CHAPTER 12
The Case Against (and for) Annual Appraisals
Performance appraisal is a formal method for assessing how well an individual employee is doing with respect to established goals and expectations. These reviews have traditionally been conducted annually, though some organizations do offer them semiannually or quarterly, and they often include informal follow-ups as needed. Appraisal sessions are both a confirmation and a formalization of the ongoing feedback and development discussions that should be part of every manager-employee relationship.
Performance appraisals are not widely beloved, particularly by those being evaluated. In fact, they’re probably the most stressful work conversation an employee will have all year. Even star performers may approach the review process with apprehension. Opening oneself to formal judgment—particularly judgment that can define one’s pay—is rarely appealing.
But busy managers are not particularly fond of performance appraisals, either. They can be extremely time-consuming, requiring individualized preparation, administration, documentation, and follow-up that’s tailored to each employee. For a manager with many direct reports, an appraisal for each person is a hefty time commitment. A study by corporate research and advisory firm CEB found that the average manager spends close to five weeks doing annual appraisals.1 And managers find the process stressful as well: Few managers enjoy telling people that they’re not doing their jobs as well as they should. “What a performance appraisal requires is for one person to stand in judgment of another,” says Dick Grote, author of How to Be Good at Performance Appraisals. “Deep down, it’s uncomfortable.”2
But, done right, formal evaluations can help you reinforce solid work and redirect poor performance. At best, a review is an opportunity to reflect on performance and potential, allowing your direct report to improve in the future rather than be lambasted for past failures. When you consider that a manager’s fundamental responsibility is to get results through their people, a systematic approach to assessing the work of one’s direct reports seems a natural choice. In addition to providing insights into employee performance, appraisals help managers and organizations make informed, consistent decisions about pay, development, and promotions. Well-documented performance evaluations also protect the organization against lawsuits by employees who have been terminated, demoted, or denied a merit increase.
Your company may require you to do performance reviews annually, but that practice has come under question in the past few years, especially as it relates to performance ratings. If you have flexibility in your approach to formal assessments, you may want to take these criticisms into account.
The Argument Against Annual Appraisals
The historical focus of annual performance reviews was on determining which people to reward, keep, and terminate. The roots of traditional appraisals can be traced in large part back to two sources: the “merit rating” system developed in the U.S. military during World War I and Jack Welch’s forced-ranking model used at GE, in which the top 10% of people were rewarded and the bottom 10% dismissed.
But as traditional performance management comes under fire, many organizations are concluding that formal performance reviews aren’t delivering on their promises—that is, to improve employees’ performance. When rapid innovation is a source of competitive advantage, a system geared toward assessing past performance doesn’t help propel people forward.
Organizations are also increasingly questioning the accuracy of the evaluations themselves, particularly when it comes to ratings, where standardization simply cannot be achieved. Ratings are by nature subjective; two managers may mark the same person’s skills differently, resulting in ratings that reveal more about the manager than the employee being evaluated. What’s more, only an employee’s “official” manager is tasked with appraising their performance—but that employee may be working on multiple teams or for several managers. It’s unclear if one manager’s point of view can account for the full range of an employee’s performance. With an overemphasis on individual contribution, traditional appraisal systems fall short in accounting for or recognizing teamwork or collaboration—which are increasingly important.
Some difficulties with the review process also stem from the fact that appraisal conversations are used to discuss more than just performance. It’s tough to have an open discussion about performance problems while also delivering news about merit pay. And appraisals, often intended as a bulwark against worst-case scenarios, are especially fraught when performance problems are significant. “Traditional corporate performance reviews are driven largely by fear of litigation,” writes Patty McCord, former chief talent officer at Netflix, in her HBR article “How Netflix Reinvented HR.” “The theory is that if you want to get rid of someone, you need a paper trail documenting a history of poor achievement.” When these discussions only exist to ensure you’re covered in case of a lawsuit, the emphasis on employee improvement is lost.
The annual gap between meetings also stilts the opportunity to elicit real change from your workers. A tired metaphor likens annual reviews to a yearly check-up with your doctor. The comparison isn’t completely off base, but anyone who’s ever visited an emergency room knows that one physical every 12 months does not equal sufficient health care. What if you have a medical condition that needs frequent monitoring, like asthma or even pregnancy? What if you sprain your ankle or get an infection? Waiting for your annual doctor’s appointment won’t cut it—and when it comes to performance, neither will an annual review.
Appraisals evaluate employees on how they have or haven’t met goals set a year in advance. But when an organization can’t foresee needs that far out, evaluating people on how they meet shorter-term goals and priorities can make more sense than assessing them in relation to annual goals. Organizations, particularly professional services and consulting firms, are also under increasing pressure to increase their learning and development efforts. When it comes to knowledge work, structured learning opportunities, including feedback and coaching, are what transforms green college graduates into skilled professionals. Meaningful feedback and coaching from managers is better delivered through frequent check-ins than in one annual conversation.
What’s more, some employees want their performance reviewed more than once a year, particularly those (like Millennials) who are eager for constant learning and development, and making your employees wait a year to hear feedback leads to heightened anxiety when they sit down for the conversation. Employees shouldn’t be surprised by a manager’s appraisal—and if they are, they can become defensive or unwilling to hear the feedback. To continue producing good work, employees need more than a yearly dose of their supervisor’s attention.
It’s no surprise, then, that Wharton professor Peter Cappelli proclaims, “Performance appraisals are one of the most ubiquitous, and also one of the most unpopular, protocols in the workplace.”3 But if the traditional approach is fraught, what can managers—and organizations at large—do?
