"How to Conduct Performance Evaluations" The 'Concerns' of Companies Created by COVID-19-Induced Work Changes [Jjinbit]

[Asia Economy Reporter Hyunjin Jeong] "One reason managers pressure employees to come to the office despite knowing that performance evaluations are inefficient and unnecessary is that they believe evaluations can only be made by seeing employees in person."

Adam Grant, a renowned organizational psychologist from the Wharton School at the University of Pennsylvania and author of the book "Originals," recently took on the role of center director at a startup in South Korea. This was the Purpose & Performance Center of the U.S. Silicon Valley mental health startup BetterUp. The center researches employee performance and collaborates with businesses and the scientific community to discuss employee well-being and the purpose of work. Currently, research is underway to redefine "what high performance means" at this point in time.

Professor Adam Grant (Organizational Psychologist) at the Wharton School, University of Pennsylvania, USA

According to the U.S. business magazine Fortune, Grant took on this role because he believed there was a need to redefine corporate performance evaluations. He said, "There is a fundamental need to rethink performance evaluations. There should be better evaluation methods, and managers need tools to understand what good performance is. That way, even if employees are not sitting together in one space every day, managers can trust that they are doing their jobs well."

◆ Why Are Companies Rethinking Performance Evaluations at This Moment?

Performance evaluation has always been a controversial topic in corporate management. It is very difficult to create evaluation criteria that satisfy everyone, and often the perspectives of evaluators and those being evaluated differ, making it a persistent challenge for HR departments. Let's look into the background of why Grant is addressing this topic now.

Since the COVID-19 outbreak in early 2020, which has lasted nearly three years, work styles have changed. A representative change is the spread of remote work. This has made it difficult for managers to evaluate employee performance. Previously, evaluations were based on observing employees working in the office and having conversations in person. With remote work, it has become hard to assess work attitudes within the office, which were previously used as evaluation criteria. Grant also pointed out that managers tend to rate employees who come to the office higher simply for being physically present.

In the U.S. and other countries, performance evaluations were even suspended for a while due to these reasons. Especially overseas, where the "Great Resignation" era caused severe labor shortages, companies focused more on solving staffing issues rather than conducting evaluations.

However, this year, concerns about an economic downturn have changed the market situation. Although unemployment rates in major countries like the U.S. remain relatively low and labor shortages persist, global tech companies such as Meta, Amazon, and Alphabet have implemented layoffs. The Wall Street Journal (WSJ) reported last month in an article titled "The Fearsome Return of Performance Reviews" that "many companies are paying attention to employee performance again. The return of performance evaluations will disappoint many workers."

According to the WSJ report, contracts for using performance evaluation systems by HR software company BambooHR increased by 30% year-over-year as of July. The number of evaluations was about 61,000 annually last year but has reached nearly 530,000 so far this year. Neil Gandhi, a partner in HR at global consulting firm McKinsey, described this as "a routine business practice to ensure employees are working in the right direction and achieving goals they set themselves."

While many companies are returning to traditional methods, some are seeking change, like Grant. Some large companies such as Adobe and Accenture had already stopped annual performance evaluations before the COVID-19 pandemic, believing the need to change the system. Bloomberg cited market research firm Gartner last month, reporting that performance evaluations should be shorter, conducted quarterly rather than annually, and encourage active communication between employees and managers.

◆ How Has Performance Evaluation Changed Over Time, and Where Is It Headed?

According to an article published in 2016 in Harvard Business Review (HBR) by global HR expert Peter Cappelli, professor at the Wharton School and director of the HR Center, performance evaluation began as a system introduced by the U.S. military during World War I to dismiss low performers. It was a system emphasizing individual responsibility. During World War II, the U.S. Army also conducted performance evaluations, but this time to identify high-performing soldiers for officer promotion rather than to find low performers. This meant the focus was on talent development.

Cappelli explained in the article that the purpose of performance evaluations has changed over time based on historical and economic contexts. Depending on whether it was easy to find human capital, the focus shifted between holding employees accountable for rewards or dismissals based on individual performance, or developing talent by promoting high performers.

In the 1940s, 60% of U.S. companies documented employee performance and distributed rewards through such evaluations. In the 1960s, companies like General Electric (GE) faced labor shortages and began discussing separating the roles of performance evaluations into accountability and growth. However, in the 1970s, with inflation soaring and economic recession, the focus returned to accountability and performance assessment.

Jack Welch, former GE Chairman

GE's "rank and yank" system, introduced in the early 1980s and recognized as a successful performance evaluation method for over 30 years, exemplifies how systems change with the times. Jack Welch, known as the "management genius of the 20th century," implemented this system in 1981. It involved ranking employees into the top 20%, middle 70%, and bottom 10%, differentiating pay accordingly, and firing the bottom 10%. This method was once praised as a way to maximize individual employee performance by distributing rewards based on results.

However, in the 2010s, large companies like Microsoft abolished this system, arguing it fostered excessive competition and internal politics, harming collaboration and creative thinking. Even GE declared in 2015 that the system was "outdated" and introduced a new framework. This change was seen as a response to the rise of mobile technology and a new generation of workers who value immediate feedback and individuality, making annual relative evaluations outdated.

Thus, performance evaluations have constantly evolved with circumstances. The concept of work is changing due to COVID-19, and discussions about work methods are active. The MZ generation is entering the workforce rapidly. Consequently, companies' concerns about performance evaluation systems will deepen. There is no single answer. Companies must prioritize values suitable for the times, communicate actively, and seek wise solutions.

Editor's Note[Jjinbit] is short for "Hyunjin Jeong's Business Trend" and "Real Business Trend." It is a section showcasing trends in work changes such as organizational culture and HR systems after the pandemic. Based on analyses from foreign media and major overseas institutions that have not received much attention, we will deliver fresh and differentiated information and perspectives.