The traditional system of appraisals, condemned by managers and staff alike, has been abandoned by more than a third of US companies. In the so-called ‘performance management revolution’, the annual knee-trembling conversation is being replaced with a process that’s more human and helpful. What is this process, how can leaders implement it – and why should they do so?
Three business reasons to drop appraisals
Appraisals serve many purposes, in theory. They allow managers to get to know their people, agree annual objectives and review past performance. They are a chance to consider advice and guidance, ratings and comparisons, pay-rises and bonuses.
However, many businesses adopted annual appraisals years ago, for reasons that made sense at the time but are now often a muddled mix of the above. For some, the system lingers on – even though ratings and comparisons are 1960s thinking, annual objectives have been superseded by agile targets, and pay rises are not always on offer. The business case for an overhaul of the system comes down to three key points:
In recent years, there’s been a radical shift in social thinking. Renewed empathy and humanity have brought Diversity and Inclusion initiatives to the fore. Many managers no longer believe that the best way to motivate someone is to meet them once a year to assess work done months earlier.
In the years before Covid, big business often lacked transparency and trust. Many people felt that their sense of identity was eroded by a lack of influence in the social contract – the unwritten balance of power between employers and employees. The pandemic changed everything. People were empowered by working from home, many are now less willing to put up with old practices, as the great resignation demonstrated last year. The balance of power is shifting, employees expect more from their employer. As a result, the mindset behind annual appraisals is looking tired and out of date.
Misuse of time
A survey by leadership consultant CEB found that managers spend an average of 210 hours a year in performance management activities. How much value does this work achieve? In an article entitled ‘Performance management is broken’, Deloitte found that 58% of companies believe their performance management process is not an effective use of time.
In an article for People + Strategy Journal, Deloitte’s former system of annual appraisals is described as “an investment of 1.8 million hours across the firm that didn’t fit our business needs anymore.” For Jena McGregor in the Washington Post, antiquated review systems are no more than an “annual rite of corporate kabuki”.
Shared mistrust in appraisals
Employees often regard annual reviews as a test of nerve and will, many struggle to get the most out of their appraisal. Things apparently aren’t much easier for managers, either. A study by Leadership IQ of 48,000 employees, managers and CEOs, found that only 13% believed their review process to be useful. “As the appraisal process is currently designed, nobody thinks it adds much value”, the study’s authors concluded. Similarly, research by Gallup found that only 14% of employees strongly believe their performance reviews inspire them to improve.
In particular, the Leadership IQ study identified two problems. Firstly, respondents said that only 22% of leaders are always able to distinguish between high and low performers – leading to questions about the purpose of a performance appraisal in the first place. Secondly, managers don’t always have time to prepare for an appraisal. Bearing these thoughts in mind, it’s no surprise then that while 95% of employees believe that appraisals should reference specific events from throughout the year, only 14% believe they actually provide relevant and meaningful feedback.
Designing a new performance appraisal system
Committing to regular feedback
So what’s the alternative? Leading tech companies such as Adobe, Google, Juniper Systems, Dell, Microsoft, and IBM have replaced once-a-year conversations with regular feedback. So too have professional services firms such as Deloitte, Accenture, PwC and KPMG, along with early adopters in other industries, among them Netflix, Gap and Lear.
Many larger companies have created apps that allow managers to give feedback whenever they want, recording it if they need to. Some apps allow employees to ask for guidance when they need it, or provide feedback to peers. These messages easily allow managers to review material when they need to award pay rises, offer promotions or identify someone who may be under-performing.
8 must-have features of performance reviews
Commit to regular updates
Regular updates provide timely advice and guidance. Instead of discussions about work done a long time ago, better to switch to an assessment of current performance. Through ongoing feedback, problems can be resolved quickly and effectively.
Businesses no longer have clear annual cycles, projects are short-term and likely to change. Jobs are more complex than in the past, an annual set of objectives is unable to adapt to developing events such as hybrid flexibility, Covid concerns or war in eastern Europe. Targets need to be set, discussed and reviewed far more frequently than once a year.
Focus on development
Moving from an annual discussion to regular feedback represents a shift from accountability to learning. Rather than dwelling on what went wrong in the past, ongoing feedback focuses on the skills that ensure things go well next time. New joiners, especially, are keen to explore learning and development opportunities, particularly early on in their career. By focusing on new skills, ongoing feedback supports career progression more readily than a backward-looking annual conversation.
Empathy and understanding
Some companies fear that reducing their reliance on assessment data may make it harder to measure performance against targets. But this sentiment implies that a manager may struggle to understand an employee without a spreadsheet. Human assessments can be more wide-ranging than a narrow range of numbers, and present a more accurate picture.
Drop the assumption that you as a manager know your team well, instead get to know them through open-ended questions and informal chat sessions designed specifically to build trust. This will encourage people to find a state of mind better suited to teamwork and creativity.
Approach as a coach
In the transition from accountability to development, managers are encouraged to consider their role in coaching employees, helping people improve their performance. By bringing humility and curiosity to feedback sessions, managers can further develop their efforts in building trust.
Feedback from peers
Employees should be encouraged to seek feedback from a range of sources so that they know their future rests on more than one opinion. They can choose who to speak with and when, and they should have the opportunity to air these wider opinions in feedback sessions with managers.
Help employees participate in their own success
Employees should be encouraged to take an active role in setting their own operational and developmental goals, in partnership with their manager. This shows them the value of their role within the team and helps them feel more connected to their career path.
A more meaningful use of time
The old system of appraisals is among the least popular practices in business. The question for managers is not whether this is true, but why. Telling an employee about something they did six months ago is of little help in a rapidly changing environment. In providing regular contact, managers can maintain a more authentic relationship with members of their team, setting measurable goals and assessing these in real-time. In motivating and inspiring people, it’s time to abandon backward-looking reviews, and instead look towards a more meaningful use of your time.
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