15five's annual performance review guide

1 | The Uncertain Future of the Annual Performance Review 15FIVE.COM

of the Annual Performance Review:

A Guide For Your Company

http://www.15five.com


INTRODUCTIONThe world of work has changed forever, but the way we manage our people hasn’t yet caught up. Most business leaders I speak with are still relying on old management practices that are no longer effective, or worse, that actually contribute to challenges with employee productivity and performance. One of the main practices standing in the way of progress is the annual performance review.

To succeed today, companies cannot rely on the most important conversations between managers and employees happening only once or twice a year. Moreover, organizations cannot operate in a paradigm where information flows upstream to leaders, who then make decisions in isolation before passing down directives for employees.

Not long ago it was perfectly effective to employ a command and control management model where decisions were centralized at the top and people carried out orders below, primarily because the marketplace was less complex, more predictable and so slow to change. As the marketplace has become more rapid and complex, organizations need to adapt new management models to survive and thrive past their competitors.

Companies must be flexible and agile by decentralizing decision making, providing the people who are closest to the problems the autonomy to decide and act on behalf of their organization. This rapidly speeds up their turn on actions, quickly resolving issues and innovating faster than ever before.

“10% of Fortune 500 companies have done away with annual ratings.” Source: The Washington Post



One of the trends that we are seeing in the last couple of years is that companies are shifting away from traditional performance reviews, getting rid of them altogether or only using them as part of an overall performance management strategy. In 2015, Deloitte announced that they would reinvent performance reviews based on findings that “the best team leaders revealed that they conduct regular check-ins with each team member about near-term work.”

This ebook is designed to explore the annual review process, it’s origins, benefits and downsides. My hope is that this will be a valuable resource for your internal communication and performance management strategies.

You may even decide to follow the 10% of Fortune 500 companies who have abandoned reviews in lieu of regular weekly conversation via employee feedback software. Armed with this information you can streamline your business to be a place where employees and managers all react to information in near real-time, and mobilize rapidly to respond to changes, innovate, and stay two steps ahead of the competition.

To your success,

Founder & CEO, 15FiveDavid Hassell

“To succeed today, companies cannot rely on the most important conversations between managers and employees happening only once or twice a year.”


CHAPTER 1

History of the Annual Review


For nearly everyone working today, annual performance reviews are as status quo as coffee breaks and bi-weekly paychecks (direct deposited of course). But have you ever wondered what incited this practice in the first place?

In the early 1900s, a mechanical engineer named Frederick Winslow Taylor regarded as the father of scientific management wanted to improve industrial efficiency. He measured every part of an employee’s job, then ranked each worker’s output individually and rewarded them accordingly. His system consisted of these main tenets:

1. Scientifically select, train, and develop each employee. Employees used to figure out how to perform basic job functions by watching and being trained by others. Industrial jobs were relatively simple and repetitive, but also dangerous -- especially while new employees were still acclimating to their roles and responsibilities.

2. Provide detailed instruction and supervision of employees. In addition to training, employees had to be closely (micro)managed to increase productivity and limit accidents.

3. Divide work nearly equally between managers and workers. Managers applied scientific management principles to planning the work and the workers actually perform the tasks.

4. Enforcement. (More micromanagement...) A manager’s job was to enforce the standards from on high, which included which tools employees were to use and what working conditions were considered normal. This was based on the presumption that most laborers were too stupid to understand what they were doing:

I can say, without the slightest hesitation, that the science of handling pig-iron is so great that the man who is ... physically able to handle pig-iron and is sufficiently phlegmatic and stupid to choose this for his occupation is rarely able to comprehend the science of handling pig-iron.

~Frederick Winslow Taylor



Taylor in essence fortified a two-class system where managers were the intelligent planners. Laborers did what they were told as they were viewed as incapable of comprehending or improving the work they performed daily. As you can imagine this ideology led to many strikes and other unrest from employees.

