To stay in top form, professional athletes receive constant feedback from their coaching staff and trainers. After each game, match, or meet, their performance is analyzed to see what’s working and what needs improvement. Based on these assessments, necessary adjustments are made along the way. So, what would happen if these coaching sessions were cut to just one per year? How would that impact the athlete’s performance and career trajectory?
The year-end performance review practice that many employers have used since the early 20th century has come under scrutiny in recent years because of its perceived inability to impact employees' year-round performance. That's not to say that companies don't need a performance appraisal system—employees do need feedback—it just means that the "traditional" annual review may not be the optimal 21st-century performance management appraisal tool.
What is “performance management”?
Performance management involves measuring, reporting, and managing your employees' progress so they develop and improve as contributors to your organization. The performance review—or employee appraisal—is a tool used to track your employees' performance, set goals, celebrate successes, and make improvements. A top-tier performance management system can lead to lower absenteeism, higher productivity, and fewer safety incidents.
According to a survey of 48,000 employees, managers, and CEOs by the leadership training and research firm, Leadership IQ:
Only 13% of employees and managers, and 6% of CEOs, believe their organization's performance appraisal system is useful.
Only 14% of employees believe their performance appraisal provides relevant and meaningful feedback that would help to motivate them to do better work and position them for success in their careers.
"Too often the performance appraisal program is a perfunctory and thoroughly disliked exercise," according to Leadership IQ's "Performance Appraisal: New Data Reveals Why Employees And Managers Dislike Them." "We spend too much time designing the appraisal form and too little time ensuring that performance ratings honestly reflect actual employee performance and that the feedback is unique and meaningful for each employee. If we're not going to provide honest or meaningful feedback, why even conduct a performance appraisal?"
Business owners concerned about the efficacy of their performance appraisal process have options to consider, in addition to the standard year-end review.
Here, we examine the pros and cons of the traditional year-end performance review, alternative tools and methods recommended by experts, and steps you can take to get the most out of your chosen performance-management system.
How the Year-End Performance Review Got Its Start and Why It’s a Subject of Great Debate
The traditional year-end performance review process typically involves a manager discussing an employee’s strengths, weaknesses, and overall work performance during the previous year. It’s also used as a tool to set performance and development goals for the following year. Though it varies by company, many choose to conduct these assessments at the end of their calendar year.
According to the Harvard Business Review’s “The Performance Management Revolution” by Peter Cappelli and Anna Tavis, performance appraisals can be traced to the U.S. military’s “merit rating” system, created during World War I, which identified poor performers for discharge or transfer. By the 1960s, about 90% of U.S. companies were using them to evaluate employees annually. At first, improving performance was a secondary outcome, but a growing shortage of managerial talent in the 1990s prompted companies to start using annual appraisals to develop employees into supervisors and managers into executives.
By the early 2000s, a few U.S. companies began to move away from following the traditional appraisal process.
According to the Harvard Business Review article, “The idea of abandoning the traditional appraisal process—and all that followed from it—seemed heretical.” Still, early-adopter companies such as Adobe, Dell, Microsoft, and IBM replaced annual reviews with more frequent, informal discussions between managers and employees.
This move sparked a wide-scale debate over the year-end performance review and its usefulness in the workplace. Criticisms of the annual performance tool included:
- Some employers saw it as a “last-century practice” despised by employers and employees alike. (Harvard Business Review)
- The heavy emphasis on financial rewards and punishments and end-of-year structure hold people accountable for past behavior at the expense of improving current performance and grooming talent for the future. (Harvard Business Review)
- When conducted by managers without proper training, these appraisals can be used against an employer if a disgruntled employee decides to sue the company for wrongful termination or discrimination. (G&A Partners)
- This appraisal method is often structurally inflexible, making it difficult for companies to tailor the process to fit their organization and employees. (Human Resources Today)
- Many companies need a performance management tool that allows ongoing feedback from supervisors—a need that’s better met by frequent, informal check-ins than by annual reviews. (Harvard Business Review)
More recently, the 2019 Gartner Performance Management Benchmarking Survey found that 81% of human resources leaders are making changes to their companies’ performance management processes, and some companies have considered eliminating numeric or qualitative labels they use to grade employees or rank them against each other. These leaders recognize the need for the process—they just require another method that works for their organization.
