Raise your hand if you like performance reviews. No?
No one likes the annual performance review:
- The employee doesn’t like to write a self-review
- The manager doesn’t want to write about the employee’s performance
- The face to face conversation on the past year’s performance is not comfortable for either party.
Some wonder if it even matters – this is why most small businesses that I advise don’t have annual reviews.
Why do we do them?
Some larger companies with a history of annual reviews have tried to stop requiring them. This made people happy for a while, but when it came to raises, managers didn’t have a strong basis to make decisions. Additionally, in this low inflation and low revenue growth environment, workers are not happy with their raises and are looking for validation of their work.
What is the answer to this conundrum?
I recommend frequent performance conversations with employees during periodic 1-to-1 meetings, and raises when the employee deserves it. (If you are not having periodic 1-to-1s, the company could be missing out on high employee performance.) It would be ideal to document the sense of the 1-to-1 conversation and put it in the employee’s file (electronic or physical) for future reference – even if it is just one page. Documenting the basis for a good or bad event is critical to any proceedings that arise from that action.
Walter Foster, an employment Attorney and litigator for Eckert Seamans, says that a history of performance needs to be documented but it doesn’t have to be overly formal. “I have successfully defended performance decisions of managers from just an email dialogue. The key is to show a consistent documented pattern of performance, good or bad,” says Foster.
You can’t praise someone one week and fire him for poor performance the next. There has to be recognition of a problem and an attempt to correct the performance issue before termination or reassignment action is taken. An absence of documentation helps the displaced worker’s argument. A documented series of conversations helps employer’s case when it comes to defending the action.
In terms of paying for performance, the annual review may be easier for budgeting and consistency, but the best way to motivate a high performing employee is to recognize outstanding work at the time it is done. Determine an annual budget and stay within it. Historically, companies would give raises based on a bell curve, with the top performers getting more. The method above works in a similar way, since the outstanding work should be done more frequently by your top performers.
Performance management is hot topic in the HR and Management forums, with little agreement other than “the annual review doesn’t work.” While the details of the system matter, a company has to first create a culture of high performance with recognition (and compensation) at the moment when great work is done.