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Performance Management

Week 7

Avoiding the 4 pitfalls of performance appraisals

Mention the words performance appraisal to most people and their hearts will sink. Whether we call them appraisals, performance reviews or PDRs, the fact is that most people dislike them and increasingly their value is being questioned. According to the CEB, 59% of employees feel that performance reviews are not worth the time invested.

So should we get rid of formal performance reviews altogether? We don’t think so. Done right, future-focused formal performance and development reviews can play a valuable role in improving performance, particularly when combined with regular check-ins and continuous feedback. In this week’s guide we’re going to look at the four most common pitfalls associated with traditional performance appraisals and how to avoid them.

Pitfall 1 – Trying to fit too much into a single review meeting

You are likely to have a number of different goals for your performance management process, such as identifying high and low performers, assessing performance for reward purposes, aligning behaviours to organisational values, aligning objectives to organisational goals, developing skills and knowledge, planning careers and succession, identifying high potentials etc. It is simply not realistic to achieve all of those outcomes from a single review meeting; and yet many performance appraisals attempt to do just that…and ultimately fail in the process. Ask employees and managers to address too many things in a performance review meeting and it will cease to be a meaningful discussion and become a box-ticking exercise which does not contribute to improved performance.

The best way to avoid this is to spread out discussions through the year. For example, you could use regular one-to-one meetings (‘check-ins’) to give feedback and review the progress of objectives and personal development activities. This then frees up your formal reviews to consider achievements and learnings over the period, to discuss career plans and agree specific actions and priorities for the forthcoming period. If this is not feasible in your organisation, you may find you need to sacrifice some of your desired outcomes from the performance review meeting and focus on the essentials. It’s better to have employees and managers engaging in high quality discussions on the few things that really make a difference than paying lip service to a longer agenda.

Pitfall 2 – Unnecessary use of performance ratings

The 2014 e-Reward performance management survey found that 77% of organisations used performance ratings. Yet studies have found that except for people rated at the highest end of the scale, the impact of rating an employee is usually negative. This has been backed up by neuroscience research which shows that evaluations actually activate a flight or fight response in the brain which decreases subsequent performance, except for those receiving a top rating.

The main reason that organisations tend to use performance ratings is to inform performance pay decisions. However, numerous studies have questioned the objectivity of performance ratings and found that they are subject to a number of different biases. Overall ratings are therefore not a particularly reliable way of differentiating performance, and when directly linked to pay tend to demotivate rather than motivate.

So our advice is to question whether you genuinely need to rate performance in order to achieve your goals for performance management, and evaluate whether your performance ratings are actually helping you to achieve those goals. If you really do need to assess performance, you can make the process more objective by assessing specific performance elements such as achievement against objectives and demonstration of behaviours or values, rather than assigning a single, overall performance rating.

Additionally, the negative impact of ratings can be mitigated when the performance assessment is decoupled from the pay review. If the pay review takes place several months after the performance review, and takes into account other factors such as market rate and changes in responsibilities as well as the performance rating, then the honesty and quality of the performance review discussions are likely to increase.

Pitfall 3 – Focusing too much on assessing the past

Many performance reviews place the majority of their focus on assessing the past. The problem with focusing on the past is that it cannot be changed; it’s already happened. Therefore discussing in great detail what was and was not achieved over the past year and why, is unlikely to produce any performance improvements. This does not mean that the past should be ignored. However, discussions should centre around what can be learned from the things that went well and not so well. That insight can then feed into planning specific actions for the forthcoming period in order to replicate past successes and avoid repeating past mistakes.

Removing the focus from the past also allows more time to discuss upcoming priorities and the performance requirements and associated personal development actions needed to meet those priorities.

Pitfall 4 – Making it all about completing the form

One of the biggest criticisms of performance appraisals is that they place too much emphasis on form filling and not enough on discussion. Genuine performance improvement is best achieved through dialogue, combining praise, constructive feedback, coaching and action planning. However, not all of these elements need to be captured in writing. A form, whether printed or online, can provide a useful structure for a performance review discussion, but you should only force people to write down what is absolutely necessary. This would typically include data you need to collate centrally (e.g. learning needs or performance ratings) and things that have been formally agreed and will need to be referred to later on such as agreed objectives, priorities and action points.

Similarly, when it comes to assessing the effectiveness of performance reviews, don’t focus purely on the percentage of forms completed and signed off, and how well they have been filled out. You will get a fuller picture by surveying employees and managers on the quality of their performance discussions, whether the right things were discussed, whether employees found them motivating and if performance improved as a result.

Next week…

No matter how well structured your performance reviews are, their success depends on the skills of the people involved. Next week’s masterclass guide will focus on what performance management skills are required for both managers and employees, and how to develop those skills in your people.

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