Ditch Annual Appraisals: Continuous Performance Management Is The Way Forward
It seems that on a near-daily basis, we are confronted with news that yet another leading company is ditching the annual performance review. There are dozens of published articles which announce the redundancy of yearly reviews and proclaim them to be dead and buried. It appears that HR executives, CEOs, and managers the world over have come to realize that in order for performance management to be effective, it needs to be continuous and agile. A single yearly review simply no longer cuts it in a fast-paced business environment.
Instead, international organizations and SMEs alike have been moving towards continuous performance management- a process that involves monthly check-ins and performance discussions. This process is beneficial for the employee-manager relationship; it keeps everyone up to date on goal progression and promotes fluid communication throughout a company. Adobe, Microsoft, Dell, GE, Google, and Netflix are just a few of the big names to move with the times and embrace these changes in order to improve productivity, performance, employee engagement, and staff retention.
But, it seems that there are still companies who either never got the memo on the death of the annual performance appraisal, or simply refuse to let them go. These companies are, by all accounts, forward-thinking and modern, yet they're reluctant to take into account new and improved methods of managing performance. But why is this, and what measures can help them become more welcoming of innovative HR trends?
1. Some companies are risk-averse and fear change Making efforts to set aside annual performance reviews and revamp your existing system might be beneficial, but it is certainly a fundamental change. This presents a perceived risk, and whenever there is risk involved in a business decision, a degree of reluctance is to be expected. Any serious change prompts HR executives and managers to consider the amount of work required, the impact it will have on company culture, and the possible repercussions of failure.
It is reasonable for companies to be risk-averse, but don't let fear prevent natural advancement, especially when there are a number of case studies backing up continuous performance management. Adobe benefitted from a remarkable 30% reduction in voluntary turnover once they swapped yearly reviews for regular performance discussions. According to Gallup, frequent check-ins and improved relations between managers and employees can account for 70% variance in employee engagement levels, which has a knock-on effect on retention and productivity.
Statistics such as these show that with appropriate training and a carefully thought-out transition plan, the change will benefit the company significantly in the long run. Fear of change is understandable, but letting that fear get in the way of your company's success is not.
2. Concerns regarding rewards and pay-related decision making Another reason companies may be reluctant to move away from appraisals is confusion regarding how to manage pay and rewards. There is an ongoing misapprehension that continuous performance management goes hand-in-hand with the elimination of performance ratings. Given the largely misinterpreted CEB study of 2016, this might give a lot of companies cause for concern. After all, if you remove ratings, how can you quantitatively judge an employee's performance and make decisions regarding raises and bonuses?
First things first: you don't need to scrap ratings along with annual performance reviews- although there is a lot of evidence to suggest that ratings and stack ranking systems are detrimental. You can retain ratings as a part of a continuous approach to performance management, and as these ratings will be based on knowledge of the employee's performance throughout the year rather than a single meeting, they will be far more reflective and objective.
Secondly, questions of pay and bonuses can be resolved using qualitative metrics. In fact, Deloitte has done this by replacing performance ratings with four targeted, objective questions to determine performance and potential.
3. Companies might have concerns about how to manage the administration It's a reality that some companies feel that they're not equipped to deal with the administrative demands of continuous performance management. After all, a more agile approach to performance management necessitates the tracking of many employee meetings throughout the year, as well as collating feedback from multiple sources- something that's simply not feasible using paper forms or email.
Fortunately, technology has advanced and software now exists that allows employees to schedule check-in meetings, track progress against goals and capture feedback, notes and actions throughout the year. The cost fades in comparison to the benefits such an approach offer to companies globally.
4. They want to stick with their tried and tested method of working This is a mentality we all run into, both in business and in everyday life: "This is the way we do things, because it is the way we have always done things." It can be tempting to retain the status quo, particularly if your business has done well over the years. However, organisations should be urged to consider: what would your performance management system look like if you were to design it afresh today? What process would you put in place to help your employees to perform to the best of their abilities?
If you're honest with yourself, your answer would probably not be an annual performance review. Your process would not center around one single, yearly meeting, during which you discuss critical, pressing matters that should have been addressed long ago. It would include regular conversations to discuss targets, performance, and progress. Annual appraisals were the right solution for businesses years ago, but they are simply not right for today's organizations.
5. There is not enough practical advice on how to make the change When exciting new HR trends present themselves, we are often bombarded with articles discussing the nature of the trend, who is incorporating it, and the benefits of implementation. We are also told what not to do, but we are rarely told exactly what to do. This has certainly been the case with continuous performance management and it has made some companies reluctant to change.
Much has been written about why appraisals don't work and we now need more material to be published and shared regarding how to implement continuous performance management and make it work on a practical, day-to-day basis. Thankfully, new articles and studies are being written every day, and there are experts out there willing to offer practical answers and share the benefit of their knowledge.
Companies who refuse to adapt and evolve ultimately suffer the consequences. They are unable to compete, their employees become frustrated and unmotivated, and failure won't be far around the corner. There are so many factors affecting business today, including the needs of a new working generation, advancing technology and the desire for flexible working. Intimidating though it might be for those who are unaccustomed to change, adapting to a more agile approach to performance management is certainly worth the leap. It's not a passing trend; it's a tried and tested means of inspiring, motivating, and engaging employees that will serve you well into the future.