If there is one corporate activity universally dreaded by both employees and managers alike, it’s the annual performance review. Traditionally, such reviews rate employees once a year, measuring them using a predetermined standard that factors into bonuses and merit pay. Feedback is little more than a review of those numbers.
While this might sound like a time-tested and objective way to structure the review process, it hardly fits today’s organizations. Jena McGregor, a leadership columnist writing for the Washington Post, calls such performance reviews “corporate kabuki” that dulls certain parts of our brains with endless paperwork and simplistic ratings. Ouch.
But the problem isn’t simply that performance reviews are time-consuming or overly simplified. They also tend to create fear and anxiety, which in turn diminishes engagement and creates a “culture of defensiveness.” These are just some of the reasons why several prominent companies—including Accenture, Adobe, Deloitte, and GE—decided to abandon the traditional annual performance review about a decade ago, replacing it with a more future-focused coaching model. And while the results have been positive for these large companies, others have been slow to adopt best practices.
In other words, the future of performance reviews is already here. What is needed is a template for success to guide managers in this new way of developing their employees.
So why did Accenture, Adobe, Deloitte, GE, and others abandon the older model of annual performance reviews tied to compensation? There are many reasons, but three, in particular, are well-researched, suggesting what an alternative would need to look like.
Wasted time. A classic study by CEB (formerly known as the Corporate Executive Board) found that traditional performance reviews were costing managers an average of 210 hours per year to implement (and a good deal of annual budgets on top of that). Spending nearly five weeks' worth of person-hours might be acceptable if it yielded important insights, but that same study found that nine out of 10 HR leaders felt the results of their performance reviews were inaccurate.
Fear and anxiety. Performance reviews have long been associated with fear, panic, surprise, and anger. A study by HR services company TriNet found this was especially true for millennials (those born after 1980). The researchers found that nearly a quarter of millennials (22%) have called in sick because they were anxious about performance reviews, and nearly two-thirds (62%) felt “blind-sided” by their review. Tying the review to compensation only makes matters worse, as it is impossible to have a constructive conversation while also having to break the bad news about low merit pay.
Backward-looking and biased. A large problem with the traditional performance review is that it is backward-looking. Of course, this is part of the point of review: To bring forward and analyze past behaviors. But when tied to compensation, this sets employees on the defensive. Having it be a one-way conversation does not help either, as employees are not challenged to take responsibility for their own performance.
Again, companies have known for a while that traditional performance reviews are broken, but they won’t be replaced until there is something to replace them with. Companies need a template for something better—and they need to train their managers to use that template.
Just highlighting a few of the best performance review examples could take an entire book, but the main idea is simple: Use the performance review as a time to mentor and coach employees to further their development. Doing this requires a shift in how performance reviews are conducted.
Stay “future-focused.” Although a review will need to look at past behavior, the main point of the review should be to set goals and discuss what is needed to meet those goals. When employees “own” their goals and how they are measured, they are more likely to do what it takes to improve.
Foster a growth mindset. The idea of a growth mindset was articulated by Stanford psychologist Carol Dweck to describe people who believe that skill and intelligence were something people developed, as opposed to something fixed that people either had or didn’t have. Employees should be reminded that performance reviews are meant to help them identify and develop the skills they need to accomplish their goals (and not to pass judgment on the skills they might lack).
Always take the opportunity to simplify. The actual one-to-one conversation is always preferable to needless paperwork. Simplify the process where possible, and trust that managers will do what is needed (once properly trained).
Disconnect performance conversations from compensation conversations. Again, talking about compensation during a review can make people defensive and less open to feedback. Performance conversations and feedback should be happening more often than compensation conversations anyway.
Foster collaboration, not competition. Traditional reviews tended to pit employees against each other for a limited share of merit pay, at the expense of encouraging teamwork skills. A mentorship approach, on the other hand, can help foster those skills.
Use inclusive feedback. Inclusive feedback is not only necessary to achieve DEI goals, but also a fundamentally better way to engage and support employees on their growth journey.
Let’s suppose you’ve ditched the traditional performance review in favor of an ongoing coaching model that incorporates the above best practices. Will that guarantee that everything runs smoothly from here on out?
Not exactly. Mentoring and coaching, like anything else, are skills that need to be developed. A manager might flounder just as much about knowing how to encourage an employee's strengths and foster solid teamwork as they would knowing what to write in an annual review.
For instance, you might need to provide managers with sample goals, review questions, and examples of positive and inclusive feedback. Such examples work best when paired with manager training and an overall feedback culture.
Again, the idea of discarding the traditional performance review and replacing it with future-focused feedback and coaching is not a new idea. It is a time-tested way to increase employee engagement and develop your talent bench. But doing so means putting an effective program in place to train managers to coach effectively. For more information on how Blue Ocean Brain can help you do just that, click here to schedule a consultation with one of our learning experts.