THE announcement last year that General Electric had joined a list of high-profile companies which are getting rid of annual performance reviews has sparked a national dialogue among human-resource professionals about the usefulness of such appraisals - and the alternatives available for deciding who gets pay raises, bonuses and promotions.
Some companies which have stepped away from annual reviews are, in addition to taking other steps, encouraging more frequent manager-employee check-ins quarterly, monthly or even weekly. This could be as simple as a short meeting or a coffee break.
In a knowledge economy, organisations rely heavily on their intangible assets to build value. Consequently, performance management at the individual employee level is essential and the business case for implementing a system to measure and improve employee performance is strong. Management time and effort to increase performance not only meets this goal; it also decreases turnover rates.
How do we manage performance within the organisation? The most common part of the process, and the one with which we are most familiar, is the process of the performance appraisal, or evaluation. However, the performance-appraisal process is not the only thing that's done in performance management.
Performance management is the process of identifying, measuring, managing, and developing the performance of human resources in an organisation. Basically, we are trying to figure out how well employees perform and then to ultimately improve that performance level. When used correctly, performance management is a systematic analysis and measurement of worker performance (including communication of that assessment to the individual) which we use to improve performance over time.
Performance appraisal, on the other hand, is the ongoing process of evaluating employee performance. They are reviews of employee performance over time (typically on an annual basis), so appraisal is just one piece of performance management.
'DON'T DO IT IF IT'S NOT DONE RIGHT'
There have been extensive calls in recent years to eliminate the performance review. The fundamental premise for this is that performance appraisals are one-sided analyses by the manager of what the employee is doing wrong.
We believe that if the process can become a two-way communication between the manager and the employee, a performance review becomes a "performance preview". The boss and the employee "have conversations" that allow the manager to become a performance coach for the employee.
Generally, in the design of performance appraisals, one-way communication is one of the key features of the process. However, we do need two-way communication between the manager and the employee. If it is one-way, the process has very little chance of improving the employee's performance over time.
In addition, one of the other purposes, motivating the employee, would require a continuous conversation between the manager and the employee, which would result in the need for performance coaching. The performance management process does not occur one day a year. If it is going to be successful, it has to occur continuously throughout the year as the manager and the employee have conversations about ongoing performance on a regular basis.
An appraisal process that is done correctly (and most aren't) is essential if the organisation is going to be objective in the management and evaluation of its human resources - which is indeed one of the most critical pieces of organisational success today. In fact, we believe that if you are not going to do it right with accurate measures (such as key performance indicators) and coaching, then do away with performance reviews. This is what effective managers and leaders have been saying for the last several decades.
If we are going to be successful in improving employee performance over time, two-way conversations have to occur; these enable employees to raise their own level of self-awareness and identify problems and issues that prevent them from being as successful as possible, through the process of performance coaching. If coaching occurs, individual performance is almost certain to increase, and as a result sustainable organisational performance will be achieved in the longer term.
In summary, the following are good reasons for abolishing the annual performance review:
- Employees want and need regular performance feedback (daily, weekly), so a once-a-year review is not only too late but is often a surprise. Regular coaching is key to alignment and performance.
- Managers cannot typically "judge" an entire year of work by an individual at one time, so the annual review is awkward and uncomfortable for both manager and employee.
- Manager-employee relationships are not one-to-one like they used to be. We work with many leaders and peers during the year, so one person cannot adequately rate you without lots of peer input.
- Some employees are a poor fit and likely are poor performers; these issues should be addressed immediately with performance coaching, not at the end of the year.
- Some companies do have a lot of high performers, so forced ranking eliminates great people and damages the culture of a results-based high-performance organisation.
- People are inspired and motivated by ongoing positive, constructive feedback - and the "appraisal" process almost always works against this.
- The most valuable part of an appraisal is the "development planning" conversation - what can one do to improve performance and engagement - and this is often left to a small box on the review form.
Organisations need to reinvent their current performance-management approach once they realise that their current process for evaluating the work of their people, training them, promoting them and paying them accordingly is increasingly out of step with their corporate objectives. This is especially so if it no longer drives employee engagement or high performance. They are in need of something nimbler, real-time and more individualised; something squarely focused on fuelling performance in the future rather than assessing it in the past. The answer possibly lies in the development of a performance coaching culture.
- The writer is the chief executive and C-Suite Master Executive Coach of the Centre for Executive Education (CEE Global).
This article was first published on February 18, 2016.
Get The Business Times for more stories.