Taylor also created a practice that is still in use today, linking pay to productivity. He paid his workers more than other factories that did not implement his scientific management practices. Taylor’s system was eventually accepted and used widely, mainly because production improved.

Unfortunately the predominant management practices still in wide use today were designed during a time when the attributes of self-direction and creativity were unnecessary and even undesirable in the workforce. This was at a time when what was most valued was producing outcomes that were very mechanistic and repeatable, where efficiency was paramount, and where people were easily replaceable.

Today, knowledge workers sit at desks in completely safe environments where the largest risk of injury is getting carpel tunnel syndrome from playing too much foosball. Training no longer has to be so scientific, since people are often hired for their entrepreneurialism - getting from A to B in whatever way works best.

Command and control management, stack ranking performance appraisals, and systems of reward and punishment (the so called carrot and stick which include financial incentives like bonuses and awards) are outdated. While these practices are effective at driving minimally competent work and keeping people in line, they’ve been scientifically proven to actually decrease performance when it comes to creative, innovative knowledge work, which is the very type of work that we most need to succeed in today’s marketplace.

Only 8% of companies report that their performance management process drives high levels of value, while 58% said it is not an effective use of time.Source: Dupress.com


CHAPTER 2

WHAT MANAGERS THINK


Guess what? Managers loathe reviews just as much as employees do. According to the Society for Human Resource Management, “about 95% of managers say they aren’t satisfied with their organizations’ performance management processes either, and 90% of HR professionals don’t believe their companies’ performance reviews provide accurate information, CEB researchers found.”

There is often insufficient data to support these assessments and their attendant outcomes. Managers begin looking more closely in the weeks leading up to reviews, or they rely on self-assessments handed out on their teams. Neither are reliable or comprehensive enough to be the foundation of a practice that determines so much in the trajectory of an employee’s tenure at a company.

Most companies have an annual or semi-annual performance review process where managers provide structured feedback to their employees. While effective in theory, these irregular check-ins can seem like token efforts which yield few tangible results or overall organizational communication.

Another major problem is recency bias; the human tendency to keep recent history at the forefront of our memory. How can we be expected to give an assessment of performance for an entire year when we are hard-wired to judge based on the most recent memories? Two scenarios are possible here:

Scenario 1: You have an employee who is an average or below-average performer all year. In the last two or three months leading up to the review, the employee starts to step it up. Recent memory colors our judgment and we’ll likely tend to rate that person highly. What we fail to account for is accuracy in assessment over time at the moment we sit down to write their report.

Scenario 2: The employee is a solid performer who is suddenly encountering challenges. Perhaps these are job related or maybe they are personal. Trouble with a relationship, children, finances, health problems…there are a multitude of reasons for diminished performance. These recent issues have tainted an otherwise stellar work record. Again, we run the risk of seeing through too narrow of a lens.

“Annual performance reviews often are considered time-sucks of meaningless paperwork and awkward meetings between manager and subordinate who suddenly seem like strangers.”

~Katie Donovan, Forbes.



Reviews are expensive in terms of time and energy. They are painful to do and remove both managers and employees from their normal workflows. When employee feedback and weekly goal-setting is a part of the normal work-flow, there is no additional effort and there is less resistance. Managers have the information they need to guide employees rather than simply grading them, and regular communication creates better relationships long-term.

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Bottom Line 95% of managers say they are not satisfied with their organizations’ performance management processes. They view it as a waste of valuable time, because very little outcome is seen from these assessments.

Consider ways to incorporate employee feedback and weekly goal-setting as part of the normal work-flow. More frequent and consistent check-ins on what an employee has accomplished, where they’re struggling and how they’re feeling will improve their performance without disrupting their day-to-day.


CHAPTER 3

WHAT EMPLOYEES THINK


The short answer? Reviews suck.

