The vast majority of HR leaders are in the process of reimagining performance management. By most estimates, over 70% of companies have either recently changed or planning to change their process.
The key change is moving towards a world of more frequent feedback. But when it comes to brass tacks, deciding how to make this transition can be confusing. We wrote this guide to help you understand what’s happening and think through your options for your own company.
Why annual performance reviews are on the way out
Over the past several years, a seemingly endless list of leading companies have announced they are doing away with their annual performance review process. Companies likes GE, Deloitte, IBM, Gap, Adobe, and countless others have proudly dropped the practice. Even SAP, a major provider of performance management software, is ditching the annual system!
So what’s the deal?
The bottom line is that annual performance reviews have not been working well for quite a while. But up until recently, there hasn’t been a credible alternative.
The good and the bad with performance reviews
For most companies, the reason they keep doing performance reviews in spite of its problems are because it still provides a lot of value.
The good side of performance reviews...
- Performance reviews can give organizations important information about employee performance.
- Provide a structured method for identifying top performers and struggling ones so employees can make key decisions around talent management.
- Give employees an opportunity to receive feedback and know where they stand.
- Companies often need legal protection and documentation around their decisions.
...And the bad.
- People have no structured way to get feedback throughout the year -- instead, it's left up to their manager's management style.
- Lack of frequency means more pressure, which causes anxiety and depletes employee engagement.
- Managers and employees both have a hard time trying to remember a year’s worth of work, which means it's unlikely to be accurate or holistic.
- Companies move too fast for annual goal setting.
- Between planning, meetings, ratings, and administration, performance reviews can take an enormous amount of time.
Real-time feedback: what it is, why it works
Real-time feedback is an ongoing process in which employees can communicate with each other about their performance in an informal yet documented way. The point is to get into the habit of giving employees continuous feedback throughout the year. Doing this will also encourage 360 degree feedback throughout the company -- feedback doesn't need to come from only a manager. By making real-time feedback part of effective performance management, you encourage managers to share constructive feedback with team members or someone to give public recognition to a peer they worked on a project with. Even if someone can't give feedback in the moment, you can encourage them to make a note to themselves to bring up at a later date -- but maybe during a check-in instead waiting for a performance review. Why are so many top companies moving towards this kind of system? Here are a few key reasons:
Employees crave feedback
72% of employees are hungry for much more feedback than they currently get. A real-time feedback solution can improve employee experience and overall employee engagement at the company.
Save time for things that matter
A lighter-weight feedback solution saves time on the implementation and meetings associated with performance reviews. There's more time to discuss how to help employees improve and grow.
Avoid recency bias
One of the biggest problems with the annual review is the inherent recency bias due to their infrequency. Real-time feedback lets you capture performance feedback accurately.
Evolving your process: how ongoing feedback enhances performance reviews
You might know that a more frequent approach to feedback would benefit your organization, but you aren’t ready to do away with performance reviews. For many companies, this is the right approach. Change management takes time, and preserving your current process and augmenting it with real-time feedback can be great. If you currently do performance reviews once or twice a year, a great first step might be to do bi-annual reviews with real-time feedback interspersed.
This type of approach has multiple benefits:
* Keep the part of performance management that works well for you while introducing a critical new mechanism.
* Incorporating real-time feedback into your process makes performance data more accurate and reliable.
* Address your employees’ need to receive feedback and recognition on a much for frequent basis.
Building the plan that's right for your company
To build the plan that’s right for your company, first think about your top priorities. What matters most to you? Then take a look at the various components of a modern performance management system:
Ultimately you can construct the plan that’s right for you, but to help you get thinking, here are a couple common systems companies put in place:
Real-time feedback + 360 reviews:
Reviews, goals, and real-time feedback:
Action plan for bringing a new performance management system to your company
Communicate clearly and often
Communication is the key to all good business processes. Besides selecting a software tool that fits your needs, it’s important to communicate to your employees how the new system should be used and why it’s valuable.
Provide support along the way
Feedback, goal setting, and performance management are core to company culture. Because they’re so important, you should expect to hear differing opinions about how things should be done. The most important thing is to get your company to rally around a process that reflects the values you care most about (maybe those are frequent feedback and clear goal setting).
Listen to feedback and be willing to iterate
Performance management is like a muscle that needs to be exercised. It’s all about finding the best way for a large group of people to collaborate, which takes time and experience to nail down properly. Also, companies are always changing — so don’t be surprised if people have feedback on the process; instead, you should encourage and welcome it! Look at it as an opportunity to consistently improve your performance management process, just like you look to consistently improve everything else you do at work.