Does anyone actually like the annual performance review? Reviewers/managers hate doing them, employees do not like receiving them (but also don’t like it if they don’t get regular reviews) and human resources dreads the additional administrative work that comes with them. Each year there are countless articles written about why they should be eliminated, fixed, or replaced but most organizations still conduct annual performance reviews. What is the purpose of this annual corporate ritual that seems to cause such consternation and discomfort, yet still continues to be used?

At its best, the purpose is to provide a forum for discussion and feedback between an employee and their supervisor, summarize  the employee’s performance over the year, rate achievement of goals, determine skill gaps, identify goals and establish a training plan for upcoming year. This sounds like a necessary and desirable outcome, so what is the actual problem? Other than the obvious extra work that is required to put together quality reviews for every direct report, performance reviews can involve giving and receiving negative feedback (which appeals to no one) and are usually process-driven by a lengthy, often not relevant form where the reviewer has to rate whether the employee is some variation of poor, fair, good or excellent, resulting in a discussion that seems too formal and forced.  

The flaw is not the Annual Performance Review itself – but rather that it is should not be a stand-alone tool. The annual review should be just one tool in an ongoing Performance Management System – which includes ongoing feedback throughout the year. Performance management is a method for continuously motivating employees towards desired behaviours and relies on ongoing feedback and positive reinforcement to be effective, so there will be no surprises at the end of the year review. In fact the number one rule of the annual review is that nothing said on a performance review should be the first time the employee has heard it! Many an employee has felt blindsided on their annual review when they are criticized for something that occurred months ago and they are hearing it for the first time, something that could have been corrected if addressed when it occurred. 

Over the course of a year, good performance management involves active monitoring of progress towards set goals, as well as targeted interventions to improve performance. These interventions can be as simple as praise for good performance, on-the-job training, coaching, or more formal learning and development courses to (further) upgrade performance. Some components of a robust ongoing Performance Management System include:

  1. Feedback:  Immediate feedback should occur throughout the year whenever an employee does something right or something that needs a course correction. Train your supervisors on how (and when) to give specific, timely and relevant feedback. Practice difficult conversations and train them how to coach for performance improvement. 
  2. One-on-one Meetings: Supervisors should have monthly one-on-one meetings with each of their direct reports.  Make it easier on yourself and ask your staff to schedule these times in your calendar. The meeting is a time to talk about what is going well, discuss progress on objectives, and what support the employee needs. The meetings are for the purpose of or to replace ongoing feedback. 
  3. Provide tools and training: Follow through on recommendations from the Annual Review. The onus is on both the employee and the supervisor to ensure the employee is given access to the tools or training needed to upgrade skills and knowledge.
  4. Annual goal setting: Set work specific goals at the beginning of the year, revisit during the year and measure achievement at the annual review.
  5. Annual Review:  An annual performance review meeting which includes a performance review, goal setting for the upcoming year and an employee development plan. 

The effectiveness of the performance management system can be measured in the annual performance appraisals, where instead of being used for corrective action and negative feedback, this becomes the opportunity to summarize the employee’s performance, celebrate their achievements and set the goal posts for the upcoming year. This is not to say that problems during the year are not noted, but rather that these be summarized in terms of how the challenge was or will be addressed and rectified. 

So, with the understanding the annual performance review is likely here to stay, how can it be made more effective?  First of all, it needs to be relevant and specific to the employee and provide an opportunity for open dialogue. It also needs to measure the right things, and not be just a box checking exercise using a subjective antiquated rating system which creates the opportunity for inaccurate assessments. For example, reviewers in the same organization will apply the typical rating systems of Excellent, Good, Average, Fair and Needs Improvement (or variations thereof) differently, so it is possible to have an employee who is rated Excellent in one department and another who is rated Average in a different department, but both are similar performers. Some additional biases that often occur in the rating system include the leniency tendency which occurs because many reviewers don’t want to deal with conflict, so they often give employees undeserved high ratings or give all employees average ratings (central tendency). Another is the report card syndrome that occurs when managers save up examples of poor performance for the performance appraisal interview and surprise employees with poor ratings. 

On the surface it appears that major cause of these errors is a lack of training, but perhaps it is not the reviewers that are the challenge, but the form itself. Why is rating so important if the purpose of the review is to capture the successes, challenges of the past year and lay out a plan for the upcoming year?  Great things might happen if there were no ratings and the form were simplified to a one page document that focuses on the individual employee. 

Going back to the original question – Is the Annual Performance Review obsolete?  In one word, no. As much as managers and employees would like to remove the looming specter of the annual performance review from their lives, there is still a place for it in the workplace. However, putting some effort into simplifying the review, making it more relevant and making it the capstone of a year of effective performance management would go a long way towards making it a useful tool.  The annual review is one tool in the performance management toolkit – not the ONLY tool – and to be effective, it is a tool that needs to be sharpened, or perhaps… just simplified. DMM