Goldman Sachs Revamps Performance Reviews

Goldman Sachs Revamps Performance Reviews

The investment bank is getting rid of its nine-point performance rating system in response to an in-house survey finding that employees wanted more continuous feedback, Jeanne Sahadi reports for CNN Money:

“We strive to create an environment where our people can perform to their fullest potential. … Providing high-quality and ongoing feedback is at the heart of our culture, and is an important investment we make in our people,” CEO Lloyd Blankfein and COO Gary Cohn said in a memo to employees.

Not that Goldman Sachs is ditching labels altogether. It will ask managers to not only provide a written performance summary but also provide a rating of “outstanding” “good” or “needs improvement.” Like a lot of other companies, Goldman also is trying to streamline the notoriously laborious process of performance reviews. It is keeping its 360-degree review system, in which managers and their direct reports review each other. But it’s reducing the number of people who review them from 10 to 6. The firm also said it would collect and deliver its feedback earlier in the year.

Goldman will begin using the new system in June. Lindsay Gellman and Justin Baer at the Wall Street Journal put the change in context:

New regulations have crimped profits, forcing banks to retreat from certain businesses and cut staff. More electronic trading in many markets has made large numbers of traders and salespeople expendable. Annual bonuses ebb and flow, but they are well below where they were in the years before the financial crisis.

Goldman has outperformed nearly all of its peers since the crisis, yet it hasn’t been immune from the pressures facing an industry still finding its role in the new era. Goldman has been shrinking its senior staff, in part by limiting the size of its biennial partnership classes, and hiring more people in lower-cost offices such as in Salt Lake City and Bangalore. All that has made the relative happiness of junior bankers more important.

There is much here that I think is really good: streamlining the review process and introducing more ongoing and informal performance feedback. All of this is a good modernization of performance management at Goldman Sachs. It’s notable that the CEO has put his name behind the initiative, which speaks to how important performance transformation is to the business.

Notice, however, that they aren’t fully eliminating ratings; they’ve reduced them from a nine- to a three-point scale and deemphasized them. One thing we’ve been seeing in our research on this subject is that organizations don’t always benefit from getting rid of performance ratings altogether. The approach Goldman has chosen—simplifying and de-emphasizing ratings but retaining some kind of scoring mechanism—may be more effective.