For decades the time-honored, ratings-based annual performance review has been the standard for evaluating employee performance. Managers and employees set up goals to be met for the year, then twelve months later, discuss whether or not those goals have been met, what improvements could be made and a rating is affixed which ties to compensation and possibly a promotion or bonus.
But, one big problem with this system is that it’s the same system used as far back as the industrial age. Back then a good job was defined as one that met spec, was on time and on budget. The value of personal performance and development were lacking. This is a system focused more on performance than the person. It’s not aligned with the ways we work today, nor with what motivates the modern employee or drives innovation. The big question is “Why do we continue to use the same outdated system?”
Costly in many ways
If the interest to increase employee development isn’t pushing toward a change in performance reviews, the costs of them should be. They’re expensive! Time and effort are certainly two of the most obvious costs where racking up thousands of work hours collectively and spends that can reach into the millions can happen. For instance, managers at The Gap were putting 130,000 hours of worker time into reviews, Dan Henkle, then Gap’s human resources vice president, told HuffPost last year, citing 2014 data. It cost $3 million a year.
How about the cost in employee productivity and morale? According to a 2014 study done in the journal, Strategy + Business by David Rock, Josh Davis and Beth Jones, researchers at the Neuroleadership Institute, "ratings can blindside employees and affect performance. Of the half of all workers who are surprised at the rating they receive, 90% are unhappy because they expected a higher rating. Those displeased workers have a 23% drop in engagement, curtailing 'collaboration, innovation and agility,' says Mr. Rock, the head of the Neuroleadership Institute."
Frequency and accountability: rising trends for improved performance
More and more, companies are daring to revamp the way they assess employee performance. They are moving away from employee annual goals and pay that's strictly tied to results or ratings. New processes are geared toward feedback. Ongoing feedback. It's a big move away from the yearlong “look back” and assessment of performance that welcomes frequency. It reminds me a little of the concept of microlearning, where trainees are given smaller doses of content to quickly learn. More frequent conversations with employees helps them understand how they’re doing in shorter sprints so they have additional opportunities to make changes and improvements sooner than later. When feedback is timelier and concise, it has more impact because it’s focused and current.
Employees are also becoming more accountable as the review process evolves. Companies like GE, Cigna, Microsoft and Goldman Sachs are now ditching the performance review in favor of a continuous feedback system that holds employees accountable to elevating their own performance.
When Ford brought in a new chief executive, he saw a problem with their system, not their people. He put a new color-coded system in place as a way for leaders to report how their projects were going at weekly Business Plan Review (BPR) meetings. This drove openness and collaboration. Issues were fixed as they emerged. It not only encouraged teamwork, it helped turn the company around. This was an accountability system that improved individual performance and thus company performance.
When performance is no longer tied to only results and a rating, it allows for assessment of the person through risks taken and mistakes made, even failures. Everything then becomes an opportunity for learning, for improvement and for the employee’s development, which in turn contributes to improve the company.
Without the annual performance review hanging over their heads, and a move toward frequency and accountability sessions (such as the BPR's), employees can more readily ask questions when they need help, receive instruction, make course corrections, and gradually improve their performance. This provides a structure for a constant, collaborative feedback loop to help employees develop. How does your review process incorporate frequency and accountability in a way that helps employees grow and your company improve?