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Startups Don't Need Personnel Evaluation Until It Solves A Real Problem

original Teams & Careers

Personnel evaluation in early and mid-stage startups

People ask me about this often, so I’m putting my thoughts together here.

First, as a premise: a company can run fine without any personnel evaluation system at all. So the reason to “deliberately do it” is either that there’s some benefit down the road, or some problem right now.

【 Examples of future benefit 】

【 Examples of current problems 】

For a small company, introducing a personnel evaluation system is quite a hassle. But if you design it around the purpose described above, you can get by with minimal effort.

Here are the specifics.

【 When you want to create a good external impression 】 Best to borrow a system from somewhere that won’t strain you to operate. Painstakingly customizing one would be a waste of effort, so a generic template should suffice. Substance doesn’t matter much here; what matters most is not straining day-to-day operations. A hollowed-out personnel evaluation system gets seen through from outside easily. Better to keep a light, simple evaluation system, suited to your scale, running steadily and unremarkably.

【 When you want to unify employee motivation, direction, and standards 】 For an organization up to a certain size, this doesn’t actually call for a personnel evaluation system at all. You can see everyone’s face and talk to them directly. The following do far more to shape a company’s internal mentality:

And so on. But if you insist on introducing a personnel evaluation system anyway, something like 360-degree evaluation comes closest to the purpose. Unifying awareness and clarifying responsibilities and standards is, properly speaking, achieved through leadership (though this often doesn’t go as smoothly as it should). The real substitute for that is “teamwork,” and it’s hard to replace teamwork with documents or rules. The sticking point is that requirements change depending on the situation, so frequent updates are needed. Given that, closing gaps in awareness among people through mesh-like relationships is more flexible and more effective.

【 When members at the staff level want to be managed 】 This puzzles the people doing the managing, but it genuinely happens. Why would anyone want to be managed? Is being evaluated really that pleasant? You might wonder, but this scenario definitely occurs. It happens more often when some staff-level members come from large companies, but in any case, the root cause is that managers or executives aren’t paying enough attention to their subordinates, and are damaging their self-esteem as a result. Self-esteem is built up through contact with others. It’s about the self, yet it comes from others. Humans are troublesome creatures. What’s actually needed here isn’t a “perfectly airtight personnel evaluation system,” but individual one-on-one meetings, or more meetings focused on checking individual tasks and progress — those work far better. If you insist on tying this to a formal evaluation system anyway, the typical template response is to introduce regular one-on-ones, share an individual’s mid-term tasks and goals at that time, review them at the next regular meeting, and turn that review into a score that serves as the evaluation.

【 When there are members dissatisfied with their pay 】 This is actually the most troublesome and complicated case. Handling it case by case with individual consideration usually falls apart, so a macro-level approach works better here. To begin with, pay isn’t something that should rise without limit just because results are being delivered. A picture of pay continuing to rise forever is almost absurd. If there’s a possibility it goes up, there’s also a possibility it goes down, tied directly to performance and results. If it doesn’t go down much, it also shouldn’t go up much — no more and no less than market rate. Building a budget as the basis for this balance should come first. Having a budget means having a hiring plan, and it means the future revenue plan that the budget is meant to produce has already been authorized. A budget also gives managers an excuse — “we can only spend within this range” — and you should use that to get staff-level members to understand three things: first, that pay “isn’t going to keep going up indefinitely”; second, that they should ask themselves whether they even want a situation where pay keeps going up and down all the time; and third, that such a situation “wastes a lot of energy, both in the effort of evaluating and in the mental burden on the person being evaluated.” Once that’s understood, you need to build a generalized system for the salary decision process. The challenge is to design in a certain amount of abstraction (ambiguity), so there’s room for discretion later. For instance, one approach allows a certain range in how pay is set, so that — if you actually look closely — someone one grade below in evaluation could, by design, end up earning more than someone one grade above. Either way, the point is to firmly establish a chain: “budget” → “rules” → “well, that’s just how it’s decided, so there’s nothing to be done about it.” This case really is quite a hassle in practice. Depending on the situation, it may actually be more convenient for the organization to exclude or separate out the member who makes their dissatisfaction blatantly obvious and spreads negative influence around them. That’s something to judge by weighing it against the effort involved.

【 When you want it to support personnel turnover 】 Suppose there’s a member whose pay you want to reduce for negative reasons, or whom you’d be fine seeing leave, and suppose you cut that member’s pay in a way that looks arbitrary and blatant. Even if the managers actually had solid reasons, the situation lacks objectivity and transparency. If that member has some wits about them and goes running to the appropriate authority, things could get fairly troublesome. So having a legitimate evaluation system in place as preparation for such situations is highly desirable. Generally prohibited conduct, such as violence or intimidation, should of course be written clearly into the employment contract, but what’s really needed is “a mechanism that allows pay to be reduced when performance is terrible.” Focus on this single point: debate questions like “what exactly counts as poor performance?” and “what will we tolerate, and what won’t we?”, and build a personnel evaluation system that can properly extract answers to those questions. It’s fine if it can’t extract anything else. The specifics will differ by organization, but for example, an organization that considers “prioritizing teamwork and completing tasks on schedule” paramount should design a mechanism where anyone who disrupts that inevitably receives a lower evaluation, even if their other performance is good. An organization that requires “creative proposals and concrete creation” has a problem if its system lets someone earn a higher evaluation despite never coming up with new ideas or making things with their own hands. So the intent behind supporting personnel turnover, at the highest level, is a systematic nudge along the lines of “this isn’t a good fit here, so go somewhere else — there’s surely a place where you can thrive.” It’s not at all about wanting to exclude people you simply dislike.

I’ve gone on at length listing general principles here, but in most cases, multiple purposes and problems mix together. Even then, rather than trying to accomplish everything at once, the most important thing — not just for personnel evaluation but for introducing any system — is to narrow things down to the priority issue and introduce something with the appropriate, minimal level of precision. That said, if you’ve made a firm decision to hire a large administrative department all at once for IPO preparation and build an airtight management structure, all you can do is steel yourself, brace for the effort, accept the friction it will cause, and push it through across the board. It’s tough, and exhausting, but there’s no way around it.

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Originally published in Japanese at https://clazytech.com/2020/12/441/. Translated with LLM assistance and reviewed before publication.