Five reasons to ditch annual performance reviews (and what to do instead)

Over the past decade there has been a move away from annual performance reviews.  Organisations like Deloitte, Adobe and Accenture have recognised that the traditional method of reviewing performance does not work in today’s rapidly changing world.  With remote working taking over and organisations struggling to maintain engagement, we need a more in the moment approach to ensuring people are performing at their best.  Here are five reasons to ditch annual performance reviews and what to do instead.

Five reasons to ditch annual performance reviews

  1. Employees and managers see them as a tick box exercise which take up an inordinate amount of time and are of little value.  In a revamp of their annual review process, Deloitte found that over 2 million hours a year were spent on the review cycle.  Most of this time was spent on discussing the ratings rather than on talking to people about their work and how they could develop.
  2. They are typically linked to remuneration. This means the focus is on employees trying to get the highest score rather than being honest about performance.   Reviews should be learning opportunities but having money on the table makes this nearly impossible to achieve.
  3. Rating systems are biased and only result in competition.  Forcing ratings into a bell shaped curve results in alienating top performers and it is the antithesis of team work.  In addition, research has shown that all of us are disturbingly inaccurate when it comes to rating others.  The Idiosyncratic Rater Bias means that when asked to rate someone on a particular quality like leadership I will do so based on my own definition of leadership.  According to Marcus Buckingham, 61% of my rating will be a reflection of me and not the person I am rating.  This effect is very resilient and does not change even with training.
  4. They exacerbate gender bias.  A recent study found that women are more likely than men to be told ‘white lies’ in their performance review. Other research demonstrates that feedback on women focuses more on personality and attitude. This is compared to feedback on men focusing on work achievements. This exacerbates gender bias and potentially promotion and growth opportunities.
  5. Positive feedback motivates people but performance reviews work against this.  So-called constructive criticism is often perceived as negative even if a manager does not intend it to be. According to Gallup only 14% of employees feel inspired to improve after their annual performance review.  That in itself should be enough to make us decide to ditch them.

What should we do instead?

  • Separate out remuneration decisions from performance management.   There are a number of different ways to do this. The best solution will depend on an organisation’s culture and what they are trying to achieve.   Whichever method is chosen, being transparent about how remuneration decisions are made, lessens the risk of dissatisfied employees.
  • Focus on development not management.  Performance management typically means assessing previous performance against a set of objectives.  It is backward looking.  Development focuses on acknowledging a person’s strengths, offering in the moment feedback – it is future facing.
  • Introduce continuous feedback. This can take many forms but typically might involve weekly check-ins to set expectations for upcoming projects, discuss recent work and acknowledge contributions.  Offer training to managers to help them coach and mentor their teams so they get the best out of them.   
  • Move the focus from individual performance to the performance of the team.  Organisations are much more team-centric now so evaluating an individuals’ contribution to the team and the team’s impact on business goals is essential.  A willingness to experiment and to develop new tools and metrics will result in a model that works.

Reinventing your performance management system

It may seem a daunting task to reinvent a performance management system but it is a crucial one.  In today’s world, people are looking for work that enables them to grow and develop.  This is one of the top drivers for employee engagement.  Research by Gallup shows that career growth opportunities are the number one reason people change jobs.     In a world focused on rapid change we cannot stick to the tried and tested methods of annual performance appraisals.  Focusing on performance development not management means we will keep our top performers and get the best out of them.

We are experts in redesigning performance management. If you would like to talk to us about how we can help please get in touch.

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