Annual Performance Reviews?

Managing Through the Rear-View Mirror?

Annual or semi-annual performance appraisals continue to be a standard component of many performance management programs, despite the fact that they are deemed a source of angst and dread by both managers and team members.

Consider that an annual or six-month review is very much like managing through a rear-view mirror, as the practice involves looking back at a person’s performance with the intent of identifying deficiencies and, hopefully, areas of accomplishment. While this may be a standard approach, the practice does little to impact day-to-day activities that, if modified on a timelier basis, could have positively impacted outcomes.

Along similar lines, Dr. Deming was among the early detractors of the annual appraisal, saying, “Individual performance appraisals nourish short-term performance, annihilate long-term planning, build fear, demolish team-work, and nourish rivalry and politics. Everyone propels himself, or tries to, for his own good… and the organization is the loser.”

And all these years later, Deming’s comments ring true. For example, when a bank implemented formal performance appraisals that evaluated Loan Officers on the dollar value of loans approved, and measured the Credit Department on ‘the quality of the loan portfolio’ (i.e. no defaults), it reduced profits and created dysfunction and animosity. The Credit Department was careful to take no risks, while the Loan Officers focused on quantity, hoping that something, at least would be approved. The bank as a whole suffered.

In addition, many people report that reviews tend to be late and are often “put off,” thus sending a poor message to team members (i.e., “you’re not as important as other things…”). They are also considered among the more onerous of management responsibilities, as it can be difficult to access relevant performance-related data that dates back a full year.

One way to improve the effectiveness of performance reviews is to increase the frequency – possibly from annual to quarterly or bi-monthly. A number of managers and HR professionals we have spoken with said the shortened time-table tends to improve feedback discussions and results in more meaningful and less stressful exchanges. In addition, the enhanced time-line reduces the ‘rear-view mirror’ effect described above, and separates performance evaluations from pay raises.

Certainly studying work and work processes on a more frequent basis is more closely aligned with a Continuous Improvement philosophy.