Re-examining the annual performance review

The annual performance review is losing its luster, if it ever really had any.

Large companies from Adobe to IBM to Deloitte have dropped the yearly evaluations in favor of more frequent, informal check-ins designed to give continual feedback and provide more agility in making adjustments as business demands or priorities change.

Now the changing tide is sweeping up smaller employers, who also see the advantage in changing approaches.

Once the standard in corporate America, only half of companies now give annual or semiannual reviews, according to a study of 1,000 full-time U.S. employees conducted by Workhuman and cited in a report from the Society for Human Resource Management.

Alyssa Skarbek, director of human resources at Indianapolis-based The Garrett Cos., said the 260-employee multifamily housing construction and development firm is contemplating making the transition at the end of this year.

“I think there’s a stigma around the annual performance review. It’s rather time-consuming,” Skarbek said. “I always say, ‘Use your powers for good.’ And I don’t necessarily know or think that that tool is always used for good.

“I think the whole point of feedback … is to give someone the opportunity to do something, whether it’s good, bad or indifferent,” she added. “And if you’re waiting, which a lot of people do wait till the end of the year to have those conversations, you’re really, naturally only focusing on a very short window of time versus the entire year. Like, I don’t even know what I did last week.”

Charlotte Westerhaus-Renfrow, clinical assistant professor of business law and management at the Indiana University Kelley School of Business in Indianapolis, likened the annual performance review to coaching basketball, setting out a strategy at the beginning of the season and never letting the players know how they’re executing that strategy until the season is over.

“Um, that would be crazy, right? You would never do that,” she said. “And yet when I visualize our companies that do annual performance evaluations, that’s what they do.”

Companies are changing their performance-management systems because they want to be able to respond more quickly to changing business needs and crises like the COVID-19 pandemic.

In order to do that, managers need to give feedback more often. Westerhaus-Renfrow said it’s particularly important to give praise to high achievers, because, if you don’t, some other employer could take notice and hire them away with appreciative words that you’ve failed to deliver.

Frequent feedback also is important to retain recent college graduates who became accustomed to constant grading and assessment throughout school, she said, and Generation Z employees want to be shown what the path to success looks like and told whether they are on track.

A Harvard Business Review assessment found that, as far back as 2016, companies were abandoning annual reviews because they “hold people accountable for past behavior at the expense of improving current performance and grooming talent for the future, both of which are critical for organizations’ long-term survival.”

The assessment was written by Peter Cappelli, a professor of management and director of the Center for Human Resources at the University of Pennsylvania’s Wharton School of Business, and Anna Travis, clinical professor of human capital management at New York University.

Skarbek said she is considering moving to a quarterly check-in system next year that would focus on a different theme or approach each quarter.

“What I don’t want to do is just change themes every quarter, in terms of progression. So I think that first quarter is more goal-setting and then the second one is more of a checkpoint on those goals,” she said. “I haven’t quite 100% gotten there and what those questions or data points will actually be. But, in theory, different themes that all kind of collectively relate to each other. So that way, it’s more of a comprehensive picture rather than just reinventing the wheel every three months.”

Westerhaus-Renfrow said it’s important for companies making the switch to have a coaching approach and a nurturing-growth mindset, rather than a carrot-and-stick system.

“HR departments are working with supervisors to help teach them on how to be a better coach, a better motivator and have courageous conversations, on how to ask employees the kind of questions that can stimulate,” she said. “Your employees need to not only understand what they’re doing but why they’re doing it.”

JoDee Curtis, owner of HR consulting firm Purple Ink in Carmel, said the biggest pitfall for small companies making the transition from annual performance reviews is not having tools and processes in place that prompt more frequent feedback.

“Then what happens is, not only do employees not get performance feedback once a year, they’re not getting it at all,” Curtis said. “And that’s the worst thing that could happen.”

Curtis said she generally recommends that companies have performance check-ins with each full-time employee at least quarterly. Her 20-person company uses the software platform 15Five to prompt weekly check-ins.

15Five, which in 2021 acquired Indianapolis-based employee engagement software company Emplify, provides a broad performance-management platform that combines coaching and manager training, 360-degree performance reviews and in-depth engagement surveys.

Its popular check-in system asks employees to take 15 minutes each week to fill out a customized form that allows them to update managers on how they are progressing toward their goals, what challenges they are encountering and what victories they have achieved.

Managers then spend five minutes reviewing and responding to the check-ins, adding items for further discussion and noting overall wins and challenges.

“Five minutes doesn’t sound like a lot,” Curtis said. “But if you’re doing it every week, it really adds up over the course of a year, and it doesn’t take that long to complete.”

Curtis, however, is hesitant to recommend that all companies ditch annual performance reviews.

“I’m just a little scared of saying everyone should give them up,” she said. “Then I’m thinking they won’t give any [feedback] at all. At least some companies do force that on an annual basis.”•