Is your annual performance review process failing your organisation?

This blog has subsequently been published in HR Benchmarks December 2020. Click HERE to download the extended version.

What is the purpose of the annual performance review process today? Is it to motivate employees to perform better and ultimately improve the organisations performance in the market? It is to guide them along, introducing key objectives and future training requirements to help them on their career path? Or is it a static painting of the picture of where they are now?

For some, it is a necessary evil. Process for process sake. Time consuming, excessively subjective, demotivating and ultimately unhelpful. Auditable hoops to jump through. Justification for reward, consolidated bonuses and discretionary pay rises where someone somewhere is going to ask why Johnny got X and Betty got Y. It is a formality. And a formality that does not materially mean anything to either the employer or employee. It is a pain in the butt. Asking colleagues for feedback on working together over the last 12 months. Managers sitting with senior managers cutting up the cake and deciding who gets how big a slice. Filling in forms and forms and forms. Its a never-ending mountain of paperwork.

If the process is so onerous, then why bother? Surely just give everyone a fixed percent bonus and pay rise and be done with it. This is not performance related anymore. It is not a way of grading the past and current performance of the team and helping them improve over the next year. It has nothing to do with motivation and development.

By linking individual performance to financial reward (and the dreaded bell curve – see right) we took something which at its essence is about purpose and growth and encapsulated it in process and bureaucracy.

The CEO needs to be able to tell the board all appraisals were done prior to any money being paid out, to do this she chases, senior leaders chase, HR chases, and when you are chased you jump through the hoop without making additional effort because you know it’s just a tick box exercise. So, the manager fills in the basics. And if the employee is savvy, they will too. They won’t question their grade or the literary content of the forms. For everyone knows that once the information feeds up the food chain that all is well, then the money can flow back down to the waiting hands of an eager audience. But this only benefits those who are mid to right of the bell curve.

What about those on the other end? By the very nature of the curve there have to be underperformers, sacrificial lambs, if you will. We cannot have everyone being top performers – there isn’t enough money for that. 

I must stress that underperformance must not wait until the review to be fed back. Feedback, especially where the grading of the individual will determine a lesser financial reward, should be given as soon as possible. Someone should not be told they have under-performed and are therefore not getting their expected bonus when there is no opportunity to avoid the downgrading, to up their game so to speak.

If the performance review process is just being used to punish the bad, reward the good, and justify the norm it is most definitely 100% categorically NOT fit for purpose. If you are just ticking a box to explain away the pay rise and bonus structure of your organisation, then it is NOT fit for purpose. If the purpose is to grade your employees, on a scale of 1 to 5, 85% are 3s, 1% are 2s and the rest are outperformers then it is NOT fit for purpose.

Ultimately it is a cultural issue. The review process is probably as old as the company itself. It is as tatty as the carpet and as uncomfortable as the chairs in the waiting area in reception. For managers who have been around a long time it is an annual pain akin to a dental check-up or prostate exam. Their staff turnover may mean that over the space of a couple of years they have a whole new crop to assess. But knowing the pretty words that describe their team’s key achievements or failings fall on deaf ears the higher up the management structure they go, apathy reigns supreme.

The workforce is changing – enter millennials (who are quickly becoming the largest population of employees and majority of new hires with gen Z hot on their heels). They want different things from the organisations for whom they choose to work and are increasingly make their choice of employer based on their development practices ‘will I get from this organisation the growth and development I need to further my career’.  

As people are the greatest creators of value in organisations, then good performance management is critical for organisational success. It’s multifaceted, not a technique in itself, and there’s no single best approach. It must align with organisational strategy

The performance review process needs to change too. Rather than managing performance, which relies on hierarchy, systems and processes, the focus must shift to enabling performance, which relies on conversations, opportunity and transparency.

So where to start? I guess you have to go back to the beginning. The reason your business exists. Ask the question ‘What is the strategy and ambition of your business? And then ask the question, does your current performance review process support this? If not, then you need to rethink it all because it is not doing any body any good, not least the organisation itself.