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Is the Annual Appraisal a Thing of the Past?

As we approach the end of the year, many managers and employees prepare themselves for end-of-year appraisals. However, this model of annually assessing employee performance is increasingly coming into question and being regarded as an antiquated and unpopular way to assess and manage performance. A recent survey by the Society of Human Resource Management revealed that 95% of employees were dissatisfied with the annual performance appraisal system.

For employees, annual appraisals can be a stressful and overly-formal experience. Whilst for employers, it usually means staff work harder than average for the weeks prior to the review, before relaxing and plateauing afterwards. This is nothing new, but should employers now rethink their approach?

With hybrid and flexible working arrangements changing the way we work, too, perhaps now is the time to consider a new way of assessing performance.  

The Importance of Performance Reviews

Performance reviews are key to the future growth and development of employees and the organisations they are employed by. They help the manager and employee to establish what are the employee’s strengths and weaknesses, highlight areas for improvement and provide a two-way opportunity to exchange feedback and discuss the employee’s future aspirations. This, in turn, helps the employee map out a path to career progression. It helps the employer to make positive changes to their company’s culture, or identify areas of concern that need to be addressed internally.  

Where Did It All Go Wrong for the Annual Appraisal?

Whilst so many other aspects of modern business practices have kept pace with the changing times, the way that organisations manage and measure their talent has not developed at the same pace and to some is old fashioned.  

Companies such as Deloitte, Adobe, Microsoft and IBM have already realised that annual appraisals are very expensive, costing around $120,000 for a company of 500 employees just in the value of time spent. Raise the number of employees to 5,000, and the cost soars to $1.2 million. Research also suggests that this hugely expensive process is also a little pointless – so pointless, in fact, that around a third of traditional annual reviews actually make performance worse.

Here are some reasons why the annual appraisal may have become a thing of the past:

Nobody actually enjoys them

According to the Society for Human Resource Management, 95% of employees consider their company’s appraisal process to be unsatisfactory, with 90% believing that the process discusses inaccurate information. Two-thirds of employees believe that the performance review has little relevance to their workload, whilst a similar proportion say that the process interferes with their ability to be productive.

The same study revealed that 95% of managers are also unsatisfied with the review processes used within their organisation. Many employers feel that by only providing feedback once a year, employees work harder in the few weeks beforehand to give a better impression in the lead up to the review – ‘cramming’ their productivity in the same way you might revise for an exam. To reinforce that, employers may find it challenging to recall what performance was like in the earlier part of the year. 

They’re not fit for the modern workplace

There’s an enormous difference between business practices from half a century ago, when employees worked more manually compared to the technology in place now which enables instant communication. There is no reason employers cannot provide quick and responsive feedback to real-time performance and prioritise personal development over past accountability. In fact, research shows that 90% of employees would prefer real-time feedback from their managers.

They’re not objective

People aren’t just numbers, and when you rate them against a five-point scale, there’s no room for wider context. Historically, annual appraisals tended to apply an overly simplistic review measurement against an infinitely complicated subject – individual personalities. Rather than quantifying performance, judging people on the quality of their work will provide feedback which allows them to develop over time. 

In short, the downsides to annual appraisals seem to be: 

  • Employers don’t really see what the business gets in return for the time and money invested in annual performance appraisals
  • Employees dread the process as much as their managers
  • Employees taking the time to set 12-month objectives and a development plan may feel short-changed, as generally they are only judged against their productivity towards the end of the year
  • Everyone completes the process, and everything returns to normal, until the whole cycle repeats itself around 11-12 months later

The Future of Appraisals

For all of the failings of traditional performance appraisals, meetings between manager and employee are still important and valuable to manage and develop staff. Employees require feedback, encouragement, recognition and a clear development plan – and managers need feedback from the employees, too. More regular and personalised check-ins will ultimately provide a more constructive way forward than an annual performance review.

The first step towards improving performance appraisals is to reframe the annual appraisal: calling the process ‘performance development’ instead is a starting place. This positions it as a more forward thinking way for employees to develop their skill sets.

What would performance development assessments look like?  Here’s some options to consider –

  • Real-time 360 reviews: Employees ask their colleagues to review their performance, both in terms of productivity and personality. Rather than have just one person subjectively determine how well someone has performed once a year, a real-time 360 approach sources different perspectives from the people that work and interact with each other. By creating this open system of peer-to-peer feedback and goal sharing, insights from multiple people can provide a more rounded picture of an employee and minimise the opportunity for bias. One important thing though – ensure there is complete anonymity with these assessments. 
  • More regular catch ups: Rather than sitting down on an annual basis, hours, weekly, monthly or even quarterly catch ups – with a focus on continuous improvement – will provide more useful insight into performance development and it means you can address concerns sooner. Instead of scoring and looking backwards, you can provide constructive feedback through forward-looking development plans, and track the progress towards their goals. Identifying and addressing concerns to ensure the employee feels valued will also help with staff retention in the current tight labour market.
  • Weekly pulse checks: With a weekly pulse check, managers fill the team in on any relevant information each week and seek to gauge the morale and engagement levels within their team.
  • Project performance debriefs: Rather than focusing on individual performance, project performance debriefs use projects as the benchmarks to measure success, and the contributions of each employee.

Compared to an annual appraisal, organisations find that a performance development system provides more regular and reliable information. Instead of critiquing, these review sessions focus on helping employees to succeed – because if they’re successful, the business succeeds too. The culture this creates is one where employees know they’re a part of the businesses future. 

Performance development assessments should address two simple questions – how can employees grow and develop in their career, and how can managers help them to continue to learn and be more agile after the Covid-19 era? Done successfully, there are rewards for the employee and organisation too.