It's Time to Ditch Annual Reviews

Laurie Zaucha, VP, HR and Organizational Development, Paychex

It’s a new day for talent management: annual performance reviews are out, and frequent feedback is in. That’s what most of us in HR have been hearing for the last few years–but how many of you have actually made the transition? If you have, I hope you’re experiencing the same positive reactions that I am. If you haven’t, I’m here to tell you that shifting away from annual reviews in favor of continuous feedback is well worth your time and consideration.

Trading in annual reviews for managers sharing feedback with employees throughout the year has been a part of the HR conversation for some time now. SHRM began incorporating the idea in its conferences and content several years back, and in 2015, Fast Company even declared, “the annual performance review is going extinct.” In fact, many organizations are ditching reviews altogether. For me, though, continuing to support a review process that is simple, frequent, two-way, and a look forward, as well as a look back, remains an integral component of any successful talent management program.

I still believe that today’s individual contributors and managers alike are craving feedback that is frequent, useful, easy to understand, and—perhaps most importantly—supports ongoing transparency. Despite our best efforts, annual performance reviews tended to feel rushed, reflected too much on the recent past instead of on what the future may bring, and sometimes became all about bonuses and merit increases rather than performance. Empowering managers and employees to have an ongoing dialog about goals and career development has a positive impact on both parties and the organization as a whole.

"Empowering managers and employees to have an ongoing dialog about goals and career development has a positive impact on both parties and the organization as a whole"

If you haven’t already moved away from the annual performance review, here are four of the many reasons why you should:

1. Improved Employee Experience: In an age of instant feedback in our personal lives, many employees have come to expect that same level of quick communication at work. This desire for a positive and transparent employee experience—a big part of which is performance—is especially prevalent in Millennial workers and is likely to be even more so as Generation Z enters the workforce.

2. Feedback Reigns, Not Merit Increases and Bonuses: Too often, annual performance reviews become all about the money—or lack thereof. Employees know that’s when they can expect a raise or bonus and that can easily cloud an annual performance conversation— good or bad. Conducting frequent conversations throughout the year allows for more constructive and meaningful dialogue, which should align with the total rewards discussion at the end of the year.

3. Combat the “Recency Effect”: When employees and managers are saddled with reviewing a full year’s worth of work, the tendency is to focus on what happened most recently and much of what happened the previous three quarters is forgotten. Falling victim to the “recency effect” means annual reviews have little to no positive impact on moving the business forward. Adopting a more frequent review cadence significantly increases the chance that all work is accounted for in a timely manner.

4. Better Bottom Line Impact: According to a study from the Harvard Business Review, companies that have a quarterly employee performance review process in place are 45 percent more likely to experience above-average financial performance. More frequent check-ins against personal and company goals mean a more engaged workforce that is committed to driving the business forward.

No matter how many employees your organization may have, pivoting may seem overwhelming. But with a few easy first steps, you’ll be well on your way. Something as simple, as changing your HR team’s vernacular from performance management to performance development will set the tone for more meaningful discussions. Develop a program that is simple, two-way, and relevant. From here, lean on partners and employee feedback to develop a communication plan that supports a seamless rollout to employees and management. Your plan should include direct communication opportunities such as town hall and department meetings, as well as plenty of support materials like FAQ and online training documents.

If you’re still not convinced, perhaps seeing actual feedback from employees and managers in my organization who have embraced our new quarterly check-in model will help:

Paychex employees

“Each quarter is an opportunity to refocus.”
“More frequent direct feedback from my supervisor is incredibly motivating.”
“This is the best performance-related experience I’ve ever had.”

Paychex leadership

“This is so much better than an annual review.”
“This new review process allows me to address inconsistent performers more frequently.”
“The transition from annual to quarterly reviews could not have gone smoother than it did.”

Shifting away from the annual review in favor of more frequent feedback takes the commitment from HR and buy-in from other executives. Bumps in the road are inevitable, but it’s important to keep driving forward and believe in the process. I’d be willing to bet you and the entire organization will be happy you did.

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