Who wants to be scrutinized and risk being told that they are inadequate by what they see as unfair representations of actual performance. Plus many reviews are accompanied by rating and ranking systems. Take for example, Rank and Yank popularized by former head of GE Jack Welch, in the 1980’s:

Employees were given a rank based on performance. Top ratings led to high status, promotions, and raises. With a forced curve, a manager with a hardworking team of 10 people may only be allowed to give one or two of them the top rating. As a result, people directly competed with each other for rewards, hurting collaboration. Not to mention that the lowest 10% were fired.

With rank and yank, productivity alone does not inform the results, it is productivity relative to other employees. Even when employees were productive when judged against objective standards, their relatively “poor” performance was cause for dismissal.

GE abandoned rank and yank years ago, but in 2015 they announced their decision to abandon performance reviews altogether in lieu of more regular feedback via an app called PD@GE (Performance Development at General Electric).

Reviews are often criticized for being unreliable and counter-productive. Employees spend the months leading up to them politicking for position instead of doing actual work. A typical scenario goes like this:

About 66% of employees say the performance review process interferes with their productivity, and 65% say it isn’t even relevant to their jobs, according to a CEB survey of 13,000 employees worldwide. Source: Society for Human Resource Management



In November, an employee gets an email from their manager (or worse, from HR) with an attached form. The form asks what the employee did over the past twelve months, how they think they performed, and what are their strengths and weaknesses. So instead of working that day, employees spend hours carefully crafting a document that paints them in the best light possible.

One study revealed that whether a manager hired or inherited an employee biased their review. For another, cut-throat environments that use rank and yank systems tend to alienate talented employees. They experience high levels of stress and anxiety, which decreases productivity, morale, and overall job satisfaction. Those employees are likely to search for new employment at a more supportive culture.

High-performers understand that there is constant room for improvement, and they thrive when given the opportunity to give and receive constructive feedback. If managers are not talking with them on a consistent basis, they’ll leave to pursue ‘greener pastures’ where they feel they’ll be heard and valued.

Companies that remove ratings are seeing the conversations shift from justifying past performance to thinking about growth and development. Their employees are happier, which encourages more engagement and better performance.

This is another example of industrial revolution thinking impacting modern workplace growth. Competition like this is only effective in standard manufacturing environments.

Give someone a financial incentive to create a specific number of individual units within a certain amount of time and performance will go up.

A Word About Millennials Companies like Accenture and Adobe are eliminating traditional performance assessments, prompting more businesses to take notice. A TriNet Perform study conducted by Wakefield Research in September 2015 surveyed 1,000 U.S. full-time employees born after 1980 and found that infrequent feedback had a negative impact on Millennials:

Approximately 70% of Millennials, see their company’s review process as flawed, but also depend on it for their professional growth and development. 85% would feel more confident in their current position if they could have more frequent performance conversations with their manager.



The industrial revolution is over, and command and control no longer functions as a performance management strategy. Companies need to empower their employees so that they will be more engaged and effective at their roles.

Bottom Line Rank and Yank performance management process does not inform results and is counter-productive to fostering collaboration and productivity.

Millennials want more frequent check-ins with their managers and seek the opportunity to give and receive constructive feedback.

Look hard at your performance management process and aim to have frequent conversations about employee growth and development, not justifying past performance. When managers coach their employees to grow and succeed, they will be more engaged and effective in their roles.

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CHAPTER 4

THE BEGINNING OF THE END



At best, highly competitive environments and traditional performance reviews and ranking systems produce a form of extrinsic motivation. This is accompanied by a sense of pressure, fear and competition between colleagues. These negative side effects have been proven to actually shut down people’s ability to be highly creative and collaborative.

In today’s knowledge-worker economy, the type of work that’s becoming most highly valued is creative, innovative and collaborative. The age old competitive advantages of hard work and efficiency are now simply table stakes. Breakthroughs that set a company apart in the marketplace now require new ways of thinking, acting, and working together. That only comes from people who are open, connected, and inspired to produce their very best work.

The great news here is that what truly motivates people to do their best, most creative and most innovative work is perfectly aligned with the skills and behaviors required to create organizations that are agile, flexible and decentralized.

