Four Reasons Why Annual Performance Reviews Fail and What To Do About It

Teague Hopkins on my advisory board flagged this Washington Post story about Accenture throwing out most of its current process for doing annual performance reviews (APRs) and rankings for employees. With 330,000 employees, Accenture figured that since the process wasn’t actually improving performance and it was costing huge amounts of time and money, it was time to dump it. You rarely hear people extolling the virtues of their company’s APR process. Most staff and managers find APRs painful and pointless. Why?

Photo Credit: Alex E. Proimos via Compfight cc
Photo Credit: Alex E. Proimos via Compfight cc

1. “Annual?” Everything we know about human motivation tells us that if you have to wait a year until you get meaningful feedback, there is almost no chance it will make any difference in your performance. Think of something you quickly learned to do well. Odds are very good that you got feedback on your performance immediately after each of many attempts.

This is one reason many people learn to play video games so quickly and efficiently. The feedback is immediate and relevant. You perform, you get feedback, you adjust, you try again. Usually the “annual” performance review is the antithesis of the ideal learning process.

2. APRs can’t substitute for good job design. A well-designed job will create a feedback loop for the employee that is integral to the job. If you are not getting regular feedback from your customers (whether they are internal or external to your company), there is something wrong with the way your job is designed.

If you are not in a position to make changes to improve customer satisfaction, your company is missing the main opportunity to help you improve your performance. “Annual” customer satisfaction surveys have the same problem as “annual” performance reviews. The feedback loop is too long.

3. Companies often don’t have a clear understanding of what drives company performance or employee performance. Even companies with direct-sales business models struggle to figure out what drives their business. You would think that measuring performance of individual salespeople based on sales revenue generated and aggregating these numbers to measure company performance would be straight-forward. Of course it’s more complicated. For example, does a salesperson who generates long-term commitments from customers (Lifetime Customer Value) add more value to the company than an employee who converts a lot of one-time sales but no repeat business?

In a classic piece of operations research he conducted early in his career, management guru, Peter Drucker, found that salespeople who made more calls to their customers (a key metric in their annual performance reviews) actually had poorer sales performance because their customers felt badgered by the constant contact. Meaningful contact that is useful to the customer is what counts.

4. APRs can’t substitute for day-to-day competent management. Managers should be coaching staff and helping them figure out how to improve their performance to meet customer needs. Managers need to play to people’s strengths which means they need to know what those strengths are. They need to fix job-design problems and spend time helping people learn more quickly. Instead of spending the hundreds of hours on an annual review process, managers would be better off actively managing their people and themselves.

The best way to improve employee performance is to:

1. Develop a clear shared understanding of what really drives company performance and how individual employees can contribute to that performance straight through to satisfying customers.

2. Design jobs with built-in feedback loops that make it as transparent as possible and as quickly as possible whether employees are succeeding in satisfying the customers and then give employees the authority necessary to test and implement improvements.

3. Expect managers to manage by focusing on helping their staff figure out ways to learn more effectively and efficiently how to perform better including how to find the best fit for their strengths within the company (or outside the company of there isn’t a fit.)

Make performance improvement a basic part of the ongoing employee experience. Celebrate successes and learn quickly from failures. You can’t manage performance in the vacuum of a separate annual process and expect it to result in better performance for your employees or your company.