LEADERSHIP / JAN. 20, 2015
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Is it Time to Ditch the Annual Appraisal?

It’s one of life’s great imponderables: why virtually all organisations carry out soul-crushing annual appraisals, even though most find it a waste of time. A comprehensive, recent Deloitte report entitled Global Human Capital Trends 2014: Engaging the 21 Century Workforce has revealed significant concerns about the traditional performance management system, a system based on ‘ranking and rating’, with the majority of companies viewing the system as a poor use of time. According to the report, the traditional appraisal system leads to adverse effects on employee engagement, the alienation of high performers and time pressures for management. Below are some of the key findings of the report.

The annual appraisal system is no longer relevant

The traditional ‘rank and yank’ (ranking and rating) performance system was brought in at a time (around the turn of the 20 century) when output could be accurately computed. The process was then, as it is today, viewed as ‘carrot and stick’ by both employees and employers; a way to get more output from employees. But employees find the process demoralising; it creates “animosity”, and it causes “good people to look elsewhere for work”. Moreover, ‘work’ today isn’t counting widgets in a factory. The overwhelming majority of employees are employed in either service-based or knowledge-based work, in which performance is driven by attributes and ‘softer’ qualities such as empathy, resilience, ability to innovate and customer empathy. These are skills and qualities that are developed over time and effective performance management should necessarily be focused on developing, and not grading, these capabilities.

Furthermore, as highlighted by the report, seldom do business priorities today follow a linear cycle. Objectives and goals give way to others; new strategies emerge based on new information; employees are often forced to shift between multiple tasks or projects under leaders that could be anywhere in the world. Today, frequent business reviews should be the norm.

The annual appraisal system adds little value

It is clear from the survey that most corporate executives acknowledge that their current appraisal systems are not working. Nearly six out of ten HR executives rate the annual performance management system as a “weak” “use of time”. A similar number rate their processes as “weak” for their ability to drive performance and engagement, and nearly half of those surveyed rate their systems as “weak” for their ability to “drive business value through the performance process”. Furthermore, as the report highlights, the traditional appraisal system not only fails to inadequately reward high performers, but it also demotivates “middle-of-the-road” performers. So who benefits?

The appraisal system can and should be fixed

The survey highlights best practices among companies who have already re-engineered their performance management system. Adobe is one example – the company has simplified its performance management system and it is now a “conversation” which utilises feedback from colleagues to generate performance improvements. Employees can “check-in” every three months to discuss their performance. Group performance is also appraised. One result of the change to a new model has been a “30 per cent reduction in voluntary turnover”. Other companies such as Motorola Solutions and Juniper Networks have removed ratings completely from the process and experienced higher levels of engagement from their employees. But how then do companies factor in reward and compensation? The Deloitte researchers suggest that such decisions should be based on "...the critical nature of an employee’s skills, the cost of replacing them, their value to customers, and the external labor market."

Just as it is the case with the world we live in, it would appear that the future for performance management is a ‘social’, more collaborative one. A less process-driven system, which focuses on performance improvement through feedback, coaching and development, rather than the ‘carrot and stick’ approach of yesteryear, is a better fit for the world in which we live in today. What do you think?

Article image via Paychex

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