Many organizations have discarded the annual review process for employees. Research has shown that traditional annual performance reviewing is inefficient, unproductive, and outdated. Furthermore, employees feel the reviews have no impact on their performance or contributions to the organization.

The Problems:

They are limited to one-sided feedback.
In most annual reviews, managers lead a one way conversation to identify areas of improvement for the employee. However, feedback should be discussed on both sides because managers may need to improve their leadership style and identify their own areas of improvement.

They are linked to compensation which can influence biases.
If your yearly review is linked directly to pay, employees by nature will become defensive if they do not agree with the rating. Also, managers may feel obligated to rate employees below the highest score to ensure that compensation does not exceed the budget.

Research on annual reviews has shown that performance may decrease or become stagnant.

Since the employee knows they are going to receive an increase as long as they performed the essential functions of the job, they may not be motivated to go above and beyond in their role. When an employee realizes they are producing more than their peers but is going to get the same merit increase, they might not put in as much effort or contribute as much.

The Solutions:

Reward based on results, not tenure.
Reward employees that create new and efficient processes, go above and beyond their essential job functions, and add value to the organization. In addition, reward employees with a bonus or incentive program that is tied directly to the benefit of the organization. For example, if an employee received a certification that will greatly impact the organization, then you should reward them. Also, employees should receive a pay increase if their position becomes enriched with more responsibilities that require a unique skill set. Goal setting is another important part of reviews.

One of the most common performance reviews analyzes “S.M.A.R.T.” goals, which are as follows:

• Specific- Be precise about what the goal is. Use action verbs such as increase, establish, and create.
• Measurable- Goals must be measurable to gauge progress. For example, increasing quarterly sales by X percent.
• Achievable- Is the goal reasonable? Can the employee accomplish this in the time frame?
• Relevant- Is the goal valuable for their growth/position and overall contribution to the organization?
• Time- What is the time frame allotted to complete the goal?

Other Solutions and Recommendations:

360-feedback- This process allows managers and employees to provide two-way communication regarding a person’s performance, strengths, and weaknesses.

Peer Reviews- Many times, managers are not able to fully recognize an employee’s weaknesses due to the psychology of human behavior or lacking the time to interact with employees. Employees sometimes feel obligated to be on their best behavior in front of their managers, but at other times, they may be toxic to the team and environment. Allowing peers who work closely with them to review their performance/behaviors will help managers identify their strong individuals.

Separate Feedback from Compensation- Connect raises, bonuses, and/or promotions to data and accomplishments. Managers should give ongoing feedback as needed.

Annual Raises Should Tie to Inflation- If you decide to give your employees a raise each year, it should be based on market research like cost of living expenses.

Encourage Growth and Development- Provide training or options to employees so they can build their skill set and grow within their field. Some examples include, tuition reimbursement, certification, reimbursements, internal development programs etc.

In conclusion, delivering feedback should be an ongoing process that engages the employee. By developing relationships with workers, we are able to identify what motivates them personally and can better help them achieve their goals and develop a sense of purpose. Finally, by rewarding based on performance as opposed to traditional merit increases, we can inspire employees to grow and develop more quickly to achieve not only their personal goals, but the goals of the organization.