The annual appraisal is a relic of 1960's management techniques that has clung to relevance for far too long. They're inefficient, ineffective, and incapable of creating high-performance teams that value feedback, growth and progress. If you don't believe me, read on.

Annual appraisals are wildly inaccurate

The traditional appraisal will feature a rating of the employee's performance for that period, often scored on a 1-5 scale. This rating is then used to determine the employee's eligibility for a pay-rise or decide whether or not they may be a suitable candidate for promotion. If ratings could talk, they'd say "I'm kind of a big deal."

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Given how important ratings are to the employee's interests, it would make sense to have them scored impartially. However, more often than not this is not the case and manager's give ratings that are based more on their own idiosyncrasies than the behaviour or ability of the individual. This is known as the "Idiosyncratic Rater Effect". In short, the rating has more to do with what the manager understands potential or performance to mean rather than an impartial perspective. The impact of this is huge; all the data show that when a manager rates you, over 60% of your rating is about the manager, and not you. While you may think training is the obvious solution here, you'd be wrong; according to HBR, "no amount of training seems to be able to lessen it."

Annual appraisals kill creativity

There are few people who await their annual appraisal with a sense of glee. The reduction of a year's worth of work into a conversation around objectives which no longer seem relevant, and a evaluation criteria that seem even further removed from our day-to-day operations, fills most of us with dread. It also alters our brain state.

Research from David Rock, author of Your Brain at Work, found that "people’s fields of view actually constrict, they can take in a narrower stream of data, and there’s a restriction in creativity."

They're produce large amounts of paperwork

A recent call with a HR manager who was interested in the StaffCircle performance management software shone a light on the burden many HR managers face with annual appraisals. They told us what their current appraisal process looks like:

"I spend a fortnight trying to coordinate diaries for our managers and supervisors for them to conduct the appraisals. After they're all complete, which usually takes a month, I spend a couple of months chasing up the paperwork which comes back in different formats; sometimes on email, sometimes Word docs, sometimes a stack of papers left on my desk. This takes another month to collate and then another month to get paperwork sent back to the teams and a summary report provided to the board. The whole process takes four to five months from start to finish. It's a bit of a nightmare, to be honest with you." - HR Manager at a UK SME

This sounds like a particularly inefficient example but it illustrates the problems HR managers and team leaders face with annual paper-based performance management processes. They are administratively burdensome and the value that can be derived from them often doesn't become apparent for weeks after the fact.

Appraisals consume huge amounts of time

Losing a little creativity in your workforce, and producing a little extra paperwork, might be an acceptable price to pay if it delivers the results you want in an acceptable amount of time. That's a big IF.

In a study by the advisory service CEB, the average manager reported spending about 210 hours—close to five weeks—doing appraisals each year. - Harvard Business Review

Spending five weeks per year doing annual appraisals doesn't seem like a valuable use of time, particularly when the feedback is delivered to teams so infrequently. Surely managers wouldn't spend this amount of time on annual appraisals if they weren't delivering results, would they?

Annual reviews aren't very effective

Unfortunately, the majority of HR leaders (55%) who work in organisations using annual appraisals "do not consider them effective" (CIPD). What's more damning is the fact that "senior leaders from outside HR were even more critical, [with] three in four (73%) considering annual appraisals ineffective."

BLOG_ one in four senior managers say annual appraisals are ineffective

A 2012 study looked at 23,000 employee ratings from 40 companies and the results confirmed what the senior leaders and majority of HR leaders suspected: there were no signs that ratings had any effect on profits or losses. Citing this study, Elaine Pulakos, a management expert and CEO of PDRI, said "They end up being extremely costly and have no impact on productivity."

Annual feedback isn't frequent enough

The traditional method of conducting an annual appraisal, supported by a mid-year discussion, is simply too infrequent to have an impact on performance. Managers struggle to recall historic performance and overweight recent performance when rating employees. This means employees who have a good start to the period can be judged unfairly if their performance dips leading up to an appraisal.

In order to get the best out of their people, managers should be focusing on having more frequent developmental conversations if they wish to increase employee engagement, develop staff, and deliver better results. In doing so, organisations with monthly or quarterly performance appraisals "outperformed competitors on every financial and productivity measure and got positive feedback from employees about the fairness of the PA system" (employment-studies.co.uk).

Annual appraisals don't develop your people

It's time to kill off annual appraisals and ratings, which can seem abstract to employees and are known to be ineffective. Instead, organisations should move towards frequent coaching conversations, with a focus on actionable advice that is easy to understand. Such conversations have been shown to improve performance and this is especially true when managing high-performing individuals.

One innovative performance management system was developed by Standard Chartered Bank who developed "Conversations That Count". This approach is built upon four pillars focused on the employee: know me, focus me, care about me and inspire me – into action. These conversations help managers to focus on the performance of individuals, learning and development plans, employee engagement, and career building. Having more frequent conversations focused on these four pillars is much more effective than an annual rating system.

Objectives and goals should be 90 days or less

One of the biggest criticisms levelled at annual appraisals is concerned with the setting of objectives. All too frequently, company leadership teams set the annual objectives for the company which then cascade this down into teams and departments where managers will then set objectives for the year. Employees then agree the objectives in an appraisal and, more often than not, they've forgotten all about them by the second quarter of the year.

An alternative approach to objective setting is to set 90 days objectives. Rather than setting large annual objectives, they can be broken down into smaller tasks that require a 90-day sprint to acheive. Gino Wickman, author of Traction: Get a Grip On Your Business, calls this living in a 90 day world where objectives are replaced by rocks (the foundation upon which your business is built).

Creating a “90 Day World” for your company provides clarity and focus so that everyone, from the leadership team on down the line is working toward the same goals while keeping long-range goals in mind as well. - EOS Worldwide

Conclusion

You must move away from the annual appraisal if you want a performance management system that improve results, drives engagement, and develops your people. If it's simply a box-ticking exercise and results are not important, stick with the annual appraisals.

Follow these steps to get started:

Step 1: Download our appraisal template pack

We've put together a performance appraisal template pack that is freely available to download. This will help to stimulate some ideas about how you will reshape your performance management system to become more developmental. There isn't a one-size fits all solution here, so take inspiration from these four different options.

Step 2: Get your managers onboard

Share this article with your your management team to let them know the route you are currently on will not deliver the great results they are looking for. Show then the benefits that a performance management process built upon frequent feedback and coaching can have on employee engagement.

Step 3: Start tracking employee engagement

Benchmark your current levels of employee engagement using an eNPS survey. You can do this manually or use StaffCircle's employee engagement software to conduct frequent pulse surveys to track engagement over time.

Step 4: Communicate the new process to the team

Create a news article and send a company-wide announcement to inform all employees about the changes to the appraisal process. Make sure you include information on:

  • what the change entails
  • why the change is happening
  • the benefits to the employees
  • what is the time-frame for the change
  • where to go for further information/related resources

Step 5: Implement!

Start having meaningful conversations that develop your workforce, provide a clear plan for career development, and smash the goals of your department.

How? Create a system that mixes the best of technology, such as performance management objective progress tracking and analytics dashboards, combined with templated coaching conversation scripts to guide the best quality developmental feedback process your managers can muster.