What’s Wrong With the Annual Performance Review (And What’s Better)

Performance management standards are evolving. As digital technologies and new research come into play, organizations are rethinking their approach to core human resources functions.

The often-scrutinized annual performance review has a few simple goals: providing managers and employees insights on performance, discussing future goals and priorities, sharing constructive criticism, and fostering an opportunity for both parties to give and receive honest feedback. But many say this tool is a flawed one that fails to fulfill its intentions.

In many ways, the performance review is a product of the systems in place throughout the HR cycle. Instead of focusing on performance reviews as an isolated task, HR teams will better serve employees — and, at healthcare organizations, patients — by focusing on a rigorous practice of continuous improvement. By studying, reviewing and improving systems and internal processes, HR can take a lead role in transforming an organization.

Traditional annual performance appraisals aren’t effective on their own. Here are some of the reasons why:

  • Work is different. Work moves at a much faster pace today, with goals and projects measured in days and weeks instead of months and quarters. Performance reviews traditionally occur on a twelve-month cycle — which means they’re not keeping pace with production. In addition, companies are putting greater focus on team success over individual outcomes. At an organization where global teams are connected by virtual technology and work outcomes are a shared experience, individual yearly performance appraisals do not reflect the reality of how work is accomplished.
  • Ties to compensation. Historically, pay raises and bonuses have been directly tied to performance appraisals. This sets up a skewed power dynamic that can hinder the type of candid conversation that leads to real improvement. Separating employee performance discussions from raises allows for more focused, coaching conversation about day-to-day job performance, areas for improvement, professional development resources, and opportunities for growth.
  • Lack of honest dialogue. The power dynamic at play in traditional performance appraisals is top-down, with few companies focusing on assessing the supervisory and leadership skills of managers. Allowing employees to provide feedback to (or even formally evaluate) their managers not only improves efficacy, but leads to better employee engagement and empowerment.

New approaches to giving feedback

Employees want and deserve more frequent feedback. They want more open communication with supervisors and collaboration with their peers. The arbitrary time frame and unproductive structure of the traditional annual appraisal make it harder for organizations to give employees the feedback they want and deserve. Luckily, there are alternatives.

  • Going paperless. The number of trees sacrificed solely for performance reviews is mind-blowing. Progressive organizations are replacing paper with automated systems that can be used to measure, track and report on employee progress. In addition to being more environmentally friendly, employees benefit from real-time feedback and communication. Organizations and their employees can easily give kudos to coworkers or supervisors for good work, and flag potential areas for improvement that managers may wish to follow up on.
  • Frequent real-time check-ins. In addition to going paperless for easier, more frequent feedback, many organizations are implementing monthly discussions or biannual conversations with each employee. Using a structured format, these conversations help to normalize the feedback process, provide the opportunity to assess recent and ongoing performance, and allow organizations to check on progress with more regularity.
  • Shift from manager to coach. Particularly with high-performing employees, the supervisor’s role is increasingly shifting to that of coach. Leadership coaching is not about teaching rote skills, but on helping employees identify the areas they themselves want to improve. Leadership coaches use guided questions and observation to help employees discover, try and assess for themselves the techniques to tackle everything from self-confidence and interpersonal relationships to communication styles and body language. The coach acts as a guide who leads employees through a period of self-discovery that can be transformative personally and professionally.
  • Set goals that benefit organizations, employees and customers. Communication gaps between employees and leadership occur when leadership fails to track employee success on a regular basis. When leadership lacks insight into real-time employee performance, they have no way of knowing how to allocate resources to improving on customer satisfaction. Continuous feedback based on job descriptions, along with leadership coaching, helps close the communication gap and align employee and company goals, which in turn improves patient satisfaction.

To improve performance, hire smarter

Many organizations rely on the annual performance appraisal as the overall assessment of employee performance, and the end result of all other HR processes. But any feedback, annual or not, does little good if a company is hiring the wrong employees.

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Providing continuous feedback using the above techniques improves performance when combined with the following improvements to hiring processes.

  • Assess needs before hiring. Hiring should be based on accurate assessments of needs and qualifications, or the organization will be behind the eight ball from the outset. Consider the job description. Without accurate information that reflects the true purpose and goals of the position, skills required and success measures, how can HR recruit the right candidates? Having a procedure that creates, updates and evaluates existing job descriptions is crucial to success.
  • Invest in professional development. Without proper onboarding, training and professional development programs, employee engagement and commitment suffer. When organizations invest in their employees, employees will invest time and energy into their patients.
  • Ask for feedback when employees leave. How can HR find out what needs improvement? Ask! Not only should HR put an emphasis on retention strategies, they can make use of exit interviews to pinpoint and act on areas of improvement.
  • Automate. Automating reference-checking and other aspects of talent management can make a lot life easier. By automating certain aspects of the hiring process, HR can save hours of time researching candidates and avoid the sort of vague feedback from former employers that lacks insight into whether a candidate is truly a good fit for the company.

To stay successful, all organizations need to build a customer focused workforce, and that means focusing on hiring smarter and providing employees with continuous performance feedback — not just during the annual performance reviews.