Oct 12, 2015

Are You Still Doing Annual Performance Reviews?

By: Paul Ebeltoft

If your company is like many, HR is charged with assuring that employee performance evaluations are done timely and done right. It’s a hassle isn’t it? A common joke at HR conferences is “How many emails does it take to get your CEO to complete performance reviews of his direct reports? The answer: “I don’t know. He hasn’t done one yet.”

But you do the job, don’t you? An article of faith in HR is that performance reviews, based upon well-articulated position descriptions, are the foundation of legally supportable job decisions. HR is like the good shepherd, protecting the flock of efficient managers and dutifully trudging after the black sheep, carrying them or cajoling them back into the fold of meaningful, annual review compliance.

If only this were true. Instead HR professionals despair. Fellow managers see HR’s role as carping and nagging. HR professionals, who know how these things should be done, review stacks of evaluation forms and find only bureaucratic window dressing. In companies everywhere, employee personnel folders bulge with generalities, repeated year after year; with platitudes and high marks, handed out without evaluative effort. HR professionals can only stand by as good employees are demoralized when their performance is rated equal to that of lesser lights.

Be honest: do performance reviews in your company actually develop talent? Are they actually relevant to the day-to-day, month-to-month performance of a unit? Isn’t that what they are meant to do? Or are performance reviews in your company, at best, snapshots of a fixed moment in time, which are put away until the process rolls around again?

What is happening out there?

If you think that your employee evaluation system is a waste pf precious time, you are not alone. In an August 19. 2015 article entitled, “Is the Annual Performance Review Dead?” the Society for Human Resource Management (SHRM) reported that “more than 9 in 10 managers are dissatisfied with how their companies conduct annual performance reviews, and almost 9 in 10 HR leaders say the process doesn’t yield accurate information.” The same article quoted research that “shows that individual performance ratings have absolutely zero correlation with actual business results.”

Perhaps not surprisingly then, the Institute for Corporate Productivity reports that nearly ten percent of Fortune 500 companies have done away with annual employment ratings. The same source predicts that the number of companies abandoning annual performance reviews will double in the next year and continue to grow.

Is there a better way?

The companies shifting away from annual performance reviews think they have discovered a better way. Basically, it calls upon management to develop a culture of “checking in” with direct reports during short, informal over-the-coffee-cup meetings quarterly, monthly or even weekly. The discussions are about what went well, what didn’t, what should change and why. The feedback is ongoing and easily integrated into team management practices now well-developed in many workplaces.

Other companies are finding that “there is an APP for that.” Outfits like Glint Inc. have developed easy-to-use, fast, cloud-based tools to measure employee engagement on an ongoing basis. HPPY Enterprise shoots for small and medium-sized business clients, advertising a reduction in employee turnover and increase in productivity by businesses using their APPs. WeThrive says that its APP “gives managers a clear picture of which staff need help, where and how.”

Do these work better than the traditional system? It is hard to know for sure. A Washington Post article of August 17, 2015 (which apparently spurred the more in-depth piece issued two days later by SHRM) reminded us that there are trends in the workplace. Some work, others do not. The Washington Post remembered “the rush by companies to copy the "forced ranking" system [that GE’s former CEO Jack] Welch promoted. That system — since abandoned by GE — required supervisors to assign a certain percentage of employees to high, medium and low rankings, and then to cut the low ones. ‘We had countless chief human resources officers beating on our door, going: 'Look what that did for GE, we need one of those too,’ said Ravin Jesuthasan, a consultant with Towers Watson. Now, he says, ‘we're at a similar rush to people going 'we need approaches like this.' It has a feeling of being the issue du jour.’”

The HR takeaway

HR is, rightly, a cautious profession. After all, company performance metrics are usually decided in the CEO’s office. But CEO’s, as we all know, are far removed from the tedium of the process of gathering and trying to work with the evaluative data. Perhaps, this time, HR should beat the drum. Perhaps, this time, HR should take the lead in making evaluations less of a soul-sucking and more of a productivity-producing experience. Here are some reasons you can take to the corporate board room when suggesting that your company follow the Fortune 500 lead.

First, the “new worker” is attuned to on-going feedback, whether from social media or product and service review systems such as Yelp. The current annual evaluative regimen, even if it is computer-based (and many are not), simply is not within their experiential scope. Your company does not ask its employees to work with manual typewriters. Why should your company ask its employees to fit into an outmoded, uncomfortable box by using 30-year-old performance evaluation tools? The purpose of the system is to improve your employees’ and your company’s productivity, so use methods of giving and taking feedback that fit the modern workforce.

Second, the workplace is a faster environment now than it was 30 years ago. This is not news. Ask your company management whether the tedious corporate goal-setting and budgeting processes they endure in the fourth quarter of one year actually hold up for the entire next year? If they answer honestly, except perhaps for larger capital expenditures, your bosses will admit that most do not. Indeed, most will say that the goal-setting/budgeting process is never static, but is expected to be an ongoing process wherein the company fluidly reacts to find, solidify or expand its toe-hold in an ever-changing business climate. Why should it be any different for employee evaluations?

Third, what does the company lose if it changes its evaluation structure? In most cases not much, as written essay-type evaluations molder away in file cabinets. In most cases, especially where APP-based technology is used, change will result in a wealth of additional data that can be easily sorted, analyzed and called up for immediate use. This is the way most companies want to deal with customers – with useful, well-grounded, easily accessible data. Companies should be eager to do the same for its employees.

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My law firm’s goal is to give understandable information and to foster discussion about real-life issues facing human resource professionals. If we are not achieving that goal or if you would like us to address other employment law issues, please email me at pebeltoft@ndlaw.com We promise to take your comments and ideas to heart.

Disclaimers (Otherwise known as "the fine print")

I make a serious effort to be accurate in my writings. These articles are not exhaustive treatises, though, so do not consider them complete or authoritative. Providing this information to you does not create an attorney-client relationship with my firm or me. Do not act upon the contents of this or of any article on our homepage or consider it a replacement for professional advice.

Reprinted with permission from an article submitted for publication in the October, 2015 Southwest Area Human Resource Association newsletter.