The Annual Performance Review is Dead (or at Least it Should Be)

Let’s face it, annual performance reviews do little to develop your team or retain your team members. But ongoing performance feedback is critical to doing both. If the annual performance review is dead (or should be) how do you make sure your team is getting the feedback they need?

The story a colleague of mine in the tech industry recently told me about his adventures working as a senior manager at a global company illustrates why it is time for the Annual Performance Review to go the way of the dinosaur. He managed about 35 employees at one time and described what he called the “dreaded stack ranking meeting” In that annual review, the senior management team would lock themselves into a conference room and, based on yearly employee reviews, begin assigning numbers to employees based on their value and performance. Employees were then rated on a curve and classified as exemplary, meeting expectations, placed on a performance improvement plan (PIP), or simply fired.

While annual reviews and stack ranking may have gotten rid of “dead weight”, it also caused several other issues: Fear, anger, resentment, animosity, and a toxic culture. While some employees and managers used it to better themselves, it made many compete rather than collaborate, stepping on toes to get to the top. This is not exactly the kind of culture that attracts or retains great employees.

Annual reviews have also revealed an additional issue related to human nature itself: Distance Bias. The Harvard Business Review wrote that “the more recent an event, the greater value is assigned to it, even if performance over time was less impressive or successful in some way.” This leads managers to only consider what happened recently when making decisions about employee performance, promotions, or salary increases and can create unfair reviews based on the considering limited information.

What may have worked for Jack Welch and the GE culture of the 80s was found not to be effective in the long run. This type of review process limits workplace autonomy and results in increased turnover. Because of the effort and cost of the exercise, it was also only done once per year.

Many performance reviews are not based on stack ranking, but the point is that annual reviews don’t add value because they fail to change behavior and they demotivate people.

Why annual reviews don’t work

Today, many fortune 500 companies and startups alike are moving away from annual reviews. The problem is that traditional yearly performance reviews are proven relatively useless in developing and retaining staff. That’s because while performance feedback is critical, giving it only once a year is not effective.

The best time to give feedback is when it will have the most significant impact. Managers should aim for consistent synchronous communication and provide direct suggestions instead of waiting until an annual performance review, which can be too late if you’re attempting to change someone’s behavior patterns.

Even before the Great Resignation, companies began moving towards something better, something more practical, which also helped retain employees; consistent & regular feedback. And it worked!

Even companies recognized for annual performance evaluations (GE and Microsoft) have abandoned the process for programs that add more value.

What to do instead

While annual performance reviews have been abandoned by many organizations, there is still a need for a structured (yet flexible) format for providing performance feedback. Here is an overview of an approach that many organizations, leaders, and team members are finding effective:

• Clarify the vision and desired outcome. People must know where you are headed if they are going to help you get there. They also need to know how what they are doing fits into the overall vision and goals of the organization if they are going to be motivated to give their best.
• Identify 1-3 critical issues/key initiatives. In my experience a lack of clearly defined and fully communicated priorities along with too many competing priorities is one of the biggest reasons employees fail to achieve their goals. What are the one to three things that each team member must accomplish in the next 3 to 6 months if they are going to be successful? Focus on those, and what it will take for your team member to achieve these.
• Have regular (at least quarterly) one-on-one feedback and coaching sessions with each employee. As a leader, one of your most critical roles is providing feedback, coaching and developing to your people. Learn the fundamentals of great coaching and begin to practice them with your team. Focus on progress towards goals, barriers to achieving goals, changes the employee may need to make, and support they need. Ask more questions and listen longer.
• Document the agreed to goals and commitments. The feedback and coaching sessions should be documented and provided to the employee. (Or have the employee document the discussion and provide to you.) At a minimum the agreed to goals (both task and developmental) should put in writing along with progress towards the goals, and the commitments made by each side so they can be referenced in upcoming meetings.

The importance of feedback

Just because the annual review is ineffective, that does not mean information on performance is not critical. Feedback is one of the most essential aspects of management, and employees need well chosen, specific, and useful feedback to reach their full potential. According to one study, 96% of employees say that they want to hear feedback regularly.

As New York Times bestselling author Daniel Pink says, “There’s no way to get better at something you only hear about once a year.”

Ongoing feedback also makes a difference in driving execution. To assure a vision is achieved, leaders must provide both critical and positive feedback. When inefficiencies or complications are evident, they need to be willing to speak up. When people are performing well, recognition should be freely given. Recognition will result in more engagement, motivation, and ownership, which improves the organization’s overall effectiveness.

Two points to remember are that positive feedback helps build confidence and helps people grow to take on new skills, while constructive criticism clarifies expectations and allows people to learn from their mistakes in order to change behaviors.

Both offering praise and address problems does not come naturally for most

For many managers, giving both critical feedback and praise does not come naturally. Some are good at constructive feedback but not on positive feedback or vice-versa.

In a previous blog post, I talk about your positive to negative reinforcement ratio. In it, I mention two research studies that found our brains are wired in a way that makes negative feedback more “sticky.” When it comes to positive feedback, our brains have a non-stick coating. Critical feedback tends to have a greater impact and stay with us longer than positive feedback.

It also noted that the factor that made the most significant difference between the most and least successful leadership teams was the ratio of positive comments to negative comments. Based on this research, the positive to critical feedback ratio leaders should strive for is five positive to one critical.

How can a manager shift their reinforcement ratio?

As a training and leadership consultant, I use the DiSC^® model to identify the behavioral styles of the individual. These styles are based on two intersecting continua:

• Does an individual tend to be more fast-paced, direct, and outspoken or more cautious, methodical, and reflective?
• Does an individual tend to be more questioning and skeptical or more accepting and warmer?

Of the personality styles, those that fall into the D personality style generally tend to be good at pointing out and addressing problems and providing critical feedback. However, those same individuals don’t tend to have as much of a need for positive feedback, so they may forget to provide it. The S style manager on the other hand may be adept at giving positive feedback while addressing problems may be more difficult.

How to develop your leaders to provide feedback

Giving feedback (both positive and critical) is a vital leadership skill that can be learned, honed, and perfected over time. However, low-quality feedback is not helpful Too often positive feedback is undervalued, and negative feedback delivered ineptly can actually cause physical pain.

As an Everything DiSC Workplace facilitator, my role is to support managers in bringing out the best in their employees by increasing the leader’s effectiveness in key areas: Creating a vision, gaining alignment, and championing execution. Effective execution requires leaders be able to both address problems and provide recognition. Ultimately, this will support the successful implementation needed to increase the company’s bottom line.

Find out more about how Everything DiSC® can help your leaders provide more effective performance feedback so they can develop their teams and your organization can retain top talent.