The business world is overflowing with three-word phrases that nobody quite understands. From “outside the box” to “chain of command”; from “opening the kimono” to “boiling the ocean.” Yet none of these strikes fear into the heart of the workforce quite like the most painful three words of all: Annual Performance Review.

While so many aspects of modern business practices have moved on, unfortunately, the way that most organizations manage and measure their talent is decades out of step. Human resources and people management teams still face decades of legacy thinking around performance evaluations.

Fortunately, the backlash against the annual performance review has started. Companies such as Deloitte, The Gap, Adobe, Microsoft, and IBM have all realized that not only are yearly reviews extremely expensive – the entire process costs around €30 million for a 10,000 employee company – but they’re a little, well, useless. So useless that, in about a third of cases, traditional performance reviews actually make performance worse or negatively impact talent retention.

Still not convinced? Here are five reasons why you should turn your back on the annual performance review for good.

1. Absolutely nobody likes them

Given their ubiquity, you’d assume that everyone loves the annual performance review process. But that couldn’t be further from the truth. Most employees consider them to be not only highly stressful, but also completely ineffective.

One wide-ranging study by CEB revealed that 95 percent of employees consider their company’s appraisal process to be unsatisfactory, with 90 percent believing that the process coughs up inaccurate information. To add insult to injury, two-thirds of employees claim that the performance review process has little relevance to their actual work. Meanwhile, a similar majority say the process interferes with their productivity.

If reviews aren’t working for employees, then surely they empower and enable managers to become great leaders? Not in their current form. The same CEB study discovered that 95 percent of managers are also not satisfied with the review processes used in their companies. Performance of teams and their managers can only improve if it’s approached on a continual basis and integrates personalized learning and development experiences.

2. They’re not fit for modern work practices

Writing for Inc Magazine, Delphi Group CEO Thomas Koulopoulos describes the annual performance review as “a relic of the industrial age.” If the performance review ever did serve a purpose, that time has long passed.

Consider the difference between business practices 50 years ago, when employees carried out the vast majority of processes and tasks manually, and today’s business ecosystems, built on a foundation of instant communications and enabling technologies. Businesses need to move fast and be agile. Feeding back on employee performance once or twice a year is like navigating a long car trip using only the rear-view mirror. You’re emphasizing past behavior over current performance; accountability over personal development. The time to successfully course correct has long gone.

Younger employees, in particular, connect to gadgets and apps that tell them their heart rate, the quality of their sleep, the number of calories they’ve consumed, and how popular their latest video was in real-time. They crave similar feedback and engagement when it comes to their professional performance and development. However, it’s wrong to frame this as purely a generational issue. More than 90 percent of employees would prefer real-time feedback from their managers.

3. They’re not objective – but they pretend to be

When you boil every employee down to a five-point scale, there’s no room for context. Performance reviews apply a simplistic measurement to an exceptionally complicated subject – human behavior.

Performance in some simple jobs may, to some extent perhaps, be judged by numbers. How many crates did you stack? How many items did you stitch? How many meals did you prepare? However, such metrics are unable to reflect the performance of a knowledge worker, whose role is to be productive but also creative and curious.

Plus, the criteria used are highly subjective. “They purport to be objective. They’re not objective. The metrics they use have different meanings to different people,” explains Samuel A Culbert, professor of management and organisations at UCLA’s Anderson School of Management.

But, by using the traditional model of performance reviews, organizations end up reducing employees’ behaviors to a number. Behavior is not something that can be quantified. It’s subjective; requires self-reflection and continuous growth; evolves over time with feedback and direction from trusted advisors and coaches. Worse yet, once a performance review is there in writing, both employees and managers tend to believe those numbers, which can have a negative impact on employee morale, productivity, and engagement.

4. They can negatively impact on company culture 

When companies reduce employees and their performances to pure numbers, they also invite employees to compare those numbers with one another. As a large proportion of companies tie performance to incentives, such as pay increases or bonuses, this can encourage a dysfunctional culture in which employees are rewarded for checking off tasks or achievements from a list, rather than developing themselves, both personally and professionally.

Moreover, the current appraisal process misunderstands the role of managers in the modern workforce. Rather than the all-powerful boss who can wield year-end reviews as a power-and-control mechanism, managers today should be leaders, stewards, and coaches. In healthy manager-to-employee relationships, there are regular check-ins, stand-up conversations, strategy and planning meetings that make annual reports unnecessary.

Let’s also remember that management is a learnable skill and that managers also need leadership and guidance. Organisations would be well served by cutting their annual performance reviews and, instead, spending a fraction of that budget on coaching for managers.

5. There are alternative ways to manage and develop talent

 

None of this is to say that managers and employees shouldn’t sit down and review performances at regular intervals. Employees require encouragement, recognition, feedback, and development points. So do managers. But some options are better, more personalized, and more constructive than annual performance reviews.

  • Real-time 360 reviews:Employees invite several peers with whom they regularly work to review their performance in terms of productivity and personality.
  • Monthly and quarterly in-depth catch-ups: More precise moments in time when employees and managers can discuss more significant issues like performance and personal development.
  • Weekly pulse checks: Managers pass on relevant information and seek to gauge the morale and engagement levels within their team.
  • Project performance debriefs: Rather than focusing performance on individuals, try, instead, to assess projects. As employees will likely be working

Coaching your managers can help them develop strategies and methodologies which are less reliant on the out-dated concept of annual performance reviews. Book a call with us to find out how this simple, but necessary behavioral change can be achieved through digital coaching.