October 6, 2015

How to Move Beyond Annual Reviews

surfAnnual reviews are rapidly becoming a thing of the past. A crop of the world’s largest and most well-known companies, including Accenture, Microsoft, GE, Deloitte, Gap, and Adobe, have recently done away with annual performance reviews and rankings. It is estimated that 10 percent of Fortune 500 companies and 12 percent of Fortune 100 companies are ditching annual reviews and rankings — up from just 1 percent in 2011. These numbers are set to snowball.

This shift reflects an emerging body of research that shows that performance reviews actually have a negative effect on employee productivity and satisfaction. According to “neuroleadership” expert David Rock, performance reviews can diminish activity in certain regions of the brain. Telling someone where they need to improve threatens their status, which not only restricts their creativity, but also causes stress levels to soar, to the detriment of productivity.

Moreover, the annual review model is flawed because it addresses issues that have long since faded into the past. What an employee did a year ago, or even six months ago, is not as relevant as what they did yesterday or last week. Employees work on an hourly and a daily basis, and in today’s fast-moving, on-demand world, an annual cycle (for anything) is painfully slow. This is especially true for millennials, who are characterized by their desire for constant feedback.

And yet, despite employees’ interest in and need for regular feedback, our research revealed that 60 percent of employees surveyed don’t receive in-the-moment feedback from their managers.

This creates problems for employers for a number of reasons. If employees are unsure how they are doing, they may not have the confidence they need to grow or think outside of the box. They will not be as engaged in their work or feel as strongly connected to their organization.

Conversely, regular recognition reinforces positive behaviors and makes employees feel appreciated. It opens the lines of communication and encourages dialogue between employees and managers, which establishes trust. As a result, employees are more satisfied and productive and less likely to churn.

hikersHowever, moving beyond annual reviews can be difficult, especially at large organizations where such reviews have been the norm for years. Fortunately, there are simple steps every business can take to transition away from annual reviews and towards a more goal-oriented, engaging structure.

First, it is essential to bring the entire leadership onboard. Change has to happen from the top down, because the executive team sets the example for the rest of the organization. To get leadership buy-in, emphasize how the new model will impact (and improve) your organization’s bottom line. Make research and data part of your pitch, and ensure that whatever program you use includes detailed reporting. Once executives see clear results from a system of ongoing feedback, they will be its strongest supporters.

While top-tier support is important, managers are the ones actually responsible for implementing the new approach. This means they need to understand why it’s important and what the goals are, and they need the skills and tools to make it happen. Manager-employee conversations are most productive when managers know how to communicate effectively without making employees feel awkward, anxious, or defensive.

Finally, consistency is key. Just because you are nixing annual reviews does not mean you should nix a structured process, and you can’t rely on casual on-the-fly moments to have meaningful conversations. Hold one-on-one meetings every week to enable ongoing conversations. These meetings are valuable opportunities to set goals, coach employees, hear their ideas, recognize their strengths, and identify areas with room for improvement.

Regular meetings help reinforce positive behaviors and let employees know that their voices are heard and their contributions matter. Employees who feel valued are more satisfied and more productive. Recognizing small successes every day leads to greater business success overall.

Read more in Employee Performance

David brings more than 25 years of financial, operations, and human resource experience to his role as general manager at Achievers. He has held senior management positions at large financial and technology organizations such as Coopers & Lybrand (now PriceWaterhouseCoopers) and Bank of Montreal, as well as high-growth companies like PixStream Incorporated (acquired by Cisco Systems). David graduated from the University of Prince Edward Island with a bachelor's degree in business administration.