re continuously managing to outcomes, an annual review has far less relevance and will create far less stress and perceived need for employees to justify their existence.

Linking Compensation to Performance

Lastly, tying performance reviews to compensation exacerbates the problems of individualized assessment. When people have to demonstrate their “individual impact” in the company to get bonuses, rewards, and promotion, it further degrades morale and inhibits the development of a collaborative, team-based culture.

It’s not about the individual; it’s about making it easy for the company to pay people based on simplistic categories and bell curves.

This happened at a company I worked at—it was all about moving up the bracket. Once people realized the reviews were tied to pay it would prompt perverse behavior. Nobody wanted to give bad reviews, because they didn’t want to get bad reviews or impact someone else’s pay or promotion chances—especially those they were working with on a regular basis.

So companies end up with poor data, defeating the whole purpose of doing performance assessments. It looks neat and tidy on paper, but it’s a performance management theatre.

Facebook: the Anti-Pattern

At Facebook, regardless of what team you’re in, it’s all managed to individual performance. Employees have to demonstrate what impact they’ve had against Facebook’s organizational goals, which are often so massive that each person is far removed from them.

No big problems are ever solved by one individual’s impact, yet employees are stuck trying to create evidence to validate their work.

There are two parts to this dysfunctional approach to performance management. First, employees are constantly monitored by an automated system as well as peer reviews, so the pressure is relentless and leads to burnout.

Then the performance discussion is about showing how great you are. Incentivizing individual successes leads to competition over collaboration within teams.

What’s missing is upfront conversations where managers sit down with the team, ask, “How will we know we’re performant?” and come to an agreement.

British Airways is an opposite example. Flight crews are measured as a team. If people complain against an individual, the entire team for the flight gets marked down. Your performance system sends the signal for how you want the team to treat customers and collaborate together to succeed. Do you want a collection of individuals or a team of colleagues? It’s your choice what culture you create.

Kim insights from her time at OVO and how as she’s growing Just3Things highlight why continuously evaluating and iterating your approach will create your higher performance culture, “First of all, getting rid of rating scales is key to high-performance culture. Another thing I’ve tried to move away from is tying performance reviews to compensation. We first moved to a team-performance-based bonus system, and then to the performance of the whole business unit. So they’re always more aligned to the goals and the success of the strategy.”

Make Performance Management an Ongoing Conversation

Nobody should ever be surprised at a performance review. We’ve failed as an organization and leader if people are surprised by negative results. Even if that person isn’t performing well, they should be aware of it through conversations with expectations of clear consequences.

Setting outcomes for both performance and potential, with regular reviews of what’s being achieved and falling short helps manage this challenge is small, clear steps for both parties.

And in case you’re wondering how you could manage underperformers without the beloved 9-box grid to justify exiting people, Kim offered this advice: ”It’s no more or less difficult if you’ve got a performance rating scale or if you haven’t. Managers should be empowered and coached on how to be brave and have those difficult conversations and exit people in a way that’s safe for the company and respectful and fair toward the individual.”

One company that also excels at this is Netflix, which has no bell curves, rankings, or quotas such as “cut the bottom 10% every year.” That would be detrimental to fostering collaboration, and is a simplistic, rules-based approach they would never support.

The focus is on managers’ judgment through the “keeper test” for each of their people: if one of the members of the team were thinking of leaving for another firm, would the manager try hard to keep them from leaving? Those who do not pass the keeper test (i.e. their manager would not fight to keep them) are promptly and respectfully given a generous severance package so the company can find someone for that position that makes it an even better dream team.

Gibson Biddle, former Netflix’ Vice President of Product Management, made an interesting point when I had him on the podcast. He said the leaders always wanted the company to be a great place that people had worked—that it would be a good fit for a time, but not a place where people stayed indefinitely. So assessments and cuts were more about helping people find the best direction for themselves rather than simply cutting underperformers.

How to Get Back to Putting People Back Into Performance Management

Here are some key questions you need to ask yourself about your performance management practices.

  1. Do you make a plan for personal development and growth with your team?
  2. Do you clearly articulate what high performance is for the business, the group, the team—even the individual if you’re so inclined?
  3. If so, how often do you set it? Review it? Adapt it? (For most, it’s yearly. I recommend starting monthly and over time shifting to a minimum of quarterly.)
  4. Do you know what areas your team members wish to develop in order to explore their potential?
  5. How do you design opportunities for people to explore or exercise new skills? (or do you?)
  6. How often do you review the results, and with what methods?
  7. What’s your approach for refining the growth process based on those reviews?

Remember, you will get far better results by separating personal development from performance and shifting performance management to team, group, or organizational level. Work with team members to create goals and give them opportunities to grow in line with what’s needed and what they’re interested in. Review regularly as partners and take responsibly together for outcomes. This is the path to a high-performance culture where people thrive and growth accelerates.

*Note: I serve on the board of Just3Things.