Here’s how to create an environment where employees are authentically and intrinsically motivated, and where creativity can flourish:

• Connect people to a common purpose and the company-wide and individual objectives that they need to achieve success.

• Provide them the autonomy to decide and act in service of achieving their objectives.

• Get to know them by asking questions. Find out where they are struggling.

• Support them in becoming their best by addressing the specific issues you surface.

• Facilitate a great culture by having managers develop strong relationships with all team members.

At least 30% of the performance reviews result in decreased employee performance. Source: The Psychological Bulletin


http://psycnet.apa.org/index.cfm?fa=search.displayRecord&uid=1996-02773-003


Feedback and transparency are now critical elements of the most innovative, successful and fastest-moving organizations. Leaders can’t afford to be the bottleneck for every decision and action that needs to be taken. Instead you should set the direction, create the culture, empower your people with the tools they need, and then support and coach them in doing their best work.

More and more companies are embracing an approach where leaders grant autonomy instead of boxing people in with standards. Sure there are milestones to achieve and metrics have to be analyzed so that performance is optimized. But conventional employee rating systems inhibit collaboration. In today’s workplace, innovation is triggered by team collaboration and growth; whereas competition and fear lowers productivity.

Bottom Line Leaders who bottleneck projects need a role makeover that allows them to focus on creating the strategy and goals, while empowering managers and teams to make day-to-day decisions. Start by finding ways to create more transparency in the workplace and invest in your culture. A strong, aligned culture will guide business decisions in decentralized, agile environments.

High performance is derived from employees who are engaged and feel connected to the vision of the company. Leaders and managers can intrinsically motivate their employees by checking-in weekly, asking the right questions and starting conversations that build relationships.

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CHAPTER 5

PERFORMANCE TRENDS



By early 2015, around 30 large companies, representing over 1.5 million employees, were no longer using forced rankings and defining performance by a single number. These companies were emphasizing ongoing, quality conversations between managers and their teams.

Just a few months later, this trend started to accelerate. Consulting firms Deloitte and Accenture, global health services client Cigna, and even GE (the original proponents of stack rankings) all announced changes to their performance management systems.

By September, over 50 large firms were moving to no-ratings systems. According to research firm Bersin by Deloitte, around 70% of companies are now reconsidering their performance management strategy.

Work is shifting dramatically these days. For starters, no one sets annual goals anymore. Now they are monthly or even weekly. Additionally, some companies are structured so that people work remotely or on multiple teams. Their main managers don’t have natural interactions like running into employees in the hallway and using that as an opportunity to initiate conversation. Due to these changes it is difficult for many managers to have a complete picture of what every employee is working on.

For example, I have an employee at 15Five, who works closely with marketing, sales, and our customer success teams. His work has measurable impacts on each of these three teams. Without a cadence of weekly communication, the three individual managers would not be able to track his performance, let alone provide the support or coaching he might need to improve.

Few managers accurately know their team members’ performance when that employee is involved in many other teams, often doing work the manager doesn’t see or even understand. But even a regular employee who works in-house, on one team, for one manager cannot be engaged by that manager sporadically.

The number of employers that are either ditching the numerical ranking of employees or tossing out the entire performance review process has grown from 4% in 2012 to 12% in 2014, according to a Corporate Executive Board (CEB) survey of Fortune 1,000 companies.Source: Society for Human Resource Management


http://psycnet.apa.org/index.cfm?fa=search.displayRecord&uid=1996-02773-003


Bottom Line As new ways of work are evolving, such as the adoption of cross-functional teams, and distributed/virtual work environments, companies need to find new ways to manage employee performance. If you’re re-thinking the way you do performance evaluations, you’re not alone, as 70% of companies are seeking a better way too.

Standard performance reviews, delivered once a year, are just not relevant to the ways we work anymore. Business moves far more quickly than it used to and employees are demanding autonomy, communication, feedback, and coaching to perform purposeful excellent work. There has to be a better way…



CHAPTER 6

A BETTER WAY



Companies are replacing their annual performance reviews and ranking systems with consistent feedback and coaching conversations throughout the year. In doing so, they are cultivating the right culture of engaging, nurturing, and retaining top employees.

