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Do No Harm:

Are Annual Performance Reviews Harming Your Employees?

Posted on November 20, 2015

Applying to college has become a standard, anxiety-inducing rite of passage for many American students. After years of schooling and undergoing a rigorous application process, it all comes down to one day where students receive either acceptance or rejection to the college of their choosing.

Such high stakes induce much stomach-churning stress for both students and parents. And, according to a recent survey of 1,000 Millennials (those born after 1980) by TriNet and Wakefield Research, it’s a process replicated and equally loathed in the work world in the form of the annual performance review.

According to the survey, 74% of Millennials are unhappy with the current format and felt “in the dark” about how their managers thought of them until the day of the review. Of that group, 62% felt blindsided by the results and close to half, 47%, said their performance review made them feel “as if they can’t do anything right.” 15% of those surveyed cried after review.

It’s no wonder 22% of those surveyed said they called in sick due to anxiety over their review.

Moving Away From the Annual Performance Review

Something that might be obvious from this data – annual performance reviews are a poor motivational tool. In fact they might, in their current form, work directly counter to company goals. More than one-third (35%) of those surveyed complained about the process to their peers and more than a quarter (28%) started looking for a different job after the review.

Considering that turnover is a significant cost for employers, these numbers are downright alarming. It would also help explain why several major employers, including Accenture, General Electric, Microsoft, Gap, Google, Yahoo, Adobe, and Medtronic have all scrapped them. In the words of Accenture’s CEO, even though these reviews are done at considerable cost, “the outcome is not great.”

Research indicates annual performance reviews are unreliable because they are often skewed by the most recent developments. They also discourage employees because they fixate on the past and disregard making a plan for the future.

And, as mentioned above, there’s the cost. According to data from CEB, the average manager spends more than 200 hours a year on performance review-related activities, including training sessions, filling out forms, and delivering evaluations. The estimated cost of this for a company of 10,000 employees is roughly $35 million.

The Alternative: Continuous Feedback

Paying a lot of money to create problems is not a good business practice. That’s why smart companies like Google and Accenture are moving towards a more informal check-in process that occurs throughout the year, rather than once annually.

These “continuous feedback” systems ensure there is no information lag. Employees are continuously updated on their progress by managers and peers on current projects. This is premised on the idea that performance reviews should not arrive as a surprise or shock to employees.

Vocoli employee suggestion software is also premised on this concept. We’ve found that engaging managers and workers in a meaningful, continuous dialogue about ways to improve the company can often yield incredible results. Companies that encourage employee suggestions have increased revenue, dramatically lowered costs, improved operational efficiency, and created entirely new product lines.

Communication technology has become so pervasive and effective that it can now facilitate conversation among disparate people in a timely, relevant manner. In this environment, clinging to the annual performance review and the wooden employee suggestion box system is increasingly looking like a dated relic of the past. Contact Vocoli for a personalized demonstration of how our employee suggestion software can improve your company operations.


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