Revamp Annual Reviews for a More Effective Approach

The business world no longer operates on a yearly schedule, and yet, many companies still rely on the same antiquated annual review system for assessing employee performance. The problem with these outdated approaches lies in the fact that they fail to accomplish precisely what they’re intended for: improving performance. Moreover, they can actually have a demotivating effect. (It’s no secret that managers and employees alike tend to dread the process.)

So, what can you do differently? One option – and arguably the best one available today – is to take a continuous approach to performance management. By implementing approaches such as ongoing feedback loops and Objectives and Key Results (OKRs), managers can become more effective in their roles to motivate and engage their teams for better performance.

Take a look at some considerations below to help you transition away from the outdated annual review system.

Assess Performance in Real-Time

Managers still need a means of assessing performance – without it, everything would just remain status quo and inefficiencies would never be addressed. Yet, addressing performance that happened weeks or months ago is ineffective for a number of reasons. For one, it doesn’t give the employee the opportunity to correct the behavior, which means that it could compromise goal performance for months. For another, addressing it much later will make the employee feel demotivated and resentful – why is the behavior being discussed now, when they could have improved upon it so much sooner?

To resolve this issue, Fortune 500 companies like GE and Microsoft have replaced annual ratings with a more agile system, using ongoing feedback instead to continuously discuss performance with employees in real-time.

Annual Reviews Are Nearly 70 Years Old

This slideshow shares a compelling look into the history of performance reviews, and notes that the first were developed back in the 1950s. That means the system many companies are still using today is seven decades old! It’s time to move into the 21st century.

Of course, there’s a caveat: many companies have been using annual reviews for so long, they’re not ready to get rid of them completely just yet. An attractive solution is to use ongoing feedback alongside the annual review. That way, organizations can still use the review to create formal records of performance appraisals, but since managers and their teams discuss performance regularly throughout the year, there are no surprises when the formal review takes place. Better yet, managers can use best practices like 1-on-1 weekly meetings to share performance-related feedback exchanges on a weekly basis, so that when appraisal time comes, they’ll have a more holistic view of employee performance throughout the entire year.

Improve Your Performance Review Tactics

Even if you do wish to continue using annual reviews in spite of the modern-day tools and approaches that are now available, you can still make them more effective with a few updates. We have a full, complimentary eBook on performance review tips, but if you’re short on time, here are a few important tips:

  • Focus on the behavior, not the person
  • Avoid manager biases
  • Use 360-degree feedback to achieve a complete picture of employee performance
  • Use performance review findings to create development plans
  • Develop a strategy to stay accountable for the development plan

Realize the Implications of Using Annual Reviews

Using annual reviews is truly only problematic when it’s the only form of performance evaluation you use. According to the Society for Human Resource Management (SHRM), the process is painful and ineffective for the majority of employees and managers, and 90% of HR professionals don’t believe that the reviews yield accurate results. More compelling research shows that a whopping 95% of managers are dissatisfied with their current performance management strategy.

If you’re still using annual reviews as your sole means of performance management, your managers and their teams are likely very dissatisfied with the approach. As a result, you may continue to see underperformance, disengagement, and other serious consequences – all of which could be turned around by introducing ongoing performance management.

Use Research to Build Your Case

If key stakeholders are unconvinced about the importance of using ongoing performance management, here’s some compelling data you can share with them:

  • In just 2 years, the percentage of Fortune 1,000 companies that revamped performance management grew from 4% to 12% (SHRM)
  • 66% of employees say annual reviews impact their productivity, and 65% think the feedback they receive during the reviews is irrelevant (CEB survey)
  • The Washington Post estimates 10% of leading companies have already made the change, but many more are likely to follow.

Implement Effective Alternatives

If the findings above have led you to see that the annual review is no longer effective, here are some alternatives to explore:

  • Weekly One-on-One MeetingsCalled “the best management practice of all time,” brief yet powerful weekly meetings are held between direct reports and their managers to check in about goal progress, discuss any impending obstacles, and clarify expectations for the next week. Most importantly, they provide an opportunity for managers to have insightful conversations about performance when it happens, instead of weeks later.
  • Pulse SurveysUsed in conjunction with one-on-ones, these tools can help managers and direct reports exchange performance-related insights. Managers can give feedback such as praise or address areas needing improvement so employees constantly have access to opportunities for development and better performance.
  • Quarterly Performance MeetingsTo transition gradually away from annual reviews, consider holding performance reviews once per quarter. This will help teams exchange feedback as they would in one-on-ones, but in a more formal setting. These exchanges can also be documented and development plans can be formulated to achieve the true purpose of reviews: sustained improved performance.

Maintain an Ongoing Feedback Loop

To keep employees motivated and create a goals-driven culture, you need to continuously motivate your teams. This includes using ambitious goals linked to company priorities (which can be achieved through OKR goal setting), and providing ongoing coaching to keep teams moving in the right direction. All of these tactics can be supported through an ongoing feedback loop, which is effectively implemented using the one-on-one meetings and/or surveys described above.

If you’re still only using annual reviews to manage your people, your organization is stuck in the past. Implementing ongoing feedback won’t just bring your company into modern times, it will also keep teams motivated and engaged so they can support the most important company priorities and sustain accelerated results.

What else? Have you recently transitioned to modern performance management? Or, do you plan to in the near future?

Do you manage a company or teams (either as a CEO, a senior executive, a middle manager or even a front-line manager)? Do you set and track objectives? Does aligning employee performance to business goals matter, and are you responsible for driving results? If so, please check out a live demo of Atiim OKR & Goals Management Software and we’d love to hear what you think about it. Thank you!


Image Credit: Štefan Štefančík on Unsplash

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