Should You Ditch the Annual Performance Review?

Most companies have a point during the year in which they formally appraise their employees’ performance and provide feedback to each one. Commonly known as “performance review season,” this can often be a stressful time for workers and tensions can arise between teams and managers. It feels weird to be judged, to have a year’s worth of work broken down into just one or a few conversations, and to have the high stakes of whether you get a raise or a promotion or unexpectedly walk out without a job.

The most common employee appraisal methods are as follows:

  • Rating Scales: Offer a simple, often visual way to communicate strengths and weaknesses. However, an assumption that scores are directly tied to raises and bonuses may cause score inflation. Alternatively, managers who have a negative bias toward an employee may arbitrarily dock points.
  • Narrative Techniques: These are done in essay format and keep a running log of positive and negative performance attribute. However, because they are such subjective assessments, employees may interpret the feedback too negatively or too positively.
  • Comparison Methods: Essentially “grading on a curve” against the performance of other employees. These allow employees to understand their performance relative to others in similar roles but may create unhealthy competition or in-fighting.
  • 360 Feedback: A method that is gaining popularity at many companies. It allows employees to be evaluated by managers, teammates, customers, subordinates or other stakeholders in their performance. However, biased evaluators, poor understanding of goals, and negative feelings can impact the outcome.

With this in mind, it’s not surprising that many organizations, including some big players such as Deloitte and Accenture, are ditching performance reviews altogether in favor of employee evaluations and rewards systems that ditch the status quo. If you are dubious that traditional annual performance reviews are still serving your company well, read on for some more in-depth insights.

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1. Understanding the Role of the Knowledge Economy

Gone are the days where employees’ performance can be easily tied to the successful completion of routine tasks. Today’s economy is a knowledge-based one, where our work is tied to many different people and the quality of which is correlated to the ideas and innovation we bring to the table. Same-old, same-old no longer cuts it in the workforce, so it won’t for performance evaluation either. The way most performance reviews are set up these days makes them annual events with limited opportunities for feedback. According to a study by NCBI, “[All] workers, regardless of occupation, needed to effectively communicate, engage with customers and clients, collaborate with others and problem solve on a regular basis in their jobs.” This need for communication and knowledge-sharing also extends to the relationship workers have with their leaders. Today’s employees are not just expected to be workers, but also continuous learners who are always building their skills, which brings us to our next point.

2. Addressing the Need for Ongoing Coaching

It’s no longer enough for leaders to just manage their teams’ performance and make sure they hit their KPIs. More top companies are recognizing a need to hire and retain leaders who not just ensure benchmarks are reached, but also inspire and coach their subordinates for career success. In light of this, it’s becoming more common to move away from an annual performance review model and toward a model of continuous coaching, conversations, and feedback. In contrast, highly structured performance reviews fail to offer a chance for quality conversations between managers and employees, which often happen in unplanned and spontaneous ways.

3. Attracting and Keeping Better Talent

It’s no secret that both managers and employees dread performance reviews. With a greater focus on employment branding and culture, it’s causing some HR managers to question whether these protocols are a cultural fit for the organizations they are trying to create. According to a report by the NeuroLeadership Institute, millennials in particular value coaching and development and respond better to it than formalized annual reviews. The report found that companies who remove ratings had better team communication and better engagement among employees — critical factors for recruiters and hiring managers with an eye toward talent acquisition who want to improve their internal brand.

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4. Using Automation to Manage Time

One of the most onerous parts of traditional performance reviews and performance management is how time-consuming they are. In addition to adopting a coaching and development culture, more organizations are turning to software and automated systems to ease the annual review process. This allows them to keep the best of both worlds — ongoing communication between managers and employees while still having a formalized system that tracks performance and ties to benefits and compensation. According to research by SHRM, when these systems are accessible and seamlessly integrated into existing systems, there tends to be a higher adoption rate among HR managers and companies can get the most value out of a review system.

While there is still a place for formalized performance appraisals, ultimately it is up to HR decision-makers to choose the model that works best for their organization. With many options available these days, it is possible to pick and choose the most suitable ones and blend them to create a unique approach that works to motivate and drive performance.

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