Performance reviewing is a process that comes right out of our management books and has remained “textbook” for decades. Most companies, big and small, have either adopted semi-annual or annual performance reviews that act as progress reports for their employees. These performance reviews typically aim to indicate areas where an employee has exceeded goals, met goals or underperformed. Ultimately, the performance review would act as a tool upon which to base promotions, salary hikes and bonuses, and to define future goals for an employee. This textbook approach to the performance review is fast becoming obsolete as companies are hitting refresh on most HR functions, such as executive assimilation and transition, compensation and benefit structure and employee training.
2015 saw global giants such as Adobe, Microsoft, Gap, Deloitte, Accenture and GE revamp their performance evaluation processes. Rather than sticking to the age-old semi-annual and annual performance reviews, businesses now favor frequent or regular performance evaluation feedback. The Institute of Corporate Productivity found that almost 10 percent of Fortune 500 companies have done away with annual ratings in favor of these more frequent reviews.
Why Hit the Refresh Button?
Run a Google search on the impacts of annual performance reviews and you will find a myriad of statistics, theories and anecdotes. More recent articles list a number of research-backed reasons why performance reviews need to be reinvented. According to a Harvard Business Review] article, Deloitte stated that the company spends a staggering 2 million hours a year creating employee ratings based on performance reviews. If the number of manpower hours required by managers and the HR department alone isn’t incentive for change, here are few more powerful reasons why businesses need to hit refresh on performance reviews:
1. Not all employees perform according to the review cycle
Under traditional reviews, an employee would be given feedback, a sense of direction and a better understanding of his/her goals once a year. By the time this employee gets to another feedback cycle, his/her achievements may not be fresh in everyone’s mind. The employee may not have received proper and timely appreciation for his/her efforts, ultimately resulting in dissatisfaction, disengagement and burnout. Unfortunately in the real world, an employee’s performance review would be heavily based on the most recent projects that worker has completed rather than ones completed at the start of the performance cycle.
2. Bias is real
HR leaders and managers traditionally perform performance reviews manually, and this process lends itself to a number of human errors, the biggest of which is bias. The manual process also makes it challenging to detect bias. Many studies indicate that executives spend a considerable amount of time discussing the outcomes of an employee’s performance evaluation even before the evaluation can take place. In addition, during a 360-degree review, people rating an employee may let their personal opinions skew a professional evaluation. This inherent bias in the annual and semi-annual performance review process can undermine the entire exercise.
3. Does not support employee engagement
Imagine a situation where you work hard and put your best foot forward every day at work, but you only ever get formal feedback once a year. This lack of regular feedback is bound to result in dissatisfaction, lower engagement levels and even burnout.
4. Does not encourage productivity
According to a public survey conducted by Deloitte in 2014, 58 percent of executives surveyed stated that their current performance management approach is inadequate in driving high performance and true business value.
5. It is seen as a cumbersome process
Let’s be honest, there is widespread dislike of performance reviews. Employees at every level, entry level to executives, view performance reviews as a somewhat judgmental process that is a necessary evil in today’s business world. In businesses that have adopted a 360-degree peer review approach for their performance reviews, an employee’s colleagues and subordinates can weigh in, too. Gathering and analyzing insights from these many different stakeholders is tedious. Apart from the number of hours, resources and sheer effort spent on traditional performance reviews, the underlying sentiment of dislike only makes the entire performance evaluation process even more cumbersome.
Another aspect of annual performance evaluations that make them cumbersome is the fact that, if you implement them only once a year, that is a whole year’s worth of employee performance that needs to be reviewed.
What to Expect
Now that businesses have the hit refresh button on performance reviews, both HR leaders and executives need to brace themselves for a wave of change. HR leaders especially need to embrace automation, analytics and get ready to start playing an increasingly strategic role. Performance evaluations will begin to take place on an ongoing basis that could be quarterly, monthly or after every important project. But even as performance reviews become more frequent, we will see three big trends gaining popularity and becoming necessary to support this change.
1. Automation of performance reviews
Yes, conducting frequent performance reviews breaks a tedious annual performance reviews into more manageable parts, but it still doesn’t tackle the amount of manual work required. In order to tackle the manual nature of performance evaluations, companies will start to automate the process. GE has even developed an app called PD@GE to support regular performance evaluations. Automating the process not only eases the amount of time and effort evaluations typically take, but if done right, can detect biases in the process. Hence, choosing the right HR tools for automation is absolutely critical.
2. People analytics with an emphasis on people
HR leaders and departments are already taking a data-driven approach to their managing of people, which is what people analytics is all about. When it comes to the “New Age” performance reviews, however, we will see HR leaders leverage people insights or thick data. This is because performance reviews still rely heavily on insights from various team members with whom an employee works. All this reliance on people insight puts a bigger emphasis on the “people” part of people analytics.
3. Use of digital dialogue
Enterprises that are moving away from traditional performance reviews still need to assess the performance of hundreds or thousands of employees, so scale is a big challenge to surmount for most HR leaders. Digital dialogue through a platform that allows HR leaders to virtually question their executives about team members’ performances can accelerate the time taken to gather insights. More companies will begin to see digital dialogue as a means to gather people insights at scale. Here again, choosing the right tools or platform for automation of the performance reviews process will allow businesses to not only gather insights through digital dialogue but provide them with the right information to act on.
What to Watch Out For
1. The wrong software could spell disaster
Success of the revamped performance reviews hinges heavily on both the software capabilities and usage of the software. Hence, companies will need to exercise caution while choosing the right automation tools for more frequent performance reviews and also train all the users to effectively use the software.
2. Bias can still mar results
True, a good software should help detect underlying biases in performance reviews by analyzing the qualitative aspects of various reviews an employee receives from managers and peers. However, a manager will ultimately make the decisions about an employee’s salary raise, promotion or corrective course of action. This person could still let his/her biases affect the results of an automated performance review.
3. Regular performance evaluation can result in a stressful environment
While there are many upsides of monthly or quarterly performance reviews such as timely feedback or recognition for a job done well, they could also create a stressful environment. Employees could end up feeling like they are under constant scrutiny. The fundamental purpose behind frequent performance review is to provide regular feedback on employee performance and make the employee feel appreciated. This purpose should be communicated across the entire company.
Originally published on World at Work magazine’s December 2015 Issue