Stop conforming: Is it time to end the dreaded annual performance appraisal?

*This blog was written for, and first published by, the Indiana CPA Society

Stop conforming: Is it time to end the dreaded annual performance appraisal?

Two Business Executives Sitting in Armchairs on the Grass Talking to One Another

Every year managers are required to provide an overview of staff performance. Each staff member’s performance is rigorously analyzed and, in many cases, an individual’s yearlong efforts are reduced to a series of numbers representing output. It is estimated that the cost for each appraisal, on average, equates to four to 10 hours of time per employee, depending on the type of analysis used. You are spending approximately $120-$400 per employee in salary-based cost.

Have you ever stopped to consider why you make your staff go through this annual performance appraisals process – one that originates from World War I “merit rating” systems developed by the U.S. Army? Created to identify and dismiss poor performers, about 60% of U.S. companies adopted this system after World War II, with 90% of companies adhering by the 1960s, according to Harvard Business Review.

Now, consider some of the challenges with the annual performance appraisal process.

  • Annual appraisals do not fit with the nature of today’s business environment. The environment is constantly changing, requiring adjustments across the year. So, why do people set rigid 12-month performance targets?
  • Performance appraisals tend to drive competition at the cost of collaboration.
  • Performance is a result of behaviors, processes and structures within the organization. People don’t intentionally set out to deliver a poor performance, therefore, when an employee is falling short, in terms of performance expectation, why do appraisals only focus on the individual performance? What about the processes and structures (the management) that contribute to the performance?
  • The recall of performance is impacted by primacy (performance that happened early in the year) and recent (performance that happened close to the appraisal process), while much of what happened in the middle of the year is forgotten.
  • Managers and reports can suffer from a number of unconscious biases, such as: availability cascade, the bandwagon effect, bias blind spot, choice-supportive bias, conservatism, fundamental attribution error, courtesy bias, the Dunning-Kruger effect, focusing effect, illusionary correlation, negativity bias, optimism bias, and that is just the start. So, why do organizations tend to place so much stock in the opinion of one person, the line manager?
  • The process is often opaque and alienates employees, increasing the risk of talent loss.
  • Annual appraisals can cause tension between a line manager and his or her direct report.
  • If you are interested in the acquiring and retaining the best talent, shouldn’t you be more interested in developing people, as opposed to ranking them?

All this considered, why do you persist with annual performance appraisals? Why persist with a highly subjective, judgment-driven process that costs, on average $1,200-$4,000 per group of 10 employees; to say nothing of productivity loss due to tensions created between line manager and direct reports?

Instead, decide to forgo annual performance appraisals for ongoing performance conversations. Engage and involve your employees in the design of this new performance feedback processes. Just imagine what you might create.

This is my challenge to you this year: Stop Conforming. Challenge your traditional beliefs and become a talent leader. You are competing in a talent-led knowledge economy, where talent is the currency of longevity. To acquire and retain the best people, you need leading-edge talent management processes.

David Griffiths, Ph.D. is the award-winning managing director of K3-Cubed Limited, a consulting, advising and training company that specializes in organizational development, knowledge management, and strategic and change management. Griffiths has been an advisor to the Indiana CPA Society since 2012 and was the driving force behind the creation of the CPA Center of Excellence®. Griffiths is an internationally recognized author, blogger, learning design advisor and thought leader.

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