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The Future of Annual Appraisals

Corporate performance development and the coming era of feedback saturation.

Photo by Hunters Race on Unsplash

Do you have an annual appraisal or performance review at work? You know, that tired corporate ritual where you and your immediate superior sit down, tete-a-tete, to discuss how well (or not) you’ve done your job over the past year? As is often the case, your manager will pretend to intimately understand your job and then proceed to grade you on it. Sometimes, they even rank you alongside your colleagues in a so-called ‘comparative exercise’. If this is a forced distribution ranking, as some companies mandate, then that means there will be a fixed number of employees at the top and bottom of the distribution. As a result, managers will have to compare the performance of employees with different tasks — apples to oranges, in other words.

And all of this happens with both you and your manager acutely aware that it’s almost impossible for anyone to properly understand your job without actually doing it…

Chances are that, if you are anything like the rest of us, the annual performance appraisal is not something you look forward to. A survey of Fortune 1,000 companies found that 66% of employees were strongly dissatisfied with the performance reviews they received while 65% claim that “performance reviews are not relevant to their jobs.”

Taking note of the prevailing negative sentiment toward appraisals, some employers have made changes to how they evaluate employee performance. As of 2016, at least 30 members of the Fortune 500 had discarded performance reviews altogether. This includes the likes of Adobe, Microsoft, Accenture, IBM, and Dell. And many more companies report that they are re-evaluating their appraisal methods in some way.

It’s not just employee dissatisfaction with traditional performance management methods that are driving this trend. Some recent scholarship on the subject indicates that appraisals might not even serve their ostensible purpose: identifying and rewarding high flyers. (High flyers defined, in this case, as those workers who make an outsized contribution to corporate profits.)

For example, based on 23,339 performance ratings from 40 organizations, CEB (2012) found that business units with highly rated employees were no more likely to be profitable than those with low-rated employees. So much cost and time, yielding so much dissatisfaction with no discernable performance impact, has led to a recent wave of sweeping, revolutionary reform, and experimentation with new-in-kind PM practices.

The Evolution of Performance Management: Searching for Value

Appraisals are extraordinarily time-consuming — both for employees and managers. They report spending 40 and 210 hours on them respectively every year. If the benefits of appraisals are questionable, then why do so many companies continue using them?

Imperfect though they may be, appraisals are there to serve real needs that most companies of a certain size have. For example, identifying rising stars to groom for management roles or executive positions. Or rewarding good performance (defined in this case as “ the value of employees’ contributions to the organization over time “) and aligning employee objectives with corporate strategic priorities. Moreover, employees also want feedback. They’re eager to know what they’re doing well and what they could be doing better. If not through appraisals, then how else can these needs on both sides be satisfied?

As mentioned above, several well-respected companies have already shifted away from traditional appraisals. Adobe changed its performance review process in 2012. In addition to the aforementioned reasons (employee dissatisfaction, high costs, feasibility considerations for management) they also recognized the yearly interval at which the appraisals were held and their backward-looking nature as major sticking points.

Adobe replaced appraisals with “quarterly check-ins”. The stated goal of this new approach “was for leaders to give constructive comments to workers naturally and consistently with real-time feedback so that each person remained aware of how to improve every day, not just once a year.” In addition, managers were also asked to look out for “teachable moments” — that is, points in time where their feedback might be especially useful or constructive. Instead of waiting a year to heap praise of criticism on their subordinates, managers were now invited to evaluate them at any moment where they felt it was suitable.

This new performance management strategy was well-received by employees. A survey showed that 78 percent of workers “believe that their manager ‘is open to feedback from them’”. Morale and engagement also skyrocketed.

Adobe is not alone in shifting to a performance management model which emphasizes constant feedback: “From Silicon Valley to New York, and in offices across the world, firms are replacing annual reviews with frequent, informal check-ins between managers and employees.”

What started as a trend has now become a veritable paradigm shift in the conduct of appraisals by some of the world’s biggest employers. Predictably, several software solutions are now available which are designed to help companies administer and manage the shifting burden associated with this new performance management regime.

One such software is 15Five, a “continuous performance management suite that allows you to coach your employees as fast as you sprint.” Its product is based on the 5–15 reporting method. This is where each member of a team spends 15 minutes writing feedback for their manager or supervisor. The manager reads each report and then spends 15 minutes writing their weekly report to their manager and so on until it reaches the C-suite.

This technique is commonly attributed to Yvon Chouinard, the founder of Patagonia. He’s said to have created it as a means of keeping tabs on his company while spending months away from the office on mountain climbing sojourns. (On their website, 15Five claim that it was, in fact, Doug Tompkins, Yvon’s friend and the founder of ESPRIT, who originally developed the 5–15 method.)

Another tool is Clear Review, “performance management software powered by conversations”. While Clear Review is not explicitly based on the 5–15 reporting method, it’s designed to “continually develop performance by empowering regular, meaningful conversations” according to their demo video.

It’s easy to imagine a scenario where receiving constant feedback might quickly become annoying or even counter-productive. The fact that an appraisal occurs so frequently strips it of its weight and significance. In the same way that we drown out the noise of a crowded bar to focus on the person we want to speak with, we’ll eventually drown out our weekly appraisal to focus on whatever we feel to be more pressing at the moment. In time, as we’re subjected to more and more of these performance check-ins or conversations, they will move further down the priority ladder. It’s an understandable and frankly unavoidable reaction to feedback saturation.

Originally published at http://sebastian-andrei.com on March 25, 2020.

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