“Even though the traditional methods used to measure performance are flawed, there is definitely value in evaluating employee performance,” according to G&A Partners’ “The value of having a performance evaluation process.” “Performance evaluations have several important uses, serving as an opportunity for managers to let employees know how they are doing, identify areas for improvement, and recognize high-performing employees. In addition, performance reviews are also often used to determine compensation increases.”
Also, it’s become even more critical for employers to maintain a timely, consistent, and complete record of poor performance and infractions that documents the reasoning behind demotions, disciplinary actions, and terminations. Not keeping this record can leave employers open to potential legal action, including wrongful termination and discrimination lawsuits.
So, what are alternatives to the year-end performance review?
Seven Performance Appraisal Tools You Can Use to Replace or Enhance the Annual Review
Increasingly, employers are choosing to move away from the more formal, traditional annual review process to one that incorporates individualized, ongoing feedback, states G&A Partners' "Alternatives To The Performance Appraisal." This growing trend is often attributed to the generational shift that has been taking place in the workplace over the past several years, characterized by the rise of Millennials and Gen-Z, along with advances in communication technologies.
If the year-end performance review no longer fits your company culture or business model, consider these alternatives, all of which call for a consistent flow of meaningful feedback between managers and employees:
With journaling, employees consciously record their accomplishments, goals, and areas for improvement, as well as questions and concerns. These are shared with managers regularly throughout the year. This method facilitates meaningful performance conversations between managers and employees. In addition, it provides the employer with a record of the employee's performance for the year that they can refer to when it's time to make employment-related decisions. Managers can also journal and share selected comments and suggestions with employees during their discussions.
Feedback and Coaching Sessions
This method fosters quality, one-on-one conversations between employees and managers. During coaching sessions, managers mentor employees and help them develop professionally by offering constructive, actionable feedback to apply to future efforts.
But, like journaling, coaching sessions are only practical if conducted frequently. "Employees want to do a good job," states Human Resources Today's “Performance Management: 5 Drivers for Success” by Sharlyn Lauby. "Managers should regularly tell employees about their performance—what’s good, what could be improved, and even more importantly, how to evaluate their own work. When employees can evaluate their own performance well, they can set their own goals and begin to become self-learners."
When employees can evaluate their own performance well, they can set their own goals and begin to become self-learners.
— Sharlyn Lauby, "Performance Management: 5 Drivers for Success"
These are future-oriented performance discussions during which managers and employees work together to develop goals they'd like to complete in a defined period. The goals should be written as affirmative, first-person actions or "I" statements: "I will do this. I will not do that." This approach allows for setting goals together and creating accountability between the manager and employee, which can strengthen their bond.
The 360-degree feedback method extends beyond the one-on-one manager-employee review to gather performance feedback from the employee's colleagues, the company's customers or clients, and other supervisors, managers, and executives in the organization. The goal is to provide the employee with comprehensive input from different perspectives—including positive feedback and potential areas for improvement. The reports are confidential and presented to the employees by their managers.
Though not considered a traditional one-on-one appraisal method, companies can use employee surveys to learn more about employees' concerns, ideas, and feedback about the organization's processes and culture. When employees feel that their manager or company leaders are actively listening and considering their input, their level of engagement increases.
It's crucial to design a dynamic and effective employee survey strategy—one that provides you with valuable employee feedback, helps you to retain your best employees, and positions your company for success in today's talent wars. For example, your company could use "professional development surveys" to ask employees if they feel they're provided with the proper training and development tools to advance their professional career goals.
The opposite of an "exit interview," a stay interview encourages open and honest communication between employers and managers as a strategy to bolster employee retention, provide a channel for ongoing feedback, and help employees navigate their career pathways. The process involves checking in with your employees at regular intervals to get their input, finding out what they need from you to be successful in their work, and identifying problems before they reach a point of no return.
Denise Macik, Manager of Strategic HR Services for G&A Partners, says a proactive way to collect feedback from your team is to weave "stay" interviews into your company culture.
More employers are tapping into online HR technology platforms to streamline their preferred performance management processes. For example, G&A Partners' online performance management system allows companies to:
- Create personalized development plans with objectives and activities.
- Align individual goals with team and companywide objectives.
- Set due dates, make comments, and monitor progress.
