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The Problem With Performance Reviews

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Performance reviews are standard protocol in corporate America. The objective seems to be for the company to give formal and direct feedback to employees, who are assumed to understand that the reviews represent an opportunity to get a status check (like a report card) that can help them improve their performance and in the end further their careers.

I don’t believe in formal performance reviews. I think they create an environment where employers risk not confronting unsatisfactory performance when it happens — or acknowledging great work when it is delivered.

At TerraCycle, our approach has been to build a culture where feedback is given often and evenly to all 110 employees. We do this through a weekly reporting process (a topic I blogged about a few months ago) that requires every department to submit a detailed biweekly report to the whole company (every employee). In other words, everyone in the company sees the same reports that I do. Then, as chief executive, I write detailed responses to the reports that are also sent to all employees. This process allows everyone to be evaluated, frequently and without prejudice, in full view of their co-workers. I greatly prefer this approach to a more formal, once-a-year sit-down. Someone who isn’t performing well needs to know about it in real time, and someone who is doing great deserves immediate recognition.

Our process doesn’t just increase transparency and give feedback on a biweekly basis, it also serves as a record if we ever need to think about termination. Bottom line: Constant feedback – verbal and written – is strongly preferred in our organization. That said, in some cases, we do conduct yearly performance reviews, but the process is much less formal and it happens at the discretion of the head of the department or division.

Of course, this does leave one person who isn’t part of the feedback loop. That would be me, the chief executive. Yes, it can be lonely at the top, especially when it comes to getting constructive feedback. And this can be even more true if the chief executive is the owner or controls a majority of the company’s shares, and there is no board of directors. No matter how liberal the organization, most employees, understandably, are reluctant to criticize a boss directly, especially if the boss is the chief executive. So how is the chief supposed to learn and grow as a leader?

I surround myself with several people who oversee my work closely. They don’t hesitate to give me their views, sometimes immediately, often in “reflection” notes that I read when I have time. It’s not a perfect system, and I have a tendency to drive forward and do what I think is right — but my views and approaches do evolve and I am increasingly impressed by my entire senior team.

Another option to getting leaders feedback is the well-known 360-degree evaluation that encourages employees to give anonymous feedback about a boss in a multi-rater system. But here’s an important question: Is the role of a chief executive to be friendly and make everyone happy (which might result in positive 360-degree reviews)? Or is it to drive performance and return on investment for the owners or shareholders (which may produce more negative feedback)?

I think most people would say it’s the latter, and a strong chief may not be popular with the staff. Just look at Steve Jobs, a revolutionary who helped create the largest computer company in the world. He had a famously prickly, even tyrannical, personality. It’s hard to imagine anyone persuading him to sit for a 360-degree review.

Personally, I have a bias against 360-degree feedback. Five years ago, the chairman of TerraCycle’s board forced me to participate in such a review, and he used it as a tool to try to replace me with a “more seasoned” executive (I was 24 at the time). It was a terrible process that pitted me against my staff and it backfired. The result was a mass replacement of not only the majority of the board but also many senior employees. I guess what the report showed me and my shareholders in the end was not only that I needed to develop as a chief executive, but that my organization needed a shakeup, too.

I’m convinced that transparent and constant feedback throughout the year is far better than the 360-degree approach — for everyone in the company except the chief executive. As for my feedback, perhaps I’ll get some insightful comments in the public forum of this blog. I’ll do my best to pay attention – but I’m not making any promises.

Tom Szaky is the chief executive of TerraCycle, which is based in Trenton. This column appeared in his blog You're the Boss: The Art of Running a Small Business, in The New York Times.

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