by Bill Sanders, Principal and Sr. Consultant with Roebling Strauss
Time to read: 4 minutes
Last month I provided Three Reasons to Kill Annual Performance Reviews; it has out lived its purpose, it is primarily one-way communication, and it isn't helping change the current atmosphere of employee disengagement. The obvious follow-up question is "What shall we use to replace them?" And to delve into replacing the annual performance review, we should first examine its purpose and function.
The word review, in and of itself, indicates that among its core purposes is accountability and feedback. However, in my experience, its usefulness as a training and accountability tool is negligible at best. Many of my SEM clients don't have a formal annual review process. The owners and managers tend to think they should have one but dread the inevitable bureaucratic time waste they know would be involved. When they approach me for help implementing one, I first ask why they believe they need one. The reasoning almost always is along the lines that other companies their size have one or, that the employees have asked for one. When I ask the employees why they want an annual review, their reasons are much more personal, from the desire for a raise to needing to show some formal career development.
For practical purposes, there are three functions served by the annual review that must be taken into account in formulating a replacement.
Measuring and Providing Feedback
The first thing a replacement must do is provide actionable feedback to both the employee and the organization. I say actionable, because to tell an employee that he is not meeting expectations without providing him specific feedback on what needs to change is dereliction. Likewise, knowing that an employee is unhappy with her current job description without knowing why is useless. And as pointed out previously, annually is not an effective time frame.
Two of the components required of this feedback are the immediate evaluation of how well the employee is doing in their current role, and feedback regarding the skill development required to continue growing toward their next professional role. Merely knowing that one is "meeting or exceeding expectations" in one's current position is inadequate. Which leads to our next point.
Indicating a Career Path
The second thing a replacement for the Annual Performance Review must do is provide a career path indicator for the employee and support the organization's talent needs in the future. No one with any ambition wants a LinkedIn profile that doesn't show advancement in roles and responsibilities. These are most often marked by title changes at the same company, or complete job changes to new a new company. If you don't provide a clear career path for your employees, your competitors will.
In fact, the most competitive companies will help employees not only map out careers within their organization, but beyond. Witness the very high number of executives that began their careers at GE as a very visible and practical example.
Provide a basis for adjusting Remuneration
The Annual Performance Review process has also occasioned the annual cost of living and merit increases in salaries, so the third thing that a replacement must do is address adjustments in remuneration.
Since cost of living increases are usually based on the annual inflation rate, addressing this annually may still make sense. After all, from an individual point of view, this is small and not directly related to performance.
Regardless, having removed the annual review, that hallowed and often dreaded custom of asking for a raise now has nowhere to live. This is perhaps the most vexing implication. How is does a manager respond to a request for a raise when her budget is already locked in for the year? How do managers make sure that everyone, not just the vocal employees, are considered for raises? When and how does any employee know to broach the subject and how often? How does the business manage and control salary cost; one of its largest expenses?
Killing the Annual Performance Review without a clear replacement will introduce uncertainty and ambiguity at best. In our next article, we'll survey some of the more creative ways companies are addressing this issue and discover what they implementing in place of it.
Bill Sanders is Principal and Sr. Consultant with Roebling Strauss, a boutique consultancy that specializes in delivering dramatic improvements in organizational effectiveness and Co-Lead Link of the Finance Circle for Great Work Cultures, a community dedicated to creating a new norm for work cultures that optimize worker effectiveness and human happiness. Bill is also a contributing author to the forthcoming book: Recalculating, Growing Your Small Business. Connect with Bill on twitter at @technacea.