Atlassian's big experiment with performance reviews

Atlassian's big experiment with performance reviews
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Do you ever wonder if and how you could call a halt to your performance review process? Do you think traditional processes are marred by the distribution curve (and forced rankings), huge time investments and low impact on performance improvements? Maybe you agree that your processes have their faults, but you think that it's not sensible to abolish performance appraisals altogether or replace them with coaching sessions.

Keep reading... Let us be your guinea pig! Our organisation, Atlassian, is conducting an open review of our new performance review model for everyone to see.

From speaking to HR executives, we've learned that many people face similar issues with their current process. Often they think their organisation's review and reward culture is too entrenched in their organisational processes, that it's hard just to change the performance review model without any evidence and alternatives. We hope that other growing, or even established companies can learn from our experimentation, challenges and results.

Context

For years, Atlassian's performance review model was in line with 'HR Best Practice'. Twice a year, people would review themselves and their peers via 360-degree reviews. Managers would review their team members and determine their final performance rating on a simple 5-point scale that determined their bonus. I believe it's a similar model to that of many other tech companies like Google and Salesforce.

So, what was the problem? In short, twice a year the model did exactly the opposite to what we wanted to accomplish. Instead of an inspiring discussion about how to enhance people's performance, the reviews caused disruptions, anxiety and de-motivated team members and managers. Also, even though our model was extremely lean and simple, the time investment was significant.

Triggers

If you ask your managers and staff to invest time and money in a process, it'd better be worth it. And in our opinion it wasn't - well, not in its traditional format.

First, we analysed the traditional performance review model in detail. We asked what made people perform better and what parts of the reviews worked well. We talked at length with other tech companies about their experiences and asked if the negative aspects of reviews, mainly related to de-motivation and the high levels of anxiety, tend to disappear after a while (they don't).

The triggers for this experiment was that we found nothing out there to copy (that would have been much better and easier). Sure, there are books and blogs dwelling on the negatives of performance reviews, but their solutions are too impractical to implement often ignoring the need for solid performance feedback. Also, there are systems that have a new approach to performance reviews, but no HR system supported our approach. We needed to start from scratch. 

Key innovations & timeline

1. Rip apart the traditional performance review

We've replaced the traditional performance review structure with a more lightweight, continuous model.

  • We incorporated the constructive aspects of reviews in the existing one-on-one meetings. Atlassian managers already have weekly one-on-ones with their team members. Now, every month, one of these meetings is dedicated to a discussion on how the person can enhance their own performance and play to their strengths.
  • Removed the unconstructive focus on ratings and get rid of the distributed curve.

2. Stop paying individual performance bonuses

Instead, we gave everyone a salary bump. Similar to Netflix's approach, we prefer to pay top market salaries rather than bonuses. However, we continued to pay an organisational bonus like before, so people will share in the company's success. Also, we've recently given every staffmember stock options so people will benefit from the company's growth/increased value over time

3. Create bite sized chunks

The thing with our traditional review was that, despite good intentions, it focused mainly on two sections: the manager rating and the employee's weaknesses. This makes total sense as the first thing a person will be curious about is their rating (which also affects their bonus). Even if a person receives a "good" rating, most of the time will be consumed by justifying why the person didn't get an "outstanding" rating. We wanted to introduce a lightweight and continuous model of conversations designed to remind people to - every now and then - talk about topics other than daily operational stuff. We changed the following:

  • All sections should receive equal attention. We think that the 360 review feedback can better be discussed in a separate conversation. Same goes for performance ratings, strengths, weaknesses and career development, etc.
  • We split the sections into separate conversations with their own coaching topics. Every month we allocate one of our weekly 1:1s to a coaching topic.
  • We created conversation guides to help everyone stay on topic, and to supply tips and tricks on how to facilitate the conversations.



