Page 387 - Ray Dalio - Principles

your conclusions based on the performance you observe. Do this on an ongoing basis. After several
months of discussions and real-world tests, you and your report should both have a pretty good idea
of what he or she is like. Over time this exercise will crystallize suitable roles and appropriate
training or it will reveal that it’s time for the person to find a more appropriate job somewhere else.
a. Make your metrics clear and impartial. To help you build your perpetual motion machine, have a clear set
of rules and a clear set of metrics to track how people are performing against those rules—and
predetermined consequences that are determined formulaically based on the output of those metrics.
The more clear-cut the rules are, the less arguing there will be about whether someone did
something wrong. For example, we have rules about how employees can manage their own
investments in a way that doesn’t conflict with how we manage money for clients. Because these
rules are clear-cut, there’s no room for argument when a breach occurs.
Having metrics that allow everyone to see everyone else’s track record will make evaluation
more objective and fair. People will do the things that will get them higher grades and will argue
less about them. Of course, since most people have a number of things to do that are of different
importance, different metrics have to be used and weighted appropriately. The more data you
collect, the more immediate and precise the feedback will be. That is one of the reasons I created the
Dot Collector tool to work as it does (providing lots of immediate feedback); people often use the
feedback that they get during a meeting to course-correct in the meeting in real time.
Once you have your metrics, you can tie them to an algorithm that spits out consequences. They
can be as simple as saying that for every time you do X you will earn Y amount of money (or bonus
points), or it can be more complex (for example, tying the weighted mix of metrics grades to various
algorithms that provide the estimated compensation or bonus points).
While this process will never be exact, it will still be good in even its crudest form, and over time
it will evolve to be terrific. Even when flawed, the formulaic output can be used with discretion to
provide a more precise evaluation and compensation; over time it will evolve into a wonderful
machine that will do much of your managing better than you could do it on your own.
b. Encourage people to be objectively reflective about their performance. Being able to see yourself from a higher
level is essential for personal evolution and achieving your goals. So you and the people who report
to you should be looking at the evidence of their performance together; for this to go well, you need
lots and lots of evidence and an objective point of view. If required, use agreed-upon others to
triangulate the picture the evidence presents.
c. Look at the whole picture. In reviewing someone, the goal is to see the patterns and to understand the
whole picture. No one can be successful in every way (if they are extremely meticulous, for
example, they might not be able to be fast, and vice versa). Assessments made in reviews must be
concrete; they’re not about what people should be like but what they are like.

d. For performance reviews, start from specific cases, look for patterns, and get in sync with the person being reviewed by
looking at the evidence together. While feedback should be constant, reviews are typically periodic; their
purpose is to bring together the accumulated evidence of what a person is like as it pertains to their
job performance. If the constant feedback is done well, it will become like a constant review as the
bits and pieces will add up to the whole. A review should contain few surprises, because you should
continuously be striving to make sense of how the person is doing their job. If you think their job is
being done badly, you should have been probing to identify and address the root causes of their
underperformance on a case-by-case basis. It’s difficult for people to identify their own weaknesses;
they need the appropriate probing (not nit-picking) of specific cases by others to get at the truth of
what they are like and how they are fitting into their jobs.
In some cases it won’t take long to see what a person is like; in other cases it’s a lot harder. But
over time and with a large enough sample of cases, their track records (the level and the steepness
up or down in the trajectories that they are responsible for, rather than the occasional wiggles)
should paint a clear picture of what you can expect from them. If there are performance issues, it is
either because of design problems (perhaps the person has too many responsibilities) or fit/abilities
problems. If the problems are due to the person’s inabilities, these inabilities are either because of
the person’s innate weaknesses in doing that job (e.g., someone who’s five foot two probably
shouldn’t be a center on the basketball team) or because of inadequate training. A good review, and
getting in sync throughout the year, should get at these things. Make sure to make your assessment
relative to the absolute bar, not just the progress over time. What matters most is not just outcomes
but how responsibilities were handled. The goal of a review is to be clear about what the person can