Performance reviews are designed to essentially grade employees based on their performance. That data is often processed by an outsider, someone on the HR team or a level or two above the employee’s manager.

Why not actually improve performance in real-time? This task, and nearly everything else that impacts the employee’s experience happens locally at the team level. Team managers impact progress, collaboration, productivity and team-success. HR departments and the C-suite may set policy or overarching objectives, but the actual impacts occur between managers and their direct reports.

If you are interested in actually improving productivity and engagement (instead of just measuring it every 6-12 months) then you need to create a drastic change to inspire each employee and keep him/her focused on the right outcomes every week.

Below is a great option that others have found as a successful replacement to traditional annual reviews. Your company may not be ready to get rid of them altogether, but this is an excellent way to augment your evaluation process:

Weekly check-ins: Managers know that high employee performance comes from empowering people and not micromanaging them. But if you’re no longer in complete control of the plan of action, how do you stay apprised of what’s really going on with your team and in your organization? How do you truly know the pulse of your organization? It all comes down to regular communication via software tools that are simple, agile, and flexible enough to support team leaders in asking and answering the right questions.

There are simple tools available that you can subscribe to, such as 15Five, that allow you to ask questions every week and then address performance, engagement and culture. They create more frequent and candid communication between employees and their direct managers.

Why be surprised every December by issues that are too late to resolve? Weekly check-ins allow you to surface issues before they become really big problems, and then ensure that your people have the support, resources and connections to collaborate on resolving them. An added bonus is that the organization will become a place where truth and transparency are honored. In these environments trust, engagement and morale can flourish naturally.

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2 Quarterly Performance Snapshot:So many companies break up the year into quarters. It’s a natural time to look at company-wide financials and either reaffirm or reassess goals. Managers can use this time to look back on the conversations that took place over the previous three months. They can see how employees performed relative to their quarterly goals, and discuss concerns for the coming quarter.

The end ofthe quarter is a good time to have conversations about what an employee’s future might look like within the company. Get clear on what they desire and how that syncs up with the needs of the company. Do they want to manage their own team? Become a subject matter expert? Let them know exactly what is expected for them to be promoted.

Separate Compensation Review:You might be asking yourself, How will I know how to promote and increase compensation without a formal process every year?

The answer is to decouple the appraisal from the compensation review. Performance based compensation and promotion decisions have to be made every year, but wrapping that together with coaching and feedback to improve performance is a bad idea. We end up with a counter-productive process where trust is eroded.

Look back to the coaching and feedback conversations over the past year. How have employees reacted? Have they improved? This will inform how they take in new information and develop new skills. This can indicate how they will perform in a new role with a steeper learning curve. Now is the time to have a clean conversation about whether they hit the KPIs and other metrics that were laid out at the start of the quarter. If they hit them, they receive commensurate compensation or a promotion. Focus on numbers to evaluate them for advancement, not the qualitative feedback that fed into the actual improvement.

Ask, ‘Who’s eligible for a promotion? Who has specific, critical skills we need?’ Then, we shift from talking about rankings to talking about people and considering how best to capitalize on the strengths you find.

~Marcus Buckingham



Bottom Line Refreshing employee evaluations will require lots of time to review current processes, get buy-in, and implement training. Companies who have successfully replaced their annual performance reviews, have replaced them with three different types of check-ins.

Start with weekly check-ins to address performance, culture and growth.

Hold more in-depth quarterly conversations, looking back on performance throughout the quarter and create goals for the next.

Finally, separate the performance appraisal from compensation review.

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CONCLUSION



Judging by all of the research suggesting that reviews do more harm than good (and the scorn from both managers and employees), we are sure to see that percentage grow.

