By Alan J. Kaplan
There are solid reasons why General Electric, Adobe, Intel, Microsoft, Goldman Sachs, IBM — and roughly three-quarters of other large American corporations — are working to abandon an established business practice: namely the annual performance review.
“Is there anybody who enjoys the traditional performance review process?” says Karen Greenbaum, president and CEO of The Association of Executive Search and Leadership Consultants. “Managers don’t like it, employees don’t like it. It doesn’t necessarily achieve its objectives … and it can be demotivating to everyone except the star performers.”
A survey by the Human Capital Institute (HCI) identified annual reviews as the second-most disliked activity by managers – second only to firing people. Just 35 percent of HR professionals responding to the HCI survey thought their organization’s reviews produced accurate assessments of employee performance, and only 27 percent believed the process helped develop employee skills.
Further, in a Deloitte survey, just 8 percent of companies believed their performance reviews delivered value, and 58 percent said the reviews were not an effective use of time. On average, those companies spent an incredible 28 hours on each employee review.
Not too surprisingly, several surveys have concluded that anywhere from 70 to 89 percent of large corporations are replacing or are looking to replace their performance review process. So how do you create a better system to assess employee performance and fuel growth?
Stop thinking annually
In addition to being stressful, time-consuming and roundly disliked, annual reviews are simply not designed to foster employee growth or drive company productivity.
Consequently, some employers have switched to a review process based on frequent conversations (some experts recommend as many as two per month) that provide employees with real-time, actionable feedback on current work. Such conversations can immediately address weaknesses and seize on opportunities for employee growth and productivity improvements much faster than an annual review ever could.
Such frequent discussions also free employers from the antiquated idea that companies operate solely on one-year cycles. Today’s economy can trigger multiple, mid-year shifts in goals, projections and strategies. Frequent conversations can improve an employee’s knowledge, engagement, productivity and responsiveness to those shifts.
The traditional annual review is also hampered by its focus on one manager’s assessment of one individual’s performance – a concept that doesn’t entirely mesh with more collaborative workplaces.
“In today’s world, where there is a greater emphasis on teamwork and collaborating, a number of firms have been implementing systems that allow team members to use crowdsourcing techniques to provide feedback to each other on a real-time or project basis,” Greenbaum says.
A “growing minority” of companies have installed software that enables employees to leave constructive feedback for each other, Greenbaum adds. Some companies have also expanded their frequent review discussions to include periodic small-group discussions, where co-workers can review projects or team performance goals, share lessons learned, and talk about their own efforts to advance their skills.
The “biggest flaw” in the annual review process is combining the discussion of employee development with an announcement about a pay raise or bonus, Greenbaum says. Mingling those two topics heightens the stress level of the review and greatly undermines the ability to have a thoughtful and impactful discussion about performance and development.
Greenbaum and other experts recommend handling the annual pay raise announcement in a completely separate meeting. But that doesn’t mean you only talk about money once a year. Too often, employees are blindsided and disappointed by announcements of meager raises simply because they didn’t know their good performance was not resulting in healthy profits. Periodic, transparent discussions about the team’s performance and the financial bottom line can both avert that disappointment and empower employees to address financial issues.
In 2012, Adobe became one of the earlier corporations to abolish the traditional employee performance review. In its “Global Human Capital Trends 2015” series of articles, Deloitte described how Adobe instead implemented a system of “check-ins” – “ongoing discussions between managers and employees to set expectations, offer feedback on performance and recognize strong work.”
The initial impact of the system change was “profound,” according to Deloitte. Adobe’s voluntary turnover rate dropped 30 percent. By 2015, however, Adobe was still experiencing some challenges with its employee review process. Some managers weren’t fully comfortable with the process and had difficulty handling some growth discussions with employees.
“In response, Adobe developed a series of resources focusing on coaching and growth to equip managers to be better coaches and to ask powerful questions,” Deloitte reported. “Importantly, the curriculum focused not just on training managers, but also on training employees to coach themselves and drive their own career growth. The organization also reframed the concept of growth to focus on growing one’s own skills, to continue to remain relevant in a rapidly changing environment.”
Steps to a better review process
Developing and implementing a new employee performance review process can be a challenging initiative. Company leaders need to tailor the process to match the corporate culture, and be prepared to offer support and training to both managers and employees as they adjust.
Experts suggest companies consider the following when implementing a performance review process that involves frequent conversations rather than an annual review:
- Provide managers with sample questions and guidance on how to steer conversations through the full range of employee-development issues and goals over the course of a year.
- Encourage managers to solicit input on their management style. Conversations should not focus exclusively on an employee’s performance. Rather, managers should also seek to learn how they can better manage each employee, what different resources or feedback would benefit that individual, and how to time and tailor the regular meetings to generate the greatest benefits for both the manager and employee.
- Encourage employees to conduct periodic self-evaluations. These would cover a wide range of topics, from specific challenges or accomplishments in recent projects to the biggest challenges or opportunities in the next quarter, skills they might need to strengthen, ways to better manage or redistribute job tasks, and specific steps needed to achieve longer-term career goals.
- Stretch beyond serious and professional topics in your regular meetings to chat about each other’s lives, discuss work-life balance or talk about improvements that could be made in the workplace. The relationship with one’s direct manager is the single biggest influencer of employee satisfaction. Regular discussions provide a great opportunity to strengthen that relationship.