Performance management is undergoing somewhat of a revolution. In some circles, the argument is being made that the six-month or annual review provides too little information and is too late in coming.

While most companies don’t rely solely on formal performance rating meetings to provide one-on-one feedback, a number of company leaders posit that ongoing feedback could actually replace the annual review entirely.

Is there a case for change?

Based on a series of public announcements, a consensus amongst a number of well-known organisations seems to be emerging: performance reviews can be too retrospective, too infrequent, and vulnerable to bias on the part of the rater. In today’s real-time working culture, undergoing review only once a year could be far too infrequent to be effective.

Recently Adobe, Accenture, Deloitte, and other major players announced ‘scrapping ratings’ in favour of departing from the performance review to the performance prediction.

Deloitte’s¹ research revealed that “more than half their questioned executives (58%) believed their current performance management approach drove neither employee engagement nor high performance.”

Additionally, rather than providing an accurate index into the employee’s job performance, evaluations were found to be somewhat more indicative of the knowledge and psychological peculiarities of the raters themselves. That data bears out:

A survey published in the Journal of Advanced Psychology² found that of 4,492 managers rated on certain performance metrics by two bosses, two peers, and two subordinates, 62% of the variance in ratings was due to the raters’ personal biases. Actual performance only accounted for 21% of the variance. That translates into a vast range of opinion in what should have been a relatively objective rating process.

Then there is the problem of ‘sugarcoating.’ Knowing the employee in question will be privy to their result, and that a rater will have to discuss and possibly defend their comments, tends to put raters in the position of being overly generous rather than realistic.

New Talent Pool Demands New Solutions

As millennials crowd the workforce (they will comprise 75% of the world’s workers by 2025) the need to work with, rather than against, this demographic is crucial. Millennials are accustomed to real-time gratification. They’re driven by feedback that’s both ongoing and encouraging. A recent survey by Intelligence Group³ shows their priorities:

Millennials may be more forcefully expressing it, but they want what all employees want: feedback that is thoughtful, helpful and productive, and in real time.

According to a Fast Company⁴ survey millennials aren’t shy about their disdain for evaluations:

There is an emerging trend by organisations to replace or modify their rating systems. The number of employers that are either changing the numerical rating system or giving up on evaluations altogether is growing. The trend has increased from 4 percent in 2012 to 12 percent in 2014, according to a Corporate Executive Board (CEB)⁵ survey of Fortune 1,000 companies.

Rebranding ratings

It would be more wishful thinking than reality to believe there are no ratings needed or being enforced in companies. Certainly the different categories, pay ranges, and levels of responsibility effectively “rate” staff to a large or small degree, whether we want to admit it or not.

While Deloitte may no longer reduce a year’s work to a percentage score, they still needed to find a way to recognise excellence and adjust poor performance. Their solution:

Rather than measuring opinions about what happened, they now ask for predictions and opinions about what will happen (or ought to happen) in employee’s future. They ask only 4 questions: the first 2 are rated 1 through 5, and questions 3 and 4 are simply answered yes/no:

1. Given what I know of this person’s performance, I would always want him or her on my team.
2. Given what I know of this person’s performance, and if it were my money, I would award this person the highest possible compensation increase and bonus.
3. This person is at risk for low performance.
4. This person is ready for promotion today.

Questions are posed as part of a survey at the conclusion of each project rather than at the end of the year. The new process, called the “performance snapshot” evaluates at a single moment, rather than the culmination of a year’s work.

Ensuring Evaluations Remain Fair

The organisations mentioned in this article believe that eliminating yearly reviews in favour of a more ad-hoc approach will actually improve – or at least not degrade – the accuracy of the evaluation. However, for anyone looking to adopt a similar approach, it seems wise to include measures that will ensure evaluations remain fair.

Alastair Woods, PwC’s reward team director, summarised this succinctly:

^“6Companies need to be careful not to throw the baby out with the bathwater. Without the year-end rating, the danger is that the distribution of pay and bonuses can become even more of a dark art as shadow systems evolve without proper governance and infrastructure behind them. Our research shows that when done well, with a balance between rewarding past performance and considering future development needs, performance conversations can really motivate employees. And many employees appreciate the clarity that an effective formal assessment provides.”

Enhancing Performance Ratings with Real Time Feedback

I don’t believe that removing ratings is where the change needs to occur; rather we need more regular and real-time feedback and coaching conversations. And so it’s interesting to note that Deloitte has introduced their own version of Adobe’s “check-in’s” for their teams.

Check-in conversations are the team leader’s responsibility: they meet with team members to review projects, set expectations, provide coaching and more. The meetings are initiated by team members, giving them ownership of their development. HR merely monitors that meetings are held weekly.

The check-in system, or other methodologies like it, shows significant value in terms of real-time, usable feedback that enhances productivity, engagement, and ownership for employees. When used to augment the annual/bi-annual review system, these solutions can provide staff and team members with an open line of communication that’s based on trust.

Conclusion

Overall, it’s not rating employees in the purest sense that should be avoided. The shift in thinking is to work in real-time to achieve goals and growth, rather than reflect on (and punish) past performance that cannot be changed.
There is definite cause to re-evaluate the effectiveness of existing annual review process if you haven’t done so already. However, make sure that any new system is largely based on objective data.

Many organisations are looking to improve their performance management process and part of this is of course how ratings are used. From announcements and articles and the organisations I meet it’s clear there is a rating’s evolution underway but in most cases these are subtle adjustments or enhancements to address the perceived needs of the employees within a certain organisation.

Deloitte believes their alternate subjective approach will produce similar results but without the significant effort and costs they currently incur, however it would be fair to say that this substantial change would not be for all organisations.

I certainly believe that any widening of the channels of communication through more regular and structured check-ins will be the most important improvement. This will enable the detection and addressing of issues earlier, and I believe build trust and increase engagement across the workforce.

In a future article, I will share my own recent findings from consultations with a number of Australian organisations that are reviewing and redefining their performance management processes.

References

¹Performance management is broken
Replace “rank and yank” with coaching and development
Deloitte University Press

²Understanding the Latent Structure of Job Performance Ratings
Michael Mount, Steven Scullen, and Maynard Goff
Journal of Advanced Psychology

³What Millennials Want In The Workplace (And Why You Should Start Giving It To Them)
Forbes

⁴The Future of Work
Here’s what millennials want from their performance reviews

⁵Corporate Executive Board (CEB) survey of Fortune 1,000 companies

⁶More companies planning to ditch annual performance reviews and ratings, but will employees benefit?
PwC research