Goldman Sachs re-introduces its infamous performance reviews

Goldman Sachs is bringing back its dreaded performance review system, which has been used in the past to identify and potentially cull the bottom 5% to 10% of employees. The bank argues that its annual performance review system helps to refresh talent and keep employees motivated, but itโ€™s long been a sore spot for employees who complain that reviews are biased and a source of tension within the workforce.

Despite posting lower year-over-year earnings in two divisions during the second quarter, Goldman Sachs is now reintroducing performance reviews, which may encourage employees who have been working remotely to come back to the office and get more face time with senior leaders. This decision comes at a precarious time, as the firm has slowed hiring and hinted at impending layoffs, and has also set a strict office attendance policy in February. CEO David Solomon has emphasized the importance of having employees in the office in order to create the unique culture that the company fosters.

๐Ÿ“บ Video: Goldman Sachs CEO says jobs cuts are coming next month

How does Goldmann Sachs annual performance reviews work?

Goldman Sachs employs a 360 degree review system, whereby feedback is gathered from people of all levels that you have worked with. In the bad old days, Goldman would have used its five-quartile forced ranking system, based on results to its 360-degree appraisals, to identify its laggards. This includes those who are both senior and junior to you, as well as colleagues and clients. Following the process of nominating these people and having the list approved by your manager, each individual is asked to answer subjective and objective questions about your strengths and weaknesses, which are then collated and given a rating. This rating determines your bonus and potential promotion opportunities, after which the feedback is communicated to you by your manager.

Goldman Sachs has changed their appraisal system twice since 2016, with the most recent shift in 2020 emphasizing behaviors such as coaching, empowering, respecting and championing the firmโ€™s values. It is not yet clear what proportion of male and female staff were let go in the most recent layoffs, but the changes to the appraisal system should have had anย impact on recent layoffs.

A critical view on this approach

Jared Pope, a former employment attorney and founder-CEO of Work Shield, an issue management platform, cautions against using performance reviews as a means of reducing the workforce, as this will lead to a decrease in morale and create tension between employees. Hooria Jazaieri, assistant professor of management at Santa Clara University, tells โ€œThe Futuriestโ€ in an interview that she believes that companies and their leaders should help employees who are not meeting expectations to reach their maximum potential, as this practice of hiring and firing takes a toll on morale and utilizes a lot of resources.

According to Samuel Culbert, Professor of Management and Organizations at UCLA, performance reviews should be abolished. In 2010, he wrote a book arguing for an end to the practice, which he claims is detrimental to fostering esprit de corps, teamwork and accountability. He believes that when faced with an underperforming employee, managers should instead be taking the time to understand their strengths and weaknesses, and creating better conditions to help them succeed. Goldman Sachsโ€™ method of labeling a percentage of high-potential employees as underperformers, and then putting them on the chopping block should layoffs occur, has been heavily criticized by Culbert, as it puts immense pressure on managers and is at odds with organizational theory and labor-market data.

โœ๏ธ Authors Note:

We can not subjectively classify performance reviews as a good or a bad thing. There are a simple systemic approach for managers and work well with certain management styles and organizational structures. They may seem like a relic from the past, but are still viable when used well.