There are few topics in management that get people more excited or upset than performance evaluations. Most companies require their managers to prepare and deliver these reviews on an annual basis. Managers hate the exercise because it requires a lot of time from busy schedules and usually leads to confrontations, especially with low performers. Employees hate them as well because they feel judged and scores or comments are considered unfair.
The era of annual performance reviews may be over. Major companies like
MicroSoft, Intel, Deloitte and Price Waterhouse Coopers are dramatically revising their review programs because annual reviews don’t add value to their organizations. Some specific problems include:
1) Customer requirements change daily – goals set at the beginning of the year change dramatically so annual reviews don’t allow for adapting to new needs;
2) The majority of employees (eg. 70% under most models) receive a “satisfactory” or “meets expectations” rating at the end of the year. Employees do not feel appreciated or inspired with a ‘satisfactory’ rating after a year of hard work, especially the high talent;
3) Ratings are inconsistent between managers – it’s said that a rating reflects more on the manager’s talents rather than the employee’s.
4) The ratings focus on judgment rather than growth and development of the employee.
Highly talented employees need to be supported in their development or they seek this fulfillment in other companies.
5) Reviews often discourage collaboration between colleagues since there are just a limited number of high ratings available.
6) The cost of running the annual evaluation process is staggering in terms of management and employee time. Price Waterhouse Coopers did a study and discovered that the average manager spent 6 hours on preparing and delivering 1 review. Since managers can bill their time to outside clients at $250/hour and that time is lost with reviews, the opportunity cost for U.S. operations (180,000 employees) was estimated at more than $200M/year.
What are companies doing?
To recognize the need for more flexibility and adaptability, companies are introducing simplified ‘score cards’ to chart and provide feedback to employees on a more regular schedule. Monthly and quarterly reports are become common and due to the simplified
Format of these reviews, managers can complete and deliver them much more quickly than the old annual reviews.
This new approach also allows teams to rate each other, using automated tools such as SurveyMonkey. This addresses the employee issue of fairness since a manager’s bias
is replaced by group feedback.
Simplified and frequent evaluations provide employees with the feedback they need to do better jobs while allowing companies the ability to change goals as business needs change. Highly talented people get the feedback they require along with timely rewards when projects or goals are met at any time.
It’s taken decades for companies to become comfortable with eliminating the dreaded annual review process but the time has arrived for this welcome change.