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Scrap Your Annual Performance Reviews!

What if I told you that traditional annual performance reviews stifle creativity, serve no concrete purpose, and are a waste of time and paperwork? Well, I have said it time and time again for many years, and the response has ranged from; “Yes, I agree and I hate annual reviews!” to “What do you mean? What are we supposed to do if we don’t have annual reviews?”

The fact of the matter is we are already seeing a swing in the pendulum and many organizations, including large corporations like Deloitte and Adobe, have said bye-bye their traditional annual review process!

First, let’s look at the history of performance reviews.
According to a 2016 article by the Harvard Business Review, the merit rating system that exists in traditional reviews today can be traced back to World War I in a process used by the military to identify poor performers for discharge or transfer. By the 1960’s over 90% of U.S. companies were using merit scores in their reviews to determine pay increases for union workers and advancement opportunities for managers.

It’s no wonder current performance management feels so out of touch and judgmental! This is exactly why more and more workplace surveys are revealing that many employees, including supervisors and top level managers despise and dread performance reviews.

Do industry leaders still use telegraphs, paper rolodexes, typewriters, or pagers to run their business? Then why use a review process that is based on practices established in the early 1900’s? It is time to look to the future and be just as progressive with our people practices as we are with other operational and financial decisions.

We don’t sit with their friends over lunch and say “Let’s chat about how you scored last year in our relationship and where your weaknesses are!” That conversation would be awkward and would not go well.

However, that is the mindset behind the traditional review process. The supervisor tells the employee: “I give you a 3 in this area, and a 4 in that area because I don’t believe anyone is ever 5.” It is a demoralizing and infantile approach, and certainly not the way capable adults should be treated.

Why not spend more time coaching, planning and strategizing with your employees instead of dolling out an annual report card as if they are in grade school?

Here are typical questions I receive from business leaders while discussing this topic:

If we abandon annual performance reviews, how will we identify poor performers and document issues for our protection?
Traditional reviews focus on past behavior at the expense of identifying and developing talent. In order for companies to remain competitive and relevant, they need to give real-time feedback and quickly identify learning and development opportunities for their people. Ongoing feedback and regular check-ins with employees follows a company’s natural business cycle and allows for issues to be addressed quickly and for employees to receive on-the-spot recognition.

If you change the way you interact with employees in this way, you will find that you identify poor performance much faster. Humans thrive on feedback, and research shows that when employees don’t receive feedback at work they begin to feel suspicious, nervous, and as a result become less productive.

Managers can still document these ongoing conversations using notes, follow-up emails, verbal counseling, and casual check-in forms, or even web or mobile-based apps. Struggling employees are monitored and coached more effectively in this manner. Many companies also include peer feedback, but that’s a conversation for another day.

How will we determine pay increases?
This is a good question. It turns out you don’t need scores or formal annual reviews to determine a human’s contribution to your business. If your supervisors do a good job at having regular conversations with employees, documenting their successes or challenges throughout the year in real time, you will have a full story showing you how employees are doing.

There will be plenty of qualitative information to help guide in the decision-making process. Gone are the days of narrow bands of compensation based on performance ratings. High performers should be recognized with rewards and everyone should be paid based on their contribution and market value.

How will we hold people accountable?
Annual reviews can breed procrastination because they send the message that it’s okay to wait until the end of the year to flag struggling employees. This allows failure to continue much longer than necessary without intervention. Many companies are moving to quarterly casual check-ins with employees and holding them accountable to more short-term goals and projects since many businesses no longer have clear annual cycles.

Supervisors are often reluctant to single out failing employees, and if the company is not holding their supervisors accountable for this responsibility, that behavior will not change. Implementing a practice of monitoring and coaching employees more closely will keep this top-of-mind with supervisors. With the support of Human Resources, supervisors can keep feedback ongoing and document this process.

How will we measure success and reward for performance?
Projects and goals can change along the way. This requires a performance process that is more flexible. Supervisors can still have end of year meetings with staff to discuss what they are currently doing, what they should be doing differently, where they are now vs. where they want to be, and potential growth opportunities.

Success will be measured more realistically this way and allows the business to focus on everyone’s strengths, leverage their skills and empower them to add value. Traditional annual performance reviews rank and segment people in a way that doesn’t truly measure success or potential.

Merit pay decisions become more valid when supervisors pay closer attention throughout the year to employee performance. Scrapping the formal annual review process doesn’t mean companies need to do away with pay-for-performance or bonus structures tied to measureable goals. In some industries it still makes sense to emphasize financial rewards based on the annual review process.

There isn’t a “one size fits all” solution, but one thing is certain; failure to coach and develop employees will lead to business failure in the long run.

How do we ensure our supervisors will adapt to this new process and do their part?
Supervisors need coaching too. Your human resources department or consultant should partner with your managers to help them understand and embrace this change. Supervisors should be involved in the creation and implementation of the new process. Similar to other implementation processes, it will require ongoing monitoring and solicitation of feedback from employees to iron out the kinks along the way. Over time, as other companies have reported, you and your supervisors will begin to see the benefits, including reduced dismissals and higher employee engagement.

Supervisors also need to be held accountable. After all, this approach doesn’t work without supervisors actually doing the work and spending the time creating relationships with their team members. Leadership, with the help of human resources, needs to include a supervisor’s ability to monitor and coach employees in the measurement of their own success. They should be expected to help employees embrace this process and take ownership of their development.

What supervisors are putting into action should be a part of leadership team meetings and ongoing conversations. Supervisors should be asked these types of questions:
“How is your team doing this quarter on the XYZ initiative?”
“Tell me about some of your team members’ successes this month/week.”
“What development recommendations do you have for Jose and Monica at this time?”

There is also technology that companies can implement to provide tools to their supervisors and assist them in providing continuous feedback to employees. Travel website Booking.com has scrapped their annual performance review and started using mobile-based technology to conduct real-time evaluations.

So why should we really spend time making this change?
Still not convinced that a change in performance reviews is needed? A SHRM 2017 Employee Job Satisfaction and Engagement Survey revealed that 3 out of 10 employees feel strongly that they haven’t recently received recognition or praise for doing good work. Only 1 in 5 employees say their performance is managed in a way that motivates them to do outstanding work.

We are evolving out of the antiquated workplace full of draining transactional processes, and realizing that everyone feels more excited about work, has more energy, contributes more ideas and is more productive when he or she is treated like an adult and a valued collaborator. An organization’s well-being is not benefited whatsoever by the culture-killing traditional performance review process.

With talent in shorter supply as it is now, the focus is shifting away from letting people go to developing them. Concerns of retention have returned and organizations must find ways to make their performance management fit the needs of their business and keep them competitive. Employees today have increased bargaining power, are more mobile and have higher expectations than ever before.

Now is the time to make a cultural shift and redefine the way we manage our organizations and our people. As with any change, it won’t come without challenges, but it will arguably be one of the best decisions you make for your business.

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