3 Reasons You Should Kick That Annual Review Tradition to the Curb How rethinking the review process can significantly improve employee engagement and performance.

By Christopher Cabrera

Opinions expressed by Entrepreneur contributors are their own.

At a time when only 31.5 percent of American employees are engaged on the job -- costing the U.S. more than $500 billion in lost productivity per year -- can we really afford not to rethink one of the main mechanisms we use to review, recognize and reward the work of our staff?

Let me hear you say, "No!"

I'm not advocating that reviews be thrown out entirely, but rather, they need to be redesigned and supplemented to use time and technology more effectively.

The goal needs to be a more engaging, living, breathing practice that actually improves communication, efficiency and results. Too often, performance reviews are based on a standard set of corporate metrics. They almost never take into account the unique job responsibilities of the person being reviewed or the individual talents and passion they bring to the job.

It's the typical, "We think you're great at this, but we think you can improve on that, and between now and next year, we'd like to see you do this."

Not only is this ineffective, but this one-size-fits-all approach doesn't motivate employees to strive to reach their goals because they don't feel in control of the results. As we continue to analyze the annual review process, one thing has become crystal clear: It needs to be fired.

We live in an information age. We want to gather facts and learn, and we want feedback. This on-demand access creates immediacy -- employees want ongoing feedback, not once a year in the form of a meaningless review.

You can supercharge and revive your workforce with these three easy practices.

Related: How to Survive Employee Performance Appraisals

1. Requiring frequent, specific feedback

A study by Deloitte revealed that only six percent of companies believe their current process for managing performance is worth the time, with 58 percent calling their process "weak."

Why? Because it typically revolves around the infrequent, low-touch model I noted above. Today, our review process happens quarterly. And part of the employee review is the requirement that they also give us feedback for improvement.

Employees want to feel part of a team and like their voices are being heard. Our process was designed to do exactly that.

2. Setting clear, unique goals and resulting compensation

While some "soft" goals still apply, each employee has a set of clearly defined goals tailored specifically to their role at the company, and each employee has a mix of both short- and longer-term objectives that are weighted toward that person's quarterly compensation.

Related: 5 Positive Ways to Constructively Critique Employees

Augmenting our HR system with MBO (manage by objective) technology has allowed us to get to a more personal model that has significantly improved both engagement and performance. The biggest catalyst is that employees can quickly see how their work can result in both personal and company gain.

You'd be amazed how employees strive to reach a certain goal when a dangling financial carrot (vacation, engagement ring or new car down payment) is so close in front of them they can almost taste it.

3. Making performance progress transparent and accessible

We live in an information age. We want information, and we want it immediately -- not once a year.

Today, our employees can easily see exactly how they're tracking to their individual plan and communicate with their manager. And at the end of the quarter, that system automatically calculates how goal-attainment equates to financial compensation and sends that information through to payroll. That process improvement alone has saved our managers and HR department hours that used to be spent calculating compensation across departments.

Like most companies, our priorities change over the course of a year. With this new process and technology in place, we have the ability to quickly realign goals, allowing us to be a more flexible and agile business.

Related: Stop Delaying: 3 Surefire Ways to Do Employee Reviews Properly

Wavy Line
Christopher Cabrera

Entrepreneur, Founder and CEO, Xactly

Christopher W. Cabrera, founder and CEO of Xactly Corporation, is a noted industry expert in issues relating to sales performance management, sales compensation and enterprise and on-demand/software-as-a-service delivery models. He was named the 2011 “Alumni Entrepreneur of the Year” by the Lloyd Greif Center for Entrepreneurial Studies at the USC Marshall School of Business. Cabrera is the author of Game the Plan (River Grove Books, 2014) and co-author of Xactly Sales Compensation for Dummies (Wiley Publishing, 2006).

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