Annual Employee Performance Evaluations

Annual Employee Performance Evaluations, 360 Peer Reviews And Other Common HR Mistakes

By David Mizne

It’s annual employee performance review time! (Cue groans from every employee and manager in America.) Since our CEO recently published this piece about developing an alternative to annual employee performance evaluations, I thought it fitting to interview Colleen McCreary, a people ops thought leader who was one of the first to terminate the annual review process. Colleen is currently Chief People Officer at Vevo, the world’s leading all-premium music video and entertainment platform.

Many managers and business leaders are baffled by how to conduct performance evaluations and provide feedback for employees to grow in their roles. And if you choose to drastically change or eliminate your annual review, what will you do instead? How will you evaluate employee performance for the purposes of increased compensation and career advancement? Read on for valuable insights…

Q: There’s a battle raging in the HR world between those who are satisfied with annual employee performance evaluations, those who are augmenting them with a continuous feedback process, and those who are done with performance reviews altogether. Where do you stand and where do you see things heading in the business world?

CM: I have definitely been on the far end of this since 2009. I did away with performance reviews and haven’t done them in a long time. I used to think that we don’t need a structured process, that we should empower our managers to have these conversations and assume they’re going to do the right thing.

I now think that people do need structure regardless of what level they are in, and we need to provide people at all levels with the tools to know how to engage in regular ongoing employee feedback and have constructive conversations. Not just about performance but also about what’s going on in the workplace, how to communicate to the team, and how to keep people aligned.

What I’m looking for and trying to augment is how do we have more of a structured career conversation? Outside of the regular weekly ongoing feedback, are there certain points in the year when we should be asking some feedback questions around career trajectory? All of those things combined create the ideal cadence for the company to feel like they’re engaging with and understanding their workforce.

More importantly, their employees should have these two-way channels of communication. That accounted for much of the spirit and intent of performance reviews over the years, and needs to be replaced.

Thinking back twenty years ago, the big innovation in performance evaluations was that the employees wrote their review and the managers wrote theirs. This two way “conversation” was a huge innovation. Now we’ve moved to, Hey, why do we fill out this huge form once or twice a year? That doesn’t seem to capture much of anything and there’s now research about performance reviews demotivating people.

The tech industry has led the way in much of these shifts and it’s been nice to see some of the more traditional industries like consulting understand the drag on their own workforces in terms of morale and innovation by doing these other systems of performance management. They are also moving more toward giving people regular feedback.

Q: Probably the biggest resistance I hear about is what to do about compensation and advancement without a performance review. What’s the solution there?

CM: Everyone struggles with pay decisions whether you fill out a form or not. You have to determine what your company’s pay philosophy is.

Not everyone has a pay for performance philosophy. There are some very old, tenured organizations that are all about how long you’ve sat in a chair. Or they look at one metric once a year around cost of labor or cost of living. That’s what you get. For promotion, occasionally some seat might open and you get to apply for it or maybe someone is appointed to it.

We’ve solved for that over the years, so I’m certain we can come up with pay philosophies that map towards the work culture and values of the organization without tying compensation to a once or twice a year employee review form.

You are somehow magically able to make an offer to a new hire, right? This is someone who hasn’t worked in your organization before. They’ve never had a performance review. So you should be able to think about what that looks like over time for existing employees.

More specifically, you should formalize a compensation review process for your company that is in-line with your compensation philosophy. I work in a very fast moving industry and talent market in terms of what we expect from employees and mobility. So I really like a quarterly compensation review. That gives managers the flexibility to have shorter term conversations around goals and outlook, which is especially important for more junior employees.

Not everyone wants to think about how they budget for quarterly increases, so maybe for them it’s twice a year. For most companies in tight labor markets, doing a compensation review once a year sets you up to be at a disadvantage. And certainly you are setting yourself up for having to break your pay philosophy. For example, what do you do when someone who is taking on more responsibility and brings in high results doesn’t get recognized, because your system is set up for once a year pay raises?

Q: What are your thoughts on the 360 Performance Review Process?

CM: 360 reviews are a great development tool for people when they are being used appropriately, but I don’t like them to be used in compensation and promotion decisions. Then they are ineffective for the purpose, they are a waste of time, and people feel bitter about them.

Depending on how you set up the 360, in terms of how employees fill them out, you may not be able to use them as a true measuring tool. I worked at a company where this type of peer review was a huge factor in the compensation decision. My first instinct was to always choose the people who would say nice things about me. Who wouldn’t do that?

So then it’s not a super useful tool for anybody – I’m not getting the developmental feedback that I need to improve. My manager is hung out on the limb, because he or she is trying to give me developmental feedback, but I’ve selected out the people who are going to be critical. So there’s no feedback that shows areas that need improvement.

In circumstances when the manager forces you to get feedback from certain people, depending on your relationship with them and the pay structure of the company, you may be more likely to ding them for performance. That would likely occur in circumstances where there is a competitive pay structure in place and for you to get a raise, that means someone else won’t.

When you use a peer review for development purposes, you must frame it to say, “I am asking for this feedback so I can be better”. Then the respondents give you really quality feedback about where you do well, where your needs lie, and what their concerns are. People provide feedback with the best interest of the person in mind.

You also have to teach people how to give and receive feedback in general. If you do 360 reviews on your team, as a manager you have to coach people through the parts that sting and the parts that they get excited about. People need to pay attention to the stuff that sticks.

David is Content Manager at 15Five, lightweight performance management software that includes continuous employee feedback, OKRs, pulse surveys, peer recognition and 1-on-1 meeting agendas. David’s articles on talent management have appeared in The Next Web, TalentCulture, and Startups.co. Follow him @davidmizne.

Image Credit: Loozrboy


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