Six Tips for Rethinking the Dreaded “Annual Performance Appraisal”

Why is an annual ritual such as the “Annual Performance Appraisal” dying such a hard death? It’s a demonstration of how powerful habits and routine can be, and how connected we become to corporate rituals.

It all started with the Wei Dynasty in China (that’s 230 AD). A member of the ruler’s staff was asked to create a system for evaluating the royal family. In response to this request, this Imperial Rater created a 9-grade system to evaluate members of the royal family. (Think there may have been some ‘rater bias’ in that system?) Fast-forward to the 19th/early 20th Century in the U.S., where workers were evaluated on hours worked, number of units produced, etc. In short, we’re using a calcified system to supposedly measure employee productivity (and perhaps motivation) in a world that has radically changed.

The business question, though, is this: Are Annual Performance Appraisals of value to a company? Current research is telling us probably not. According to research by Deloitte and others, 8% of executives polled say an annual appraisal is valuable; 58% say it’s a waste of time; 48% say their performance measurement processes are weak; 48% also say that the annual appraisal does nothing that can be considered valuable to the business. If we really think about this, it makes sense that ‘annual appraisals’ and ‘forced rankings’ can actually punish great employees vs motivate them (or increase their already stellar productivity). Human performance simply does not fall within a bell curve, which is what so many of these ratings and rankings are designed around; how work gets done in today’s world in a service and knowledge economy is simply too complex. Forced ratings and rankings once a year can easily incentivize great employees to leave and they don’t do much to encourage higher levels of performance of lower-performing employees, either.

For these (and many other) reasons, we’re seeing an exodus away from the “annual performance appraisal.” Companies like Adobe, Juniper, Kelly Services, MicroSoft, Motorola Solutions, and Zappos are rethinking their appraisal process and working to create a process that’s actually meaningful for employees as well as for the business.

 Here are six tips for rethinking your “annual performance appraisal” process:

1. Culturally realign how feedback happens. Instead of having a formal conversation once per year, work to create a culture of ongoing conversations between bosses (who should actually think of themselves as coaches) and employees. Think about it: Should you really consolidate an entire year’s worth of someone’s work to a numerical rating once a year? Logically, how effective (really) is a formal conversation once a year?

2. Quarterly, have formal conversations with your people to reset goals as needed. Use a Job Scorecard, Quarterly Planning and Dashboards to help employees focus on what’s most important for them to do right now. In today’s world, organizational goals shift and strategies are consistently evolving. In addition, many employees work on multiple projects under different leaders. Setting Quarterly goals and targets with employees has been shown to yield a 31% higher return in productivity than an “annual” review.

3. Separate pay from a performance ranking. Alfie Kohn notes that you should hire really great people and pay them a very fair wage, and then you should do everything you possibly can to get them to think about their work, and not money. We know that money is a short-term motivator, so why link an annual appraisal to money? Rethink how you compensate people. Reward them for entrepreneurial thinking, collaborative innovation, etc. (This is an entirely other blog.)

4. Incorporate your Core Values. Core Values aren’t a ‘wish list.’ They’re measurements of excellence, discipline, and focus. If used appropriately, they define a company. Each and every conversation with an employee should incorporate your Core Values. You might have an intellectual powerhouse working for you, but being an expert in a field is very (very) different from knowing how to increase productivity in accordance with your Core Values. This genius may be an ego boost to the company and s/he may be very efficient, but the higher level question is: Is this person effective?

5. Hold your managers/leaders accountable for producing really strong talent. All leaders who have people reporting to them should be held accountable for preparing their people for advancement. This is how the company prepares itself to grow. Without people readily available to take new positions as they open up or are created out of need, your organization limits its ROI on people and it puts a cap on your company’s ability to be prepared from your next growth step.

6. Deal with under-performers in real time vs. ‘annually.’ Poor performance shouldn’t be tolerated for an entire year—until the ‘appraisal’ date is set. Ignoring a problem isn’t a solution. The challenge is this: Really great employees know they’re good. On the other hand, under-performers just don’t seem to know how bad they really are.

Recalibrating a ritual such as an annual performance appraisal is easier said than done. Expect resistance; expect excuses for why appraising performance can’t be done any differently. In all honesty, it’s simply a matter of focusing on continuous improvement toward doing something that’s important, but in a radically different way. Do this, and not only will you see a better return on investment for your time and energy, but the process will become something of value to your people and to your company and how to align employees with company goals.