The Annual Performance Appraisal

Some very impressive companies have announced that they are moving away from annual performance evaluations of their employees. The rationales given for this radical departure from the past are often based on aspirational statements linked to company values, recruiting and hiring the best and brightest as well as constant feedback from the manager to the employee. In other words, the assumption is that a combination of “real time feedback” and self-motivated employees will thrive in a sort of corporate nirvana. Millennials, we are told, crave and want feedback and mentoring from their managers. Can and would the elimination of the oft-maligned annual performance appraisal deliver on its implied promises?  Admittedly, the old-school practice of annual performance appraisals has some major drawbacks and inherent flaws.

The fundamental problem with the annual performance appraisal lies in the people—not in the process. Of all the energy- sapping organizational complexity that we daily face and grapple with, 80% of it is created by the people. The absence of clearly enunciated performance standards or, put another way, the failure to clearly define “what good looks like” in employee performance is the missing foundational piece. Additionally, there are managers who are incapable, afraid or unwilling to give any feedback until forced by the performance appraisal calendar to rate their direct reports.

Performance that use to be considered unacceptable, run of the mill, second-rate or undistinguished has now nudged its way into the realm of acceptable. This transformation is due to the culture of entitlement that has evolved and engulfed both our society and workplaces Too many employees believe that merely ‘showing up’ merits at least a ‘fully meets’ performance rating. And, too many managers lack the courage of their conviction to stick to this rating. A Fully Meets rating should communicate that the employee did what was expected that he/she was capable of the day they were hired. Consistently going beyond your job description is worthy of an exceeds rating. While ‘showing up’ is one measure used in identifying and measuring performance, it is not the key metric for evaluating performance.

Typically, most organizations use a rating system based on descriptive performance measures like Unsatisfactory, Marginally Meets, Fully Meets, Exceeds and Significantly Exceeds. Because the employee knows that merit pay is tied to performance evaluation, they know that any rating below Exceeds will constrict their annual pay increase. In the mind of many employees, merit pay has become something more akin to an entitled cost of living adjustment (COLA). There is a disconnect between merit or what one objectively earned through performance and the expected annual bump to their base salary. Simply doing away with the Annual Performance Appraisal event does not address the fundamental issue of how to fairly compensate employees for their performance. The challenge is how do we replace the “entitlement culture” with a “performance focused” workplace culture?

Good to great managers of people consistently work together with their direct reports to develop the individual and fairly reward his or her performance. Performance measures must be aligned with organizational goals and work unit objectives. These performance measures must look, primarily, at outputs that drive the enterprise towards reaching or surpassing its annual targets. How is it possible that most employees can be rated exceeds expectations when the enterprise is failing or falling short of organizational objectives? Outputs must be viewed in terms of quantity, quality and timeliness—and most importantly how these outputs move the enterprise forward. Sitting down once a year and giving the employee a surprise rating is both unfair and unprofessional. However, not sitting down formally once a year to give employees feedback and an opportunity to respond is equally unfair. Annual performance appraisal meetings work best when managers frequently dialogue with the employee, periodically check in to see if additional guidance and/or resources are needed and be willing to re-calibrate goals as business situations change or dictate.

In summary, instead of viewing annual Performance Appraisals as a fossil that needs to be put on the growing scrap heap of failed management techniques, organizations should require it be utilized as intended. Eliminating this process and relying on assumptions about a more enlighten workforce is analogous to the old “Emperor is naked” story. Performance appraisals are part of a process—not an event—to ensure that employees are working effectively and efficiently on the right things in the right way to achieve the organization’s business goals.

Managers must be held accountable via upward feedback from employees to the manger’s manager and HR. Data must be collected to ascertain if the manager is giving needed feedback on a consistent basis. No surprises and no confusion is my mantra. Finally, performance appraisals should focus on employee development and contributions–and not be used as a forced distribution device to “rank and yank” employees for budgetary reasons. As the erudite abolitionist, Fredrick Douglass, observed, “you may not get all the pay for, but you will surely pay for all you get.”

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