Requiem for the Annual Performance Review? Not So Fast…
The year was 1981, and I had just been hired by Combustion Engineering in Ottawa as a fledgling HR staffer. The annual performance review quickly became the bane of my existence; it was clear managers were not taking the process seriously. I brought my complaint to my department head, the Vice President of HR. He took a long haul from his Camel (such were the days before smoke-free buildings), exhaled a trail of raccoon-tailed smoke rings and asked, “Why do we need these things, anyway?” Not the response I was looking for – or expected.
About a year later, I was approached by the head of the engineering department to work through some issues that had arisen with some of his direct reports from annual reviews. Ah, finally, a manager who cared! Several hours later, after we had resolved a number of salary inequities, discussed development plans for two of his talented high potentials, and put together an agenda to address a couple of critical performance issues, he walked me to the door and said, “This has been really helpful. Now I can get back to work.”
Obviously what we had been doing did not fit his idea of work. But it fit mine – then and now. As my own career progressed, and I worked in various countries, going from HR to general management and eventually the corner office, my belief in management’s responsibility to develop and guide the people who work for them has only grown stronger, as has my belief that the annual review is a key element of that process.
The National Center for the Middle Market’s (NCMM0 report on performance management, It’s About People: How Performance Management Helps Middle Market Companies Grow Faster sheds some light on the connection between performance management and the bottom line. More than three-quarters of companies in the survey that graded themselves as “excellent” or “very good” in performance management saw revenue enhancement over the prior year. However, 30% of companies less skilled in performance management saw revenue decline; one in five lost ground to competitors. The survey may only look at a year’s worth of data, but this matches up with anecdotal evidence drawn from my own experience, as well as what fellow CEOs tell me. As one friend, a CEO of a substantive energy systems firm, put it, “My most profitable and efficient divisions are led by folks who are really good at managing the performance of the workforce.”
Yet some thirty-five years after I first witnessed apathy toward the annual performance review (and surely I was not the first HR person or manager to do so), the efficacy and utility of the process are still being questioned.
Among the recent pieces of evidence: When Accenture, with a global employee base of some 330,000 workers, announced it was scrapping the traditional performance management system, it was neither a shock nor viewed as a renegade move. In fact, Accenture will be joining the likes of Deloitte and GE in search of more effective evaluation and feedback mechanisms. Accenture, for its part, says it will give employees feedback on a more frequent and timely basis.
The current argument against the beleaguered annual performance review is that a system that tells an employee in December what he or she may have failed to do or excelled at last April is meaningless at best. There is some validity to that argument, particularly in the fast-paced, technology-driven, 24/7 world we all inhabit.
The annual performance review was derided by such management experts as Peter Drucker and Edward Deming. It has been the object of scorn for both giver and receiver. Too often, managers are uncomfortable and ill-equipped to give constructive, substantive feedback, and employees hear the feedback through a filter of anxiety, dread, and defensiveness.
People on both sides of the process often dismiss it, avoid it, and in some cases just abdicate responsibility because they’ve lost sight of the real goal: guiding employees do the best job they can, which is good for both employee to and employer.
True, doing performance reviews – especially doing them well – is not always easy or pleasant. Over the years, the reviews I personally conducted that were most effective were a blend of positive and constructive, critical feedback. The latter always produced just a bit of tension and temporary discomfort.
I suspect discomfort is a big reason many folks whose responsibility it is to deliver performance evaluations shy away from doing so comprehensively, and why recipients are all too eager to avoid the whole thing if possible.
While I applaud efforts to improve employee evaluation, I worry that a less formal approach than the annual review could make it easier for people to avoid what’s potentially uncomfortable, thus denying employees genuinely useful feedback. The default is simply blame the “system” that asks us to enter into a temporarily uncomfortable dialogue. But why is that discomfort inherently a bad thing? Granted, criticism should be delivered with a degree of sensitivity, at least one concrete goal, and some idea about how to move forward, but out of that discomfort comes the chance for genuine improvement.
And there is another big problem with performance evaluation: Managers aren’t always given the tools or training to do it properly. I have found this to be especially true of those promoted to management because they have excelled in a technical aspect of their job.
The ability to engage subordinates in constructive dialogue and prepare them in their careers is a learnable/teachable skill. Since we have more than enough evidence that many people struggle on this front, pairing managers with a feedback coach – yes, someone who can give feedback on their feedback – is an entirely doable and worthwhile consideration. I know firsthand (and from both sides of the equation) that a good manager can motivate workers like nobody’s business.
There is no doubt that considerable good can come from reviewing the efficacy of our assessment processes, and that meaningful input from other key constituents can be additive. But there is no substitute for a manager who is skilled at providing useful feedback, especially since feedback has been shown to be an essential aspect of adult learning.
Nor is there any substitute for the annual review, which gives both employer and employee perspective on all aspects of performance and allows an overview of all the work done over the last 12 months. Timely feedback is critical; so is evaluating someone’s work in the aggregate rather than on a project-by-project basis. Also, the annual performance review is a chance to talk about the way forward for both employee and employer.
According to the NCMM survey, firms have a variety of practices related to performance reviews, but they don’t rate themselves as being very effective with most of them. Only 23% saw themselves as very effective at providing informal feedback throughout the year. When it comes to practices like providing opportunities for development, the figure is a shockingly low 16%.
These low scores speak of a missed opportunity to leverage the performance review process to the betterment of individuals and companies. Until we understand and appreciate that providing timely and pertinent feedback and guidance is the very essence of what we are called to do as managers, this flawed creature of corporate history will remain a thorn in the side of bosses and employees alike.
It could be those less burdened by corporate legacy will lead the way. Millennials, often cited as a cohort who is looking for genuine meaning from their jobs, are fast becoming the predominant generation at work. It has been my experience that they crave substantive feedback and look for corrective input as long as it is fair and well-intended. As a generation reared with technology, millennials tend to favor speed and efficiency. And they are also accustomed to constant, no-holds-barred communication. Their sheer numbers, expectations, and habits may force the change in making performance management substantive and timely while removing the stigma around frankness.
Charles “Chuck” Firlotte is President and Chief Executive Officer of Aquarion Company, the seventh largest investor-owned water utility in the USA, serving Connecticut, Massachusetts and New Hampshire. Chuck has lived and worked in his native Canada, the US, and the United Kingdom, and has had significant knowledge of environmental issues in Asia, having served on the board of an equipment technology supplier to the clean and waste water industry in China. He is past President of the National Association of Water Companies, based in Washington, D.C.