Should a Scrum Master also perform a functional manager role? We're trying to plan for agile transformation soon, and one of the main sticking points in this is organizational structure. Management's expectation is to have a Scrum Master perform all normal functions, but tacking on hiring, firing, and performance reviews for people under his management. This would also add additional "technical ability" requirements to this position, and then basically have one Scrum Master for the team. My concern is that it's going to create a situation in which s/he will be tempted to say how exactly something needs to be done, and people will take his/her word for it, as she/he's ultimately doing performance reviews. This undermines some of the basic agile principles. Does this work long term? And what are the caveats I should watch out for implementing this?

A manager who does the hiring, firing, performance reviews and has technical ability can still undermine the Team and force them to do things his/her way whether this person is the Scrum Master or not. For this person to take on the role of Scrum Master is just an additional burden on them.

The decision makers who chose to go the Scrum path hopefully know how it should work and the manager's manager should be doing an evaluation to make sure this person is facilitating the needs of the team and lets them do the job they were hired to do. If the manager is going to constantly "pull rank", this is a personal issue and possibly a misunderstanding of how a Scrum Team managed.

It may help to bring in an outside consultant to help with this process. Sometimes it's easier for management to grasp the "let the team manage itself concept" from an outsider than directly from a team they fear is doing it out of self-interest.