4. Performance still evaluated - with some crucial changes

We think it's important not to shy away from giving honest performance feedback. Some 'anti-performance review' books suggested skipping that altogether, but we think it's a invaluable element in every manager/employee relation.  In two of our monthly conversations, managers will still check in with their reports to evaluate performance. However, we make a few crucial changes:

- No 'exact rating'
We prefer people not to concentrate on the exact rating definitions, but rather on having a good and honest conversation on how they have gone in the past 6 months. However, there will be no rating on a numerical scale. Instead, during in the check-in the manager indicates roughly how often their report has demonstrated exceptional performance.

- Two Axis
In addition to an evaluation of performance/achievements, we've added the scale on 'how often you have stretched yourself'. Put simply, the reason for using both scales is to acknowledge both effort and results. Two people can both deliver similar results, yet one of them has solely focussed on their normal work responsibilities whilst the other person has really injected extra energy in improving things outside their normal job (e.g. themselves, their team, etc) which has made a real difference to Atlassian. Feedback from Atlassian managers was that they wanted to acknowledge this.

- Focus on frequency of behaviours
The scale from 'never to always' helped people focus the conversation on how to improve the frequency of certain behavious, rather then focussing on a number.  Recently, I shared this idea with the cool team of Sonar6 who translated this in a blogpost in their usual colorful way. Both staffmember and manager will decide on the person's position on two scales. When the a certain position on the axis is chosen, the logical subsequent question is: "why didn't you position this person more to the left or right, higher or lower?" This approach also encourages a better coaching style review conversation.



Challenges & solutions

We've learned a lot and but it will probably take several iterations to get this right. Along the way, we bumped into several challenges:

  1. Lack of best practice: there was not literature or best practice out there (or we couldn't find it) Lots of books focus on the negatives of performance reviews but they offer solutions that are too much focussed on just coaching, in not enough on the alternatives to the actual performance conversation. They also didn't offer much guidance on how to structure the coaching conversations themselves.  We ended up merging different ideas including suggestions from the HR industry,  strengths based coaching, motivational theories, and different rating evaluation scales. 
  2. Systems: To my knowledge, there is no HR system that offers an integrated approach including regular 1:1s, coaching 1:1s and performance review check-ins. There are the heavy and traditional performance review tools like Successfactors and SumTotal. Conversely, there are some cool continuous feedback tools like Rypple - who I understand are designing a more integrated solution for Facebook. We finally found an awesome start-up who has created a really smart solution - called Small-Improvements. Small Improvements features all sorts of goodies in a nice lightweight app, can facilitate our performance check-in process and capture continuous feedback/coaching.
  3. Coaching conversations: The managers (some very new to the role) had little to no experience in how to handle a coaching conversation. We ended up engaging an executive coach who trained our managers in how to have a good coaching 1:1s.
  4. Team sizes: One of the first problems we highlighted was when a small group of managers said they wouldn't have enough time to discuss these topics once a month. And that highlighted a larger problem. Some teams were plainly too large for one manager to handle. This meant that, whilst the team was productive and well oiled, some people rarely met with their direct manager to discuss non-operational topics. That was one of the reasons we decided to form smaller, more agile teams and introduce a group of new team leads.
  5. People love numbers. They are objective and easy to analyse. So, when we decided to take out performance ratings many people felt uneasy. Truth is that people generally understand that, if their performance is indicated to be closer to the bottom-left corner of our performance/stretch axis, they have to step it up. You don't need a rating or a number for that! Also, we noticed that salary reviews and talent management didn't need an exact performance rating - as a matter of fact, we've never had a direct relation between salary and people's ratings. Other factors such as market salary movements, internal and external salary benchmark data, years in the job and skill-set all help determine salary growth. Few organisations would calculate their salary reviews in a simple formula.

