In the early 1800s, Robert Owen initiated the process of conducting performance appraisals at his cotton mills. Hundreds of years later, many employers still rely on annual reviews to give raises, award bonuses and promote employees. However, some notable companies are doing away with the idea of annual reviews in favor of other performance-appraisal methods.
Feedback from managers should be specific and timely, according to guidelines from the Office of Personnel Management. Managers do give specific feedback during annual reviews, but they may reference incidents that took place months earlier, making the feedback less than timely. Instead of doing annual performance reviews, General Electric managers are now having frequent conversations with their employees. GE also uses an app to help employees and managers share feedback in a timely manner.
Washington Post reporters Lillian Cunningham and Jena McGregor say GE executives are even thinking about getting rid of performance ratings, which is a real departure from the way Jack Welch ran the company in the 1980s and 1990s. GE is known for using a forced ranking system to compare employees to their peers. After using performance ratings to rank employees, GE managers would penalize workers in the bottom 10 percent, even if their performance was good overall. Some workers lost their jobs, while others were denied raises, bonuses or promotions. A full 6 percent of Fortune 500 companies no longer use this type of ranking system, according to research firm CEB.
Some companies are doing away with annual reviews simply because it takes too much time to do a thorough review for every employee. In a survey conducted by CEB, managers revealed that they spend an average of 210 hours per year on performance-management activities. If managers don't take time to document employee performance issues throughout the year, they must spend additional time digging through their records for the information they need to write accurate reviews.
Annual performance reviews are not always fair to employees, especially in companies that are struggling financially. When employees receive lower ratings than expected, it is not unusual for some of them to believe the company is just trying to save money on raises and bonuses. The perception that the system is rigged makes it difficult to motivate employees, giving companies yet another reason to do away with annual performance reviews.
With managers spending hundreds of hours on performance-management activities, the process of conducting annual reviews should have a positive impact on every business. Unfortunately, that's not the case. CEB research shows that there is no correlation between individual performance ratings and business results. If there is no measurable impact on the company, it doesn't make sense to continue spending so much time on annual reviews.
Another problem associated with annual reviews is the adversarial relationships that sometimes form between managers and subordinates. Even high-performing employees can become defensive when confronted with evidence of their past mistakes. If a manager isn't careful to balance negative feedback with positive reinforcement, defensive employees may feel less motivated to contribute to the team. When managers give informal feedback on a more frequent basis, employees don't feel ambushed, and they are more likely to act on the feedback in a productive manner.
When managers don't have to spend a lot of time writing performance reviews and having long meetings with employees, they are able to give timely feedback and focus on building positive relationships. Checking in on a weekly or monthly basis gives employees an opportunity to improve their performance and correct past mistakes, which often helps increase productivity and keep workers motivated. If managers do not have to fill out all of the paperwork associated with performance reviews, they also have more time for high-value activities.
Just because employers have been conducting performance appraisals for hundreds of years doesn't mean the annual review is a useful tool for modern companies. Instead of making decisions based on a single review, corporate executives and HR professionals are now trying their best to give employees timely feedback, which may result in improved performance and productivity.
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