Today’s leading organizations are rethinking the way they approach performance reviews. Synthesizing an entire year’s worth of work into an hour-long conversation—if that is even possible—is hard work, and almost always results in a bad performance review for the employee. When feedback is given once a year, it almost always provides a limited point of view: it’s hard to be accurate, since managers might be influenced by recency bias (only focusing on the employee’s most recent successes and failures), or feedback might not be timely, resulting in negative comments that seem to come out of nowhere.
To make matters worse, the whole process takes a lot of time for everyone involved and causes a lot of undue anxiety. In fact, research shows that having annual performance reviews actually messes with our minds a bit. Specifically, there are two psychological reasons why relying on annual reviews alone is the wrong approach to performance management:
- Performance reviews trigger a “fight or flight” response. Constructive criticism can cause certain areas of our brains to shut off because we think we’re under attack— especially if we expect we're about to get negative feedback — which makes it hard to think creatively or focus broadly. Instead of engaging in a constructive conversation, these physiological responses can override our communication skills, and lead to employees and managers becoming more confrontational and adversarial during annual assessments.
- Rankings suggest people are static. Grading employees on a numeric scale as part of the review process assumes that people are static, i.e., that they are incapable of changing. Yet we know from Dr. Carol Dweck’s research that it’s possible for everyone to adopt a growth mindset and continue learning new ideas and new skills.
This being the case, it comes as no surprise that most traditional performance appraisals aren’t accurate. One study, for example, found that two-thirds of employees who earn the highest rankings during annual reviews aren’t the strongest team members. Traditional appraisals aren’t too helpful, either. A different analysis found that at least three out of every 10 appraisals translated into decreased employee performance.
This makes perfect sense: When an employee feels uncomfortable or frustrated during a once-a-year meeting regarding their job performance, that individual isn’t likely to go back to their desk and reach peak productivity anytime soon. Instead, they’re likely to disengage—and maybe even start looking for a new job altogether (and since they won't have a review again till the next year, it's fairly likely they'll eventually find one and move on).
More research finds that traditional performance reviews can also lead to employee frustration, competitive nastiness, and a decreased willingness to take risks, among other things.
The whole purpose of performance management is to help employees develop new skills, advance their careers, and continue improving. When a company’s performance appraisal system ends up discouraging workers and lowering employee engagement instead of including positive feedback, employing creative solutions, and helping them become the best versions of themselves, something has to change.
Performance management: A new way forward
The good news is that a major shift is occurring in the field of performance management. Instead of exclusively using yearly reviews for performance evaluation, smart companies are moving to fluid, comprehensive, and continuous performance management programs that enable managers to deliver feedback to their teams more effectively.
Modern performance management systems include a number of different components, such as:
- Goal-setting. You can’t expect your employees to achieve their goals if they aren’t sure what those goals are in the first place. Strong performance management systems emphasize the importance of setting goals. This way, every member of the team knows what’s expected of them, and have an understanding of what their manager will focus on when they follow up.
- 1:1 meetings. One-on-one meetings provide organizations with tremendous benefits. Employees and managers get to sync and make sure they’re on the same page. Bosses can assess whether employees are achieving their goals—and, if not, why. Managers also learn which aspects of the job employees like the most—as well as which aspects they dread, and can figure out what they need to do to support their teams even further. These 1:1s can be brief; 15 minutes or so should do the trick. Depending on your preference, schedule them once a week, bi-weekly, or once a month.
- Real-time feedback. Imagine it’s March and an employee has been doing something that their manager doesn’t like. But instead of nipping the problem in the bud, the manager doesn’t share that feedback until the end-of-the-year review held in December. By doing so, they've waited until the problem has grown into a habit, and, considering how a performance review can impact compensation, has made the consequences even worse for the employee, who had no idea. Modern performance management systems are built on the promise of real-time feedback and problem solving. Employees immediately know what’s working and better understand which habits and behaviors need to change before any serious problems develop.
- Development-focused reviews. While annual reviews shouldn’t be the only tool companies use to assess performance, they can be quite helpful when combined with other tactics and techniques found in robust performance management systems. Instead of focusing on where an employee went wrong over the course of the year, reviews should focus on what those individuals should do to become even stronger as team members. According to Gallup, 87% of millennials believe development is an important part of a job. Development-focused reviews not only help your workers become stronger, they also increase engagement and, by extension, productivity.
Neuroscience tells us that the way companies have traditionally handled performance reviews often does more harm than good. While companies may be tempted to try to streamline their programs by throwing out performance reviews altogether, doing so can cause serious problems. For example, we’ve found that when companies move toward a system based solely on real-time feedback, the entire feedback process becomes less transparent—which can demotivate employees, eventually causing low retention and other human resources nightmares.
But overhauling your performance management system so that annual reviews become one tool out of many used to measure and improve a worker’s contributions—instead of the lone qualifier--can make a huge difference.
Luckily, today’s best performance management programs are well-rounded and leverage several or all of the above tools. Use an appraisal program that encourages employees instead of one that works against them. As a result, your employees will be more engaged and happier—making your customers happier, too.