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Replace appraisals with a system that really works

If you’re frustrated with your current approach to performance management, you’re likely to be searching for effective alternatives to appraisals. This is understandable, given how inefficient and time-consuming yearly appraisals have proven themselves to be. You might have heard that annual appraisals are dying out, and you want to be ahead of the curve, ready to adapt to new performance management trends that will get real results, improve employee engagement and enhance overall company performance.

With our years of experience in performance management, we’ve developed a simple and effective performance management system, based on the principles of Continuous Performance Management. Our proven framework is already being used by many thousands of employees around the world and we’ll be explaining it in this article. Specifically, we’ll cover:

  • Why annual appraisals don’t work
  • The five principles of effective performance management
  • Why continuous performance management is a great alternative to annual appraisals
  • Why performance review software is integral to the success of continuous performance management

Why annual appraisals don’t work

Annual appraisals are a remnant of an old-fashioned approach to managing employees. Appraisals date back to World War I, and were originally used to identify poor performers for discharge or transfer. Given the context of the time, appraisals made perfect business sense.

Today, though, the business landscape is fundamentally different. Business is more agile, faster and more competitive. Setting annual objectives and assessing staff against them only once or twice a year no longer makes any sense. Yearly appraisals try to achieve too much in one sitting, and they focus too much on past behaviour rather than future performance. In such a fast-paced environment, employees require more ongoing guidance, communication and feedback.

Below are the four main problems with yearly appraisals:

  1. Managers hate doing performance appraisals. In fact, research from the CEB has shown that 95% of managers aren’t satisfied with their appraisals. As a result, managers avoid conducting them, or complete them quickly to get them over with. When this occurs, little to no meaningful discussion takes place.
  2. Employees aren’t fans, either. A Towers Watson survey found that 75% of employees see appraisals as unfair and 66% say appraisals interfere with productivity.
  3. Appraisals don’t add any value. A Deloitte study showed that only 8% of organisations say appraisals add value, and hardly any companies feel they’re an effective use of time. When you consider how much time annual appraisals require, how many forms need to be completed, the time it takes to arrive at ratings, and the length of an average annual appraisal, the process should really be more productive than it is.
  4. Appraisals are not improving employee performance and engagement. That’s really the bottom line. A meta-analysis of 607 studies of performance evaluations found this to be the case. The study also found that 30% of the performance reviews actually ended up decreasing employee performance.

The five principles of effective performance management

Before we can look at alternatives to appraisals, we need to get back to basics and understand what an effective performance management system is trying to achieve, and why having a formal, defined framework is important.

Completely removing performance discussions should not be considered; when companies abandon performance management, they notice a drop in employee performance of 10% and a 6% fall in employee engagement. At its core, performance management is all about improving these two elements, using the following ingredients:

  1. Aligned smart objectives
  2. Frequent feedback
  3. Regular support from manager
  4. Employee recognition
  5. Personal and career development

Below, we’ll show how continuous performance management is a great alternative to appraisals, as it factors in all the ingredients above, without being an administrative burden.

Continuous performance management as an alternative to annual appraisals

We at Clear Review are strong advocates of continuous performance management (or agile performance management as it’s sometimes known). This is not only because of the research showing that informal one-to-ones and real-time feedback are much more powerful drivers of performance than annual appraisals, but also because we’ve seen it work time and time again with organisations of all sizes and from all business sectors.

Unlike a performance management system that has a specific start and end date, continuous performance management is an ongoing cycle of performance and development discussions and feedback.

Continuous performance management prioritises following elements:

  1. Near-term SMART objectives. Rather than setting a large number of 12-month objectives, employees agree to a small number of near-term SMART goals they can work on over the next quarter. A focus on near-term objectives helps to improve employee motivation and builds momentum, and of course near-term objectives are less likely to become irrelevant over time. Regular reviewing of objectives also makes sense from a business perspective.  A study found that 50% of companies who review their goals each month are in the top quartile of financial performance, whereas only 24% of companies where goals are reviewed once a year are in that top bracket.
  2. Regular check-in discussions. Regular ‘check-in’s are the core of the continuous performance management framework. The focus of a check-in is conversation, rather than the mere completion of forms. Talk is future-focused and action-oriented, rather than looking to past performance. When performance discussions happen with greater frequency, it allows employees and managers to step back from what is urgent to discuss what is important. During this time, managers and employees should discuss items such as progress against objectives, forthcoming priorities, strengths and achievements, personal development and career goals, values and behaviours, issues or concerns, and action to be taken before the next check-in.
  3. Real-time feedback. Having regular feedback can dramatically improve employee performance. Employees aren’t getting the amount of feedback they need, particularly millennials. Frequent feedback is genuinely possible with continuous performance management and made simpler with the advancement of performance review software.
  4. Measuring performance. Continuous performance management doesn’t necessitate the elimination of performance ratings, although there are many arguments for doing so. You can still periodically measure performance under the continuous model (in order to feed into decision about pay and promotions), but it is recommended that you divorce such measurements and associated discussions from regular check-in meetings. This allows for a more honest and open discussion and feedback.
Diagram showing Continuous Performance Management Cycle

Continuous Performance Management Cycle


Why you need performance review software to make continuous performance management work

Performance management software facilitates continuous performance management and ensures the whole process is streamlined. It can help specifically in the following ways:

  1. Improved visibility regarding performance management activity. Using software, managers and HR can make sure that everyone is actually doing what they are meant to be doing. Software provides insight into objective setting and progression. It also gives HR visibility of people who are not having regular check-in meetings or receiving sufficient feedback.
  2. Performance management software relieves administrative burden. Organisations often look to provide structure to their performance management by using Word or Excel forms. This might sound like a simple solution, but in practice it’s administratively time-consuming for all involved. Employees and managers end up emailing different iterations of the forms back and forth to each other. The forms usually then have to be sent to HR who have to copy and paste data into spreadsheets in order to work out who has and hasn’t had review meetings and to collate the information they need to make decisions on personal development, training, pay and promotions.

    This confusion leads to disengagement and frustration, which takes the focus away from good-quality performance discussions. Cloud-based software systems provide a shared, real-time view of performance management data, which keeps everyone up-to-date and informed.

  3. Performance review software encourages in-the-moment feedback. Managers aren’t likely to give instant feedback unless they have an easy means of doing so, yet the delivery of real-time feedback is one of the most powerful ways of improving performance. Without software, feedback can be forgotten, or never given, but when feedback is as simple as a few clicks or taps, managers are much more inclined to give it and the content of the feedback will be much more helpful.

Next Steps

To find out how Clear Review software can help you transition from a traditional appraisal system to continuous performance management, get in touch for a free 15-minute performance management consultation.

To learn more about Continuous Performance Management, download our new eBook.