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Be Careful When Exploring Alternatives to Annual Performance Reviews

Employment laws still apply no matter how you choose to evaluate employees’ work.

In this era of instantaneous communications and swiftly changing business environments, it’s not surprising that employers are searching for alternatives to the old-style annual performance review for evaluating their employees’ work. Several viable alternatives are attracting the attention of management, but they require as careful attention to their possible legal pitfalls as to their benefits.

The need for employers to keep one eye on applicable employment laws to avoid possible litigation is just as strong when exploring these alternatives as it is with annual reviews and other forms of evaluation and employee feedback. Just as we discussed in a previous column, it is all too easy to find yourself mired in litigation if the wrong thing is said or done during the review process.

When considering a change in how you do employee reviews, take a hard look at whether your existing process is accomplishing what you want it to. A good starting point is to ask whether your employees really know what is expected of them. A Gallup survey found that only half of employees understand what is expected of them at work. Employee performance goals must be well defined and easy to understand.

With an annual review, a manager sits down once a year and scores workers using a grading scale for different traits, usually graded numerically. The manager may compare team members with each other, and perhaps identify the top 15% for a raise or bonus. This grading process usually is followed by a one-way conversation with employees who often end up unhappy because of criticisms they hadn’t seen coming.

It’s not surprising that a growing number of Fortune 100 companies are either moving away from traditional numerical ratings or abandoning performance reviews altogether, points out attorney Susan Bassford Wilson of the law firm of Constangy Brooks Smith & Prophete. These employers have found that the annual review model is not consistent with their companies’ culture, nor is it a helpful tool for improving performance.

It’s not surprising that some are questioning whether it makes sense to evaluate employees by looking back at the past year instead of providing real-time feedback, knowing that most of us won’t remember clearly something that happened 11 months ago. The rapid pace of today’s business world requires faster remediation than that. Among those jettisoning the annual review model are General Electric, Microsoft, Deloitte, Accenture, Netflix and Adobe.

Reasons vary. Employers mention frustration with trying to accurately capture the entirety of an employee’s contributions by simply checking a box or assigning a numerical rating. Others found that not only are annual reviews time-consuming and burdensome, they also are unpopular with both managers and employees. Others object to reviews with a focus on a numerical “grading” of an employee instead of on developing that employee’s capabilities, attitude and work product quality.

If you decide to abandon the traditional annual performance review model, what alternative should you turn to? The answer depends on your company’s management philosophy, resources and needs. “In general, if you want to move away from a traditional review process, think about processes that will allow you to give feedback more regularly and less formally,” Wilson says.

Web-Based Alternatives

One method involves adopting an electronic platform that provides regular documented feedback to an employee when issues arise or achievements should be recognized. “You can also consider providing a mechanism for employees to be able to request mini-evaluations, and ways to provide both short- and long-term goals,” Wilson notes. And you should consider whether the feedback should come from someone other than the employee’s immediate supervisor.

There are plenty of alternatives available in the marketplace, but Wilson advises that if you’re interested in learning how to create a new review process, you could always start by borrowing from a company that is already well along in revamping its performance assessment systems, and she cites Adobe as a prime example.

In 2012, Adobe decided to abolish its previous performance review system, and created what it calls “Check-in.” On its website, Adobe defines Check-in as “an informal, ongoing dialogue between managers and their direct reports that has employees feeling more engaged and empowered.”

The process focuses on regular employee discussions with managers about priorities and expectations, providing feedback on a quarterly basis (at minimum), without any formal written documentation. The performance assessment also avoids rankings or ratings. Adobe’s program is described on its website and is available to the public for free.

When exploring alternatives, you need to take into account processes that currently flow from annual reviews, such as raises and promotions. “You might decide to combine frequent, informal feedback sessions with a streamlined annual review where compensation decisions are made, or you might base compensation on quantitative data that is gathered in the course of your business operations,” Wilson suggests.

She also stresses that management training will be key if you decide to move away from the traditional model. “You need to be sure that your managers are conscientious about basing compensation or employment decisions on legitimate criteria, including merit and length of service.”

Wilson reminds employers that they also must have written guidelines for the new performance review process and make sure that employees understand those guidelines. “Hope for the best, but prepare for the worst, in which a manager makes an inappropriate comment in a review, or an employee misconstrues and takes offense at constructive feedback.”

If the new process involves the Web or an app for ongoing discussions of individual employee’s performance, resulting data entered into the system must be retained for the duration of that person’s employment at your company—added to the amount of time set by the longest applicable statute of limitations for employment law claims.

“The ability to access ongoing performance discussions will be critical if a disgruntled or terminated employee should decide to file a charge or lawsuit,” Wilson warns. “If the informal review process (or a traditional one) is not sufficient to address performance issues, then you will need to begin a documented process to discuss the problems, set concrete expectations and hold employees accountable.”

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