- Ensure reviews are completed on time with automated notifications.
- Engage and motivate employees by linking pay to performance.
- Configure custom workflows to simplify the review process.
- Document ongoing performance feedback and conversations.
- Identify competency/skill gaps as well as top performers.
- Maintain an ongoing employee performance record
Four Steps to Take Before Retiring Your Standard Performance Review Method
Before abandoning your current performance review method—and adopting a new one—we recommend taking time to create (or revise) your company’s performance management policy by following these important steps:
Step 1: Define your key objective.
Outline what you want to achieve with your performance reviews. Some questions to ask yourself:
- What skills do employees need to be successful at our organization?
- What kind of attitude do I want my employees to have?
- What quantity or quality of work do I expect my employees to produce?
- What standards of behavior and performance do I expect employees to meet?
- What documentation tools will you provide your managers and employees?
- How often will you require them to document performance details? Monthly, weekly, continuously?
- How will you protect the information? Security and privacy are vital components of this process.
Step 2: Determine your preferred documentation process.
Consistently and frequently documenting employee performance is a key aspect of performance management. Why? Because it’s much easier to report instances as they happen instead of trying to recall the details one month, six months, or even 12 months later. To plan an effective documentation process, it’s a good idea to consider:
Step 3: Analyze various performance management methods.
The annual performance appraisal might be your current method of choice, but it’s important to consider analyzing the various available alternatives to determine if a new option better suits your organization. And, if you decide to stick with the annual option, consider adopting features that complement and enhance your preferred process, such as requiring managers to coach employees during the year or conducting employee surveys to get feedback and input.
Step 4: Expand your review process to include employee-development training.
The goal of performance management is to help employees grow and develop their skills and abilities. Expanding your performance review process to provide your employees with relevant training and development opportunities will help increase job satisfaction and engagement and demonstrate that your employee appraisals lead to concrete action and results.
If you don’t have the budget or ability to develop a professional in-house training program, there are affordable online options, such as G&A’s online learning management system (LMS), that can be scaled and adapted to your company’s needs. G&A’s platform offers one-off training or access to nearly 1,500 training courses and allows you to assign and track the progress of professional development across your entire organization.
How to Improve Your Company’s Performance Review Process
The 2019 Gartner survey found that the two main concerns with traditional performance reviews are that the effort is too high (time-consuming, complex) and the usefulness is too low (inaccurate, unmotivating). There is room for improvement in any organization's process.
Experts from the Forbes Human Resources Council recommend these performance appraisal process improvements:
- Provide a detailed agenda. Providing employees with a detailed schedule of what you will cover during the annual review gives everyone the chance to prepare and bring their insight, feedback, and goals to the meeting, making it a less stressful experience and one that promotes growth and positivity.
- Look back and look forward. Simplify reviews into three sections: 1.) Look back at key accomplishments vs. goals. 2.) Look forward with a focus on the future and alignment. 3.) Address support: “How can your manager best support you?”
- Keep it short and simple. Try and make the review process straightforward. Use this time to set goals for the following year. Review key performance indicators for the year. Speak to the employee's accomplishments and where they can improve in the upcoming year.
- Focus on employee potential. Reviews should focus on the future and the potential an employee can bring to the company's journey ahead. Criticisms of past mistakes are not as valuable as lessons learned and how they are applicable to the future.
- Make reviews a two-way street. Instead of just focusing on what the employee did and didn't do, incorporate a section where the employee reviews their manager and the organization.
- Develop organizational evaluation standards. When managers have different criteria for evaluation, it can cause inconsistencies in performance review scoring. By providing training on performance review administration, HR can ensure ratings are consistent for all employees throughout the company.
- Focus on mutual learning and growth. Reviews focused on education and development can be an excellent opportunity for an authentic dialogue—if the manager is open to asking questions with genuine curiosity and openness.
- Pivot to frequent, more informal dialogues. Focus on consistent and informal one-on-one dialogue between employees and their supervisors. Ensure the discussion focuses on progress against work and life goals, what the supervisor can do to help the employee succeed, and how they feel about their engagement and development.
How G&A Can Help
G&A can build a customized performance review process that ﬁts your company and its culture. Our comprehensive suite of talent management software—including professional development and performance-management tools—can also help you more effectively direct and motivate your employees.