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Maybe The Annual Performance Review Process Is Not That Bad

One of the most-discussed topics last year was the elimination of performance reviews. A Google search on the keywords “eliminating performance reviews” generated 2,020,000 results. To say that this topic has been trending and discussed is a definite understatement. 

The topic got a lot of attention mainly due to several well-known enterprise-level businesses – GE, Deloitte, Microsoft, and Adobe being some of the most notable – announcing that they were replacing their annual performance reviews with a less formal process that involved less documentation, greater feedback frequency, and different evaluation metrics.

All this sounded so great. No one liked the performance review process. Employees looked at the entire process with fear and apprehension. Managers also dreaded the annual process because it was time-consuming and put them in awkward positions regarding their relationships with their team.

That is why the concept of eliminating performance reviews gained traction so quickly. It had almost universal disdain. The Leadership advisory firm CEB has reported that the number of Fortune 1000 companies eliminating the annual review increased to 12% in 2015 versus 1% in 2011.

There has now been some time and data available to see what the post-change impact has been at the firms that ditched their annual review process. 

The interesting insights that have emerged are that employee engagement and performance can actually decrease in the absence of a formal review process.

What is driving this?

In an interesting Fast Company post by Lydia Dishman titled “Why Eliminating The Annual Review Caused A Drop In Performance,” she reviewed the CEB analysis to see what are the factors that are causing this unexpected drop in employee engagement.

What Lydia Dishman summarized from the CEB was that the following negative consequences emerged by eliminating performance reviews:

  • Manager conversation quality declined by 14%
  • Managers spent less time on informal reviews conversations
  • Top performers’ satisfaction with pay differentiation decreased by 8%
  • Employee engagement dropped by 6%

She summarized the findings this way:

The original push to remove reviews and their attendant ratings should have given managers more time to discuss performance rather than defend ratings. That didn’t always occur.

The CEB analysis outlined the problems that emerged as the following:

Employee Feedback Declined Once A Formal Process Was Removed

As disliked as the annual review process was it did provide structure in terms of deadlines and deliverables. This helped push the organization towards goal completion. With the absence of the annual review, an informal process took over where managers were supposed to devote more time to more frequent informal discussions with their team. Unfortunately, the extra time more often got swallowed up by the demands of the business. This left employees with less feedback.

Employee Feedback Was Perceived To Be Less Important

Dishman writes in her post that:

Managers felt that their organization was no longer prioritizing the performance review process as much as they have in the past. So they focused on it less. Managers didn’t feel responsible for the follow-through on any feedback. One manager told us: "When I gave someone a low score in the past, I felt responsible for helping them out, now I just don’t feel that I have to spend time doing that anymore."  

Without scores calibration, time and efforts declined. Managers didn’t have to spend time talking with their peers or getting their feedback. So there was actually less information for them to follow up on.

Without reviews, only 4% of HR leaders reported feeling they could accurately assess employee performance. "Although a handful of managers are more effective without ratings," the report’s authors write, "most organizations will find it too difficult to get their managers to the level needed to make the change worth the significant investment."


Employee Concerns Regarding Merit Increase and Recognition Escalated

An unintended consequence of eliminating the performance review process was that employees began to not know where they stood in the organization. The annual rating, while disliked, did serve as a benchmark where employees could see where they stood. There were also concerns regarding how merit increases would be granted once a formal process no longer existed.

As Dishman writes:

For many workers, the annual review is the one chance they have to get a raise all year unless they get a promotion that comes with a pay increase. Could dismissing the review and ratings lessen the chance to get that crucial raise?  

Where does this leave us today?

In the end, the traditional annual performance review process may not be that bad after all. In her analysis of the CEB study, Lydia Dishman summarizes it this way:

Without reviews, only 4% of HR leaders reported feeling they could accurately assess employee performance. "Although a handful of managers are more effective without ratings," the report’s authors write, "most organizations will find it too difficult to get their managers to the level needed to make the change worth the significant investment."

Kropp (note: Brian Kropp is the HR Practice Leader at CEB)  reports that many companies are tackling this challenge head-on. He says they are making the investment to get managers to be better at informal communications and feedback. He also says they are getting employees on the bandwagon, too, by empowering them to start the conversation with their managers about their performance through training and job aides. Senior leadership can also keep track of conversations through software and surveys to ensure feedback is being given regularly.

For those adamant about banishing the performance review for good, Kropp says, "These strategies can be just as effective if organizations use scores or don’t use scores."

In the end, eliminating the traditional annual performance review can work if organizations are committed to the hard work of training their management team on how to provide frequent and quality feedback to their team. If the organizational will (and skill) is not present it may be better to stay with the traditional review process versus jumping on the popular opinion bandwagon and decreasing employee engagement.

I would like to send a special thanks to Paul Herbert for helping inspire this post with his great Fistful of Talent blog “Hey HR – Slow Your Roll! These Are People’s Lives”. He is a great writer and someone who is definitely worth following.