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Should you Eliminate the Annual Performance Review?

Should you Eliminate the Annual Performance Review?

Free Resource

We recently attended a riveting meet-up in NYC focused on HR Analytics. Titled, “A new experience: Events of the Future”, the meetup consisted of three group debates around emerging topics in HR. Though most of the participants came from the Enterprise HR world, the themes discussed lend themselves to teams of any size.

The topic that resonated most with us was the debate around the annual performance review. There has been much discussion about the death of the annual performance review, but when asked about what replaces it, there isn’t a clear answer. Here is what the crowd had to say, reinforced by our own thoughts:

The argument in favor of the annual performance review

  • Structured annual reviews give employees a sense of purpose. They provide milestones to work towards, which is inherently motivating.
  • Annual reviews are a structured and fair way to evaluate and determine raises. They allow a company to evaluate its employees consistently, effectively surfacing top performers.
  • Annual reviews are a safe place for constructive feedback. They enable 2-way communication; employees and managers set this time aside for formal, confidential feedback. In more regular, casual discussions, the focus may be lost.
  • They promote evaluation on meritocracy and trump unfair biases. Using a structured review process, your team is evaluated against consistent criteria regardless which team or manager is conducting the review.
  • They are valid, valuable and measurable — a core part of HR strategy. Performance reviews have been around and effective for years. Career development sprouts from motivation to perform, and this motivation is rooted in feeling appreciated, challenged and evaluated on your success.

The argument against the annual performance review

  • Annual reviews are good in theory, but not in practice. Like standardized tests, they act as a consistent basis for evaluation, but the reality is there are always outliers — those performers who are your best asset, but not in the most obvious or common way. To really find and reward these individuals, you need to cultivate an on-going professional relationship by regularly diving into feedback and performance discussions.
  • They provide only one data point for the employee throughout an entire year. Annual performance reviews are the “waterfall model” of performance evaluation. They aggregate an entire year of work and produce a score. A more iterative and agile approach to performance discussions surfaces more data points, including social recognition and leveraging the employees network beyond the reporting structure.
  • They are overly focused on compensation, and not on career development. Performance reviews are too often the driver for compensation. More and more companies are exploring ways to separate the two. If you refocus performance evaluations on career development, you teach your team the importance of success for personal and company growth — and not just raises.
  • Annual reviews tend to be backward-looking instead of forward-focused. Annual reviews take a look back and score the year behind you. Learning from history is critical, but should not be the emphasis of a review. More regular feedback sessions allow you to stay more present. By looking back only a few weeks, and refocusing attention to the upcoming weeks, you can drive clear, measurable goals.
  • They often neglect to capture the value of failure, which we have learned over time is so valuable. Given they are only once per year, failing fast and iterating often is impossible.

So who wins?

It is clear that no matter the size or experience level of your team, effectively evaluating performance and motivating employees is hard. Performance lacks a consistent definition among organizations and cultures. Humans are unpredictable and prone to bias, and these factors shape the experience of performing, and evaluating performance.

While we agree with many of the points in the argument in favor of the annual performance review, we believe they should trend towards more frequent, real-time feedback. It is important to encourage employees to take risks. Managing that well requires more consistent discussions about performance. Employee reviews and feedback should be tied to near-term goals and objectives, where all too often we find these to be separate elements in an organization. An individual’s goals should cascade off the company’s high-level objectives and be measurable.

While we feel that social data and peer recognition are a valuable source of informal feedback, we don’t see them as replacements for the performance review. This information can certainly augment a manager’s understanding of their team member. With the incorporation of this data, and an increase in review/feedback frequency, an organization moves closer to real-time recognition & professional development.