4 Alternatives to the Annual Performance Review (and Why You Should Consider Them)

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Every employee performance review is important. Managers use performance reviews when evaluating employees for promotions and transfers, and organizations use performance reviews when making compensation decisions. Having regular documented performance discussions is valuable to the organization. It's also valuable to employees. People want feedback about their performance. They want to know they're doing a good job. And when they need to change their performance, they probably want to be told. After all, nobody wants to be left in the dark or unknowingly be doing their work incorrectly.

The "Old" Ways Aren't Working for Everyone

The business world has changed over the past decade. We've seen the emergence of smartphones, tablets, social media and much more. Lots of business processes have changed as a result of innovation. Unfortunately, in a lot of cases, the traditional employee performance review hasn't. However, the tide does seem to be turning. Many organizations are now examining their approach to the traditional employee performance review, such as performance rankings or rating scales. It's important to understand the challenges with these processes.

  • Performance Rankings: Performance rankings are basically taking a list of employees and ranking them from best to worst. This may seem like an easy way to measure performance. However, it gets challenging. Let's say a firm has 10 sales representatives, each with a goal of $1 million in sales. At the end of the year, the firm ranks all 10 sales reps. The worst rep sold $10 million. Yes, that's right. The worst sales representative exceeded the sales goal tenfold. Yet the employee could have not hit the mark on other organizational goals — perhaps more qualitative ones such as customer service. That can be the challenge with rankings — they may not be aligned properly with organizational goals, or the priorities of goals can be difficult or confusing to measure.
  • Rating Scales: Rating scales are the typical one-to-five scale with a five being "exceeds" and a one representing "below standard." The biggest challenge with rating scales has to do with how the numerical ratings are defined, especially the number three. While most performance reviews attach a "meets standard" to the number three, it's still difficult to sell employees on the concept. The number three can get interpreted as "average." There's also the ratings of the other numbers, which are often subject to bias. Managers may open themselves to criticism and perceptions of manipulating the numbers.

This isn't to say that businesses shouldn't use rankings and ratings. Organizations need to look at their business needs and decide if rankings and ratings accomplish their performance management goals. But for many organizations, it's time to admit that rankings and ratings simply don't work best.

The "New" Employee Performance Review Is Focused on the Future

In looking at employee performance review alternatives, one thing is clear: Performance is about the future. Employees know what they've done in the past, as do their employers. Having an employee meeting to discuss a year's worth of past performance isn't valuable. What is valuable is having conversations about future performance. Here are four ways you can do it:

1. Eliminate the Appraisal
Some organizations are promoting the notion of "no boring performance reviews" in their recruiting and retention strategies. This doesn't mean that performance conversations don't exist. Organizations are just calling them something else that doesn't conjure up the same negative feelings.

2. Have Regular "Check-Ins"
This meeting (sometimes known as a one-on-one meeting) still focuses on performance and goals. Instead of being done annually, it might be conducted monthly or quarterly. It typically doesn't involve a formal form, but with today's technology, it can be documented online.

3. Give Real-Time Feedback or Real-Time Development
This activity is often used in conjunction with the "check-in." Instead of waiting for the check-in, managers and employees provide each other with specific feedback in a timely fashion. Organizations need to make sure managers and employees are trained to properly deliver good feedback.

4. Offer 360-Degree Reviews
Instead of only receiving feedback from your immediate supervisor, employees receive feedback from their supervisor, peers, staff and sometimes customers. The results of the review are used as a coaching and development tool. Like real-time development, it's critical to give proper training to everyone involved in the process, so good feedback is shared.

Organizations have many performance management options aside from the annual, formal, sit-down review. The key considerations to study are the company's culture and business goals. Any employee performance review process needs to accurately reflect performance, be administratively effective and efficient for HR and managers and accepted by employees as a valuable tool.

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