Problems with the Annual Performance Review: What to do now?

Throughout recent years, leading organizations have changed the way they measure employee performance. Many other companies have followed their lead, and this significant shift shows no sign of slowing down. The reasons so many employers have made the transition are compelling: aside from being dreaded by both employees and their managers, the traditional annual review has been deemed simply ineffective for managing pay-for-performance by most organizations.
Luckily, there are effective alternatives to the annual review, and they can be applied in any organization. Modernizing pay-for-performance demands a detailed diagnosis of your workforce’s current status and needs, as well as careful, strategic planning and implementation.
Trends in Performance Management
The modern business landscape has seen a significant shift in performance management trends within recent years. This is largely due to the fact that there are a number of common complaints associated with the annual review. For example:
It’s too time-consuming. At Deloitte, the process of creating ratings was reportedly taking the company 2 million hours per year to complete. While that span is likely shorter in smaller organizations, the sentiment of annual reviews taking too much time is widely shared.
The cycle is too long. Addressing employee performance that happened months ago is argued as being ineffective – instead, managers should discuss performance with employees on an ongoing basis.
It’s demotivating. Especially for anyone who isn’t a high performer, annual reviews can have a negative impact on employee morale. In some cases, reviews may even be the reason an employee quits.
It’s too focused on the past. Today, business leaders and employees want to focus on the future, not what happened in the past. Annual reviews are simply no longer relevant to the faced-paced nature of today’s organizations.
It isn’t always based on actual performance. Some employees feel that with annual reviews, managers base ratings on the pay they want to give versus actual performance.
Given these criticisms, it’s no surprise that the annual performance review is experiencing a downward trend. While the overwhelming majority (96%) of companies used this method to manage performance in 2012, that figure has dropped consistently each year, with 25% of companies using alternate approaches in 2017.
SOURCE: WorldatWork Research Report: Performance Management and Rewards 2017
What Are Companies Doing Instead?
Of the companies using an alternative to annual reviews, the majority have implemented half-year reviews. Some are using reviews quarterly or more often, which can be particularly beneficial for rapidly-changing industries. It is likely that more organizations will continue to implement quarterly or monthly reviews or check-ins moving forward.
Also, while just over half of companies (53%) hold conversations about rewards at the same time as performance reviews, 47% time them separately. While this approach may currently be slightly less popular, it does have a unique benefit: holding performance-related conversations roughly two weeks prior to discussing pay gives employees the opportunity to process the feedback their managers have provided.
Why Does the Annual Review Still Exist?
With the ongoing complaints about the flaws in the annual review process, it begs the question: Why not just get rid of it entirely?
While it might seem simple to abandon the annual review, it produces documentation which is a business necessity for making important decisions. It acts as a mechanism for giving feedback, determining promotion eligibility, and identifying the need for termination. Moreover, it answers the questions all employees want to know: What’s expected of me, and how am I fulfilling those expectations?
While business leaders have an obligation to answer those questions, there is room for improvement in performance management. CompTeam has the experience and expertise to evolve your program today. Contact us to learn more.

About the Author

Sam Reeve

Sam is the CEO and founder of CompTeam.

His core focus is leading companies through transformational change by optimizing talent initiatives with reward programs to achieve long-term strategic objectives.

Sam’s diverse experience includes the design and optimization of performance-driven variable compensation plans for executive, sales and core employee populations of growing companies.

Prior to founding CompTeam, Sam has worked in compensation functions of notable firms such as BlackRock,  McKesson and Automatic Data Processing (ADP).

Sam is a global certified compensation consultant (CCP, GRP) with over 20 years of experience in Total Reward Strategies.

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