Industrial revolution thinking no longer applies today, when a new generation of workers demands more from their leaders. Today’s markets move too quickly for managers to check-in with employees only once each year, especially with research that shows how valuable regular employee feedback is for improving performance.

As managers continue with outdated practices like once-a-year performance reviews, they are extending the timeline for improving their companies. They could be building a better infrastructure of performance management instead of patching up deteriorating staples of corporate procedure.

Abandoning annual reviews may not be right for your company, but augmenting them with regular employee-manager communication is critical. You have a clear choice, cling to outdated command and control management or step into the new world to engage and inspire your employees. You can review performance months after it’s way too late or you can improve it today.

Don’t Just Review Performance, Improve It. Get a weekly pulse of your team on what they accomplished, how they’re feeling, where they’re struggling and more. Try 15Five free for 14 days at 15Five.com.

We are asking our team leaders what they would do with each team member rather than what they think of that individual. When we aggregate these data points over a year, weighting each according to the duration of a given project, we produce a rich stream of information for leaders’ discussions of what they, in turn, will do -- whether it’s a question of succession planning, development paths, or performance-pattern analysis.

~Marcus Buckingham, Harvard Business Review


http://15Five.com


REFERENCES

AND CREDITS



To learn more, visit www.15Five.com

Sources: http://www.cbsnews.com/videos/perfor-mance-anxiety-revamping-traditional-an-nual-reviews/

http://www.wsj.com/articles/how-per-formance-reviews-can-harm-mental-health-1445824925

http://www.bbc.com/news/maga-zine-33988479

http://qz.com/428813/ge-performance-re-view-strategy-shift/

https://hbr.org/2015/09/why-more-and-more-companies-are-ditching-perfor-mance-ratings

https://hbr.org/2015/03/team-leaders-need-better-data-faster

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http://dupress.com/articles/hc-trends-2014-performance-manage-ment/

http://www.cio.com/article/2981501/staff-management/goodbye-to-perfor-mance-reviews-hello-to-what.html

Image Credits: Frederick Winslow Taylor - Rosenfeld Media

https://www.flickr.com/photos/rosenfeldmedia/9200908315\

Brain - Allan Ajifo

http://aboutmodafinil.com/

Feedback - Karl Horton

https://www.flickr.com/photos/karlhorton/1903050006

Peer Review - AJ Cann

https://www.flickr.com/photos/ajc1/6735929719

Millennial - David Gingrich

https://www.flickr.com/photos/ndanger/6091777712

Trendline Guy - Scott Maxwell

http://thegoldguys.blogspot.com/

Business Runner - ATOS

https://www.flickr.com/photos/atosorigin/

Charlie Chaplin - Modern Times

https://commons.wikimedia.org/wiki/File:Chaplin_-_Modern_Times.jpg#/media/File:Chaplin_-_Modern_Times.jpg


http://www.15five.com/

http://www.cbsnews.com/videos/performance-anxiety-revamping-traditional-annual-reviews/



http://www.wsj.com/articles/how-performance-reviews-can-harm-mental-health-1445824925



http://www.bbc.com/news/magazine-33988479

http://www.bbc.com/news/magazine-33988479

http://qz.com/428813/ge-performance-review-strategy-shift/

http://qz.com/428813/ge-performance-review-strategy-shift/

https://hbr.org/2015/09/why-more-and-more-companies-are-ditching-performance-ratings





https://hbr.org/2015/04/reinventing-performance-management

https://hbr.org/2015/04/reinventing-performance-management

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http://www.shrm.org/publications/hrmagazine/editorialcontent/2015/0415/pages/0415-qualitative-performance-reviews.aspx




http://dupress.com/articles/hc-trends-2014-performance-management/



http://www.cio.com/article/2981501/staff-management/goodbye-to-performance-reviews-hello-to-what.html



https://www.flickr.com/photos/rosenfeldmedia/9200908315/



http://aboutmodafinil.com/







http://thegoldguys.blogspot.com/







15five's annual performance review guide

Leadership & Management