It seems like standard procedure these days, doesn’t it? You hire an employee and then review his work every 30 days, 60 days, 90 days and then again annually. This is your way to track his improvement and see how well he’s fitting into his new role. It’s also your opportunity to determine whether he gets a pay raise, promotion, or other perks.
But is this system working for you? Some managers squirm at the idea of giving up regular performance reviews, but for some companies, eliminating this standard practice might be a better option.
The Move Away From Performance Reviews
In mid-2015, a trend started in the HR world. Big companies started shifting away from the standard performance curve and over to new methods of evaluating employees. Deloitte, Accenture, Cigna and General Electric were among some of the businesses that were making waves in the performance world.
As time has progressed, more firms have followed suit. 70% of companies are now in the process of deciding whether performance reviews are the right choice for them, according to Bersin by Deloitte.
Is it time for you to take another look at how your company evaluates employees? Let’s dig into the pros and cons of the performance review system.
First, the upside. For years, this system has worked for companies large and small. Here’s why.
It Offers a Benchmark Analysis
How can you tell whether an employee improved, stayed the same, or digressed year over year without having some sort of a benchmark analysis? You could rely on your manager’s memory to make that analysis, but how accurate is that? And what happens if your manager leaves mid-year? How will the new manager determine the employee’s performance year over year?
These are all valid questions and ones that are asked often when considering moving away from the performance review system. Having a standard system in place keeps everything fair, consistent and on the books. Managers always have a benchmark to judge how well an employee did each year compared to the previous years.
It Quantifies the Performance
Performance in itself is hard to describe fairly by all managers. For example, one manager might naturally use flowery language, making the employee’s performance seem exceptional, whereas another manager might naturally write and document performance using less vigor.
By having a rating scale, both managers can accurately document performance without having to write comments that could appear more subjective. A number is assigned to the performance instead of a manager’s review, making it quantifiable rather than open for interpretation.
When it comes to deciding between two employees for a promotion, this quantifiable approach is easier and more fair.
With almost three-quarters of companies considering a new approach to performance reviews, it’s clear something isn’t working. Here are some of the biggest concerns with using this approach to rank employees.
It Doesn’t Motivate Employees
Performance reviews should inherently serve to motivate employees. These are typically how they are graded to get promotions and other on-the-job benefits, so it is in their best interest to score high. Although that seems intuitive, it’s not always the case.
Managers tend to talk to employees more when performance reviews are not in the picture, according to the same Deloitte study. Managers schedule more meetings and have more one-on-one time to discuss performance throughout the year instead of relying on the single annual review.
This approach comes with a lot of benefits to both parties:
- The employee gets faster feedback about his performance so he can make faster changes to improve;
- The manager is better able to address small concerns before they become bigger;
- The employee is more motivated to improve knowing that someone is paying attention and cares about his performance on the job.
Although it may seem like an annual review would push employees to work harder all year round, it doesn’t. These conversations tend to have a larger impact on the overall morale of a workplace.
It Doesn’t Take Collaboration Into Account
Workplaces these days rely more and more on teamwork rather than individual performance. That means that employees are collaborating on the job more than before. Evaluating one employee’s performance based on a collective effort is neither fair nor accurate. You could stand to lose some of your best employees by not paying attention to the intricacies of each team.
Managers who immerse themselves in the teams and watch how they work together are better able to evaluable who is stepping up to challenges and who is riding the coattails of the others on the team. They can better pick out the people who will go above and beyond the call of duty to get the job done. Combine that with a more motivated workforce and companies are better suited to find the top talent than if performance reviews are used.
It Could Hurt Customer Service
When it comes down to it, you need your employees to provide exceptional customer service. If a performance review is the sole thing determining whether they get a promotion or pay increase, your employees will be more motivated to do whatever it takes to achieve a higher score – even if it means sacrificing customer happiness.
By removing the performance reviews, you can keep customer service as a central focus. Customer satisfaction is how your company makes money, which means you’ll end up profiting more by having a less stringent performance ranking system in place.
What’s Right for You?
There are distinct benefits to having a performance review system:
- You have a benchmark to judge employees;
- You can quantify performance, making it easier to judge year in and year out how an employee improved.
Still, there are some significant downsides that have a lot of companies opting for regularly scheduled one-on-one conversations:
- They don’t motivate employees;
- They don’t take teamwork into account;
- They could damage customer service.
Ultimately it’s up to you to determine what is right for your business model, but watching how the larger companies are reacting (and understanding why) can help you find the best fit for your company’s approach.
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