Shifting focus to growth: How to fix the annual performance reviews

Annual performance reviews; the bane of every employee and their line manager.

Chances are that if you ever worked for a company with a somewhat formalised performance management process, you had one of these and perhaps also did them with your reports.

It began with an alluring 1930s idea that an entire year worth of efforts can be reduced to a single number or metric which accurately and fairly displays the value each person brings to the organisation.

However, this ritual often becomes a popularity contest in favour of chasing a purely individualistic benefit such as a raise or bonus. And while those things are not bad in and of themselves, how people will go to attain them only breeds toxicity in the workplace.

We need a way for people to be recognised for their achievements without the office-politics and competitive game-playing. But how can we do this?

How do we fix annual reviews?

If the goal is to improve overall performance, here are some ways in which the traditional review falls short and what to do differently.

Talk about it more often – and with more people

Discussing performance once a year (or even twice or quarterly) is not nearly frequent enough. In the fast moving, technology-dense, environment we live in, to only reflect once or twice a year is a massive waste of potential.

Instead, give 360-degree feedback with a frequent, regular cadence (such as every two weeks) centred around live examples that enable immediate improvement. Adjusting direction while the idea is still fresh ensures a quick course-correction, prevents repeated mistakes, and supports a culture of co-operation, rather than leaving people behind.

Psychological safety is key to giving honest feedback. People must be free from the pressure to be “nice” and instead encouraged to be kind but candid – these types of comments are much more helpful and constructive.

Change the focus of the process

The annual review process itself is normally either a chore to be “ticked-off” or a game to be manipulated. Let’s fix that.

Rather than forcing a superfluous process on your people, instead think about how you can enable them. Work to identify and remove obstacles, encourage experimentation, and promote a culture of self-improvement.

Create a connection between performance and learning and development. It doesn’t necessarily need involve education in the form of a course. 70% of skills and knowledge are gained from on-the-job experiences. Think how you can utilise this to your advantage.

Consider how your performance process affects the culture

Discussions around performance and compensation can lead to resentment among team members if not handled in the right way.

While there will always be variance in how different team members perform in similar positions, we shouldn’t encourage the idea that “not everyone can be great”. This pits team members against each other in a battle for the “top position” and breeds a toxic culture.

Instead, make clear the abundant nature of success and boost collaboration by focusing on the team’s achievement of the overall goal.  

While external monetary incentives certainly can motivate many people, research shows that financial rewards can diminish intrinsic motivation. This means people are less inspired to do great work just because they enjoy the mastery, sense of purpose and great satisfaction they get from it.

External rewards, such as a bonus, can make work feel overly transactional. Instead, reward the collaborative effort and link incentives to the overall business performance – or remove the bonus and increase salaries instead. If the work feels meaningful and valuable, people’s intrinsic motivation will be sustained. Winning should be a team effort.

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