Tesla’s Technoking gives lessons on performance reviews

To hold on to your job you have to be “excellent, necessary and trustworthy”, according to Elon Musk. But does the Technoking of Tesla even pass his own test?

The maverick chief executive of the electric-car maker and co-founder of companies including SpaceX has incited lawsuits and SEC investigations. There are regularly sudden shifts in direction at his businesses because of his autocratic decision-making style and the working culture is so demanding it leads to high burnout and staff churn. Musk’s own employees and investors may conclude there are enough reasons to show him the door, but unluckily for them he’s the one in charge.

Yet Musk’s remarks raise a more serious question — what is the correct and fair way to judge worker performance? And can you ever truly eliminate manager bias?

Big companies often turn to performance reviews to provide a structured way to give feedback, help employees understand their strengths and weaknesses and provide career development advice. In theory, they are a chance to recognise and reward good work while motivating staff and boosting morale. Employees too can air grievances.

But they can be time-consuming and stressful, particularly if they are not used to think meaningfully about future development. While a company may strive to be meritocratic, these reviews can be highly subjective and often reflect personal biases. Different managers have their own ways of conducting them, which can lead to inconsistencies across a workforce. 

New Gallup data is revealing. Only 2 per cent of human resources chiefs from Fortune 500 companies that were surveyed by the polling and consulting group strongly agreed their performance management system inspired employees to improve. Employees were just as negative, with only one in five saying the reviews were transparent, fair or led to better performance.

It is not surprising that many union members do not trust performance appraisals. Reluctant and accidental managers — a staggering proportion of the total according to the Chartered Management Institute — are not likely to rush to do them either. In response, some companies are choosing to replace reviews with more frequent and informal check-ins between managers and employees.

But even when organisations have scrapped performance ratings, they have found a need for some form of annual documented evaluation to help them make decisions on issues such as promotions and pay raises, research by McKinsey shows. This means that in large organisations particularly, there is no way to avoid them entirely. 

“This is probably the most important thing to fix when it comes to managing people,” says Tomas Chamorro-Premuzic, an organisational psychologist and expert in people analytics. “If you really cannot without some degree of objectivity evaluate the performance of an individual, you cannot do anything else meaningful in terms of running a company well.” 

He rattled through a list that included hiring and promoting the right people, handing out bonuses, figuring out the next generation of leaders and building successful teams. An objective system is also essential for workplace diversity as people from non-traditional backgrounds may find an informal structure harder to navigate. 

Most performance appraisal forms provided by companies ask managers broad questions about their employees. Bosses then fill in their assessments, critiques and other feedback. This open-ended approach is partly to blame for the bias. Setting out objective criteria for bosses to judge workers on, which includes specific personal and team goals and involves the employees themselves, can help achieve more honest and transparent assessments.

It is also important to encourage a feedback environment where discussions with staff happen more frequently than at the end of the year or quarter. Managers need to be empathetic, curious, open to critique and use reviews as a way to change their own practices.

“Traditional performance management never worked, where you set goals at the start of the year and review them at the end. We are in a dynamic world where things are changing constantly,” says Ben Wigert, director of research and strategy at Gallup’s workplace management practice.

Bosses should aim for “one meaningful feedback conversation a week”, he suggests. Managers can discuss an employee’s priorities, what support they might need, recognise good work, check in on their wellbeing or have a difficult conversation to ensure a problem does not get worse. “This is the key to doing well. It’s an ongoing process and conversation where constant adjustments are made to goals. All of this then ends up in the end of year review where nothing should be a surprise.”

Readers may balk at the idea of such frequent interactions, but if managers are more in tune with their employees, perhaps workplace relationships and team performance would improve. And if things are not working out, there is earlier warning.

As for Musk, it is clear performance reviews are a one-way street. As one Reddit user said about him last week: “[You] can’t get replaced as CEO if you fire everyone else.”

anjli.raval@ft.com