In my town there’s a lawn service that comes by three or four times a year to check up on the lawn. They examine the grass for diseases and apply a little fertilizer and other treatments to keep things going. They finish after about 10 minutes and then head off to the next lawn.

This is also how performance evaluation is generally done in most organizations. Every year or so the boss does a “performance review” on the employees. We get checked off on a 10-point scale or some other device. The boss drops a little encouragement on us—or some other treatment—to keep things going. It takes about 10 minutes and then we can all get back to work.

Everybody Hates Performance Reviews
The annual—or semi-annual, quarterly, whatever—performance review is universally disliked. Employees are confused because they don’t understand what they’re being evaluated on. Bosses hate doing it because they don’t believe in the process and they fear the confrontations that sometimes arise.

The traditional “performance-review” games people play are awkward and emotionally exhausting. The old notion is that the leader evaluates the performance of the people, sometimes using a set of subjective criteria that is sprung on them at the end of the reporting period. This, of course, is absolutely insulting to people, which is why so many managers themselves don’t get good performance scores from their people.

The old-time performance review has become a meaningless ritual in the 21st century, a holdover from the Industrial-Age mindset of treating people like things, like interchangeable parts in a machine.

If you’re a business leader in the 21st century, you know that your employees are by far your most important asset. You treat employees as volunteers just as you treat customers as volunteers, because that’s what they are.  They choose to volunteer the best part of themselves—their hearts and minds—to your firm. And they have more choices than ever before about where and what they will volunteer.

Leadership by Hand Grenade
I was in a group once where someone asked, “How do you shape up lazy and incompetent employees?” One man responded, “Drop hand grenades!” Several others cheered that kind of macho management talk, that “shape up or ship out” approach to supervision.

But another person in the group asked, “Why don’t you do that to your customers? Just say, ‘Listen, if you’re not interested in buying, you can just ship out of this place.’”

He said, “You can’t do that to customers.”

“Well, how come you can do it to your employees?”

“Because they work for you.”

“I see.  Are your employees devoted to you? Do they work hard? How’s the turnover?”

“Are you kidding?” came the answer. “You can’t find good people these days.  There’s too much turnover, disloyalty, absenteeism, moonlighting.  People just don’t care anymore.”

Some organizations talk a lot about the customer and then completely neglect the employees who deal with the customer.  This outworn mindset produces unmotivated employees, worker-manager disputes, and poor business results.

Agreeing on the Win-Win
21st-century leaders realize that the same implied contract between supplier and customer is in force between the leader and the led. A customer comes to you for a service, for value, and if you’re smart you understand as much as you possibly can about that customer’s idea of good value—about the “win” for the customer.

The same is true of employees. Intelligent leaders will seek to understand deeply and accurately the “wins” for their employees. Instead of “reviewing” performance, they sit down with their employees and make what I call “Win-Win Agreements.” The employee defines what the “win” is for him or her, and the leader defines what the “win” is for the organization.

In fact, Win-Win Agreements ought to become your key management tools.

A Win-Win Agreement always contains the same basic elements. First, you define together the goal of the agreement—the desired result. Then you define, again together, the guidelines, the resources, and the accountability mechanism you will use—that is, how and when you will account to each other for progress on the goal. Finally, you define the “wins” for both of you if you achieve the goal—and the consequences if you don’t. 

Developing Win-Win Agreements is the central activity of good leadership.  Employees manage themselves within the framework of the agreement. Leaders keep the resources flowing and the pathway clear. And when it comes time to do the “performance review,” there’s no longer a visit from the disease inspector. The employees evaluate themselves.