It’s time for the annual performance review process: managers are wracking their brains to complete all of the paperwork; employees are stressed out thinking about how to condense a whole year of accomplishments into a few sentences and a 30-minute conversation, and HR is languishing in deadlines and details to ensure the entire process goes off successfully.
And all of that requires significant time and resources. It has been estimated (conservatively) that the process costs a 500-person organization about $120,000 each year and a 5,000-person organization over $1 million.
But to what end?
According to research from CEB, about 66 percent of employees say the performance review process interferes with their productivity; 95 percent of managers say they aren’t satisfied with their organizations’ performance management processes; and 90 percent of HR professionals don’t believe their companies’ performance reviews provide accurate information.
Appealing to Mediocrity… The annual performance review—which traditionally is a one-sided conversation driven by scores, grades or a ranking system—often appeals to three groups of employees:
Low Performers – who benefit from the common practice of “grade inflation” on performance reviews. In an attempt to motivate employees with positive feedback—and likely to avoid confrontation (see the over protective manager below)—underperforming employees often don’t leave their annual performance reviews with a clear understanding that they are missing the mark—never mind why that is happening or how to improve.
The Risk Averse – that is, employees who are focused so closely on doing everything right, that they fail to experiment, try new things or take calculated risks. Their annual reviews may look good because they delivered on what they promised and did not have any major missteps, but they also were operating in their comfort zones, which equates to businesses operating on a status-quo basis instead of one of continual innovation. Ideally, workers should not be too focused on getting high marks on evaluations and instead feel free to experiment and try new things, with close coaching and feedback along the process.
Over Protective Managers – who use the formal performance review process to present scores and vague observations, rather than share honest, sometimes-difficult feedback to employees. However, research published in the British Psychological Society found that most people who withhold negative feedback do it to protect themselves, not the person they are judging. And without candid feedback, everyone loses—the manager, the employee and ultimately, the company.
…While Risking the Most Valuable Talent By evaluating performance on an annual basis—instead of in real-time—you could actually be hurting your organization and driving away top talent. In today’s workforce, the highest performers are looking for a clear understanding of their purpose, real-time feedback on what’s working (and what isn’t) and measurable accountability for their work—as well as regular insight into development and advancement opportunities.
Annual performance reviews can still be part of how companies assess employees, but they cannot stand alone. Couple them with real-time feedback and recognition and ongoing coaching to ensure mediocre employees improve and rock stars stay engaged, productive and with your organization.