Benefits & metrics

Honestly, this experiment may be better categorised somewhere between a 'hack' and a 'solution'. Most other entries in this category are hacks - probably because changing 'traditional best practice' is relatively new territory. And as added complexity, when you just changed your (performance) measures, it's hard to say by how much people's performance has increased :-)  Despite all this, I thought it would be worthwhile to share our story, if only to help other organisations who are currently considering changing their process.  So, although it's hard to quantify at this stage, some outcomes below:

  • More focus on people's strenghts: instead of only operational 1:1s, every staffmember (100%) has now had discussions about their likes and dislikes of their current work. Coaching conversations uptake has been awesome. Within weeks of launching this new approach, all staffmembers have had converations about their strengths and how to dedicate more of their time on things they love. 
  • Motivation & recognision model changed. Instead of performance incentives that don't work, our model has shifted to encourage desired behaviours through better coaching. Also, a Kudos model where every staff member can recognise great performance of co-workers without their manager's approval has been implemented to supplement this new performance model. This peer feedback model has been extremely popular. since launching this, already 150 peer-kudos gifts have been handed out. 75% of staff who displayed outstanding performance were recognised by peers outside any formal process    
  • Engagement: Atlassian has been awkowledged as an Employer of choice internally and externally. Independent and internal staff engagement surveys showed extraordinary high engagement scores of 87% and 83% respectively. Last year, we've won several Best Employer awards, including Best US medium sized companies to work for, and a Highly commended award in Australia for HR Leader's Employer of the Decade.

Lessons

  • Challenge HR best practice - if the whole organisation hates something, yet you invest huge amounts of time and money (through bonuses) in performance reviews, something is wrong, best practice or not. It is HR's job to fix these things!
  • Don't be stopped by the lack of HR systems - It's very difficult to change your model when HR systems can't support your ideas (and we can't go back to pen & paper). Big HR system providers will encourage you to keep with the current model and present traditional reviews as best practice in magazines and at conferences.  Keep charging ahead - there are solutions out there developed by new start-ups.
  • Make bold decisions - Performance bonuses are ingrained in our compensation model and staff ratings are the starting point of our talent management programs. It's hard to change these things. be courageous. 

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3 Comments

craigharffey's picture
Open Source Evangelist

This is a great read and very timely as we are just taking on our first permanent hires rather than contractors so giving a lot of thought to compensation, bonuses etc.

My real horror stories stem from my time working for investment banks, where the annual bonus cycle meant zero delivery for 9 months of the year, with everyone holding back for Q4 (then a few months of positioning /backstabbing to claim the biggest slice of the pot!)

The use of distribution curves gave me a particularly warm feeling come appraisal time, when I knew I had to pick 2 of my motivated and performing team and reward them with a D grade (no bonus, no payrise and a threat to improve of face firing), simply because 10% had to be in that curve.

I understand now why every other team had a proportion of "dead wood" - simply to be held back for appraisal time rather than my (maybe naive) approach of weeding them out through the year and hiring motivated replacements.

So now I have my own company, I am very keen to avoid the negative aspects of traditional compensation and appraisal schemes and find something better suited to to today's working styles and people.

Some good food for though here - I especially liked the performance / stretch curve being plotted together.

Nsignificant's picture

I'd be happy if my employer just kept my base salary up with inflation. I just make sure that there is an equivalent drop in my productivity (they're losing about 7 weeks from me now and I find this very relaxing) and maintain the same quality and we're all even.

vmbrasseur's picture
Newbie

I applaud Atlassian for questioning the status quo and forging ahead to find their own solutions to this problem. I particularly commend them for the openness of the process. We all can learn from each others' mistakes, but only if we're not only bold enough to make them but also (harder) to make them public.

The honest fact is that the 'HR Best Practice' does not apply to most teams in the software industry, yet we keep trying to follow this lead simple because the Practice is labeled Best.

I've blogged about something along these lines (http://anonymoushash.vmbrasseur.com/2012/02/01/staff-quality-deserves-th...). The post received no online comments but several offline and all parroting the "but that's not the way it's done" party line.

To that I say: So what? Take the time to challenge the way it's done. If it ends up that "the way it's done" equals "the way it should be" then you've just validated your time and effort. If it doesn't then you know it's time to change course rather than spin your wheels on a process which doesn't work.