Alternate Approaches to Formal Reviews
It once seemed heretical to abandon traditional performance appraisal practices, but a growing number of companies are ditching performance evaluations while attempting to create new ways to more effectively manage performance. At least 30 of the Fortune 500 companies had revamped their performance appraisal practices by the end of 2015.4
Deloitte, for example, replaced its cumbersome evaluation and rating process with a streamlined new model: “something nimbler, real time, and more individualized—something squarely focused on fueling performance in the future rather than assessing it in the past,” as Marcus Buckingham and Ashley Goodall describe in their HBR article, “Reinventing Performance Management.” The consulting firm replaced their complex 360-degree feedback process with a quarterly “performance snapshot.” Deloitte realized that while people may rate others’ skills inconsistently, they are highly consistent when rating their own feelings and intentions. So, the company discovered, rather than asking more people about their opinion of an employee, they’d get a more effective response by asking the individual’s immediate team leader four key questions that focus on what they’d do with the individual, rather than what they think of them. This forward-thinking questionnaire focused on four areas: compensation, teamwork, poor performance, and promotion. Complementing the quarterly snapshot are frequent weekly check-ins.
Netflix, too, eliminated formal performance reviews, stating that they were “too ritualistic and too infrequent.” They encourage regular conversations between managers and employees, but the company also implemented informal, simple 360-degree reviews that asked people to identify things their colleagues should stop, start, or continue doing. Netflix began by using a software program to elicit responses but has since shifted to signed feedback or even face-to-face conversations. According to McCord, “If you talk simply and honestly about performance on a regular basis, you can get good results—probably better ones than a company that grades everyone on a five-point scale.”
Other companies choose to keep their annual appraisals but make changes to the actual event. For example, Facebook analyzed its performance management system and found that 87% of people wanted to keep performance ratings.5 So they kept their annual reviews but revised their rating process to improve fairness and transparency and to increase their focus on development.
GE, originator of much of the traditional appraisal process, is working to replace its legacy system with a real-time approach in which managers and their employees hold frequent, informal “touchpoint” conversations to set or update priorities based on customer needs. But these forward-looking, ongoing discussions are complemented with a year-end summary conversation and document (not unlike the traditional annual review), during which both manager and employee reflect on impact achieved and look ahead. Managers base compensation, promotion, and development decisions on these summary findings—just as they did under GE’s previous system. With the company’s new “performance development” approach, however, the manager and employee have a richer set of data concerning the employee’s contributions and impact over the course of the year, so the end-of-year discussions are both more future focused and more meaningful.6
Companies are also rethinking the use of time-consuming, set systems and processes in favor of allowing managers more leeway in evaluating employees. Letting people rely on logic and common sense can lead to better results than adhering to inflexible formal policies, and newer evaluation approaches generally require more discussion and less documentation, making them less cumbersome and formal, more agile and flexible.
These organizations, though, represent just a small portion of companies that are changing the way they’re looking at formal appraisals. Traditional annual reviews are still widely used. According to a study by Human Resource Executive, “Despite all the buzz about abolishing formal performance reviews, the vast majority of organizations continue to employ traditional vehicles for sharing performance-related information.”7 In part, that’s because employees do need to be evaluated. Performance inevitably must be measured and rated—and if the appraisal process is eliminated, those evaluations will be invisible to employees. Managers may draw conclusions about a direct report’s performance, but without the opportunity to get input from the employee. And without rankings or numerical measures, it can be difficult to tie financial rewards to performance in a standardized way.
If organizations dismiss annual appraisals, they need to replace them with something, whether that means more-frequent formal reviews—semiannual or quarterly—or informal periodic check-in conversations.
Performance Reviews Moving Forward
So what does this mean for you as a manager? Unless you’re the CEO, it’s unlikely you can overhaul your entire organization’s approach to appraisal, but you can control the way you manage the performance of your team. If your organization requires reviews—whether they are annual, semiannual, or quarterly—you should, of course, do them. But you can take additional steps throughout the review period to ensure that your employees are meeting goals and growing with the organization.
Make a practice of checking in with each of your direct reports on a weekly basis—or at least once a month—to ask two main questions: What are you going to get done this week (or month)? And what help do you need from me? These informal conversations don’t require complex forms or burdensome documentation. Check-ins like these are your best opportunity to deliver immediate, relevant feedback—and real-time, in-the-moment course correction.
When you are faced with conducting periodic formal reviews, there are proven ways to make them easier for you and more effective for your employees—a topic that we’ll explore in the coming chapters.
NOTES
1. “The Real Impact of Eliminating Performance Ratings: Insights from Employees and Managers,” CEB Global, 2016.
2. Quoted in Rebecca Knight, “Delivering an Effective Performance Review,” HBR.org, November 3, 2011, https://hbr.org/2011/11/delivering-an-effective-perfor.
3. Peter Cappelli, “The Common Myths About Performance Reviews, Debunked,” HBR.org, July 26, 2016 (product #H030NZ).
4. Lori Goler, Janelle Gale, and Adam Grant, “Let’s Not Kill Performance Evaluations Yet,” Harvard Business Review, November 2016 (product #R1611G).
5. Ibid.
6. Peter Cappelli and Anna Tavis, “The Performance Management Revolution,” Harvard Business Review, October 2016 (product #R1610D).
7. “Seeking Agility in Performance Management,” Human Resource Executive, http://hr1.silkroad.com/hr-exec-agility-performance-management.