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Why annual appraisals are a waste of time (and what to do instead)

12 months have rolled past.  It’s appraisal time.  You’re sitting opposite your manager to talk through the objectives you set together a year ago. You think you’ve had a good year.  Then they deliver the body blow.  It hits you squarely in the chest. You haven’t lived up to their expectations.  You’ve failed against their criteria.  And it’s the first you’ve heard about it.

This situation is all too common.  In fact, I was chatting to a senior manager in a big bank only a week ago who’d had exactly this experience. They were mortified.  They’d worked hard all through the year, only to find out their boss was disappointed with their performance.  In spite of multiple conversations throughout the twelve months, they had no idea they were falling short.  In fact, they’d been asked for a new set of objectives which they thought was utterly pointless. 

Annual appraisals have always been my pet hate. In my view, they have no value at all. None! Through all my years in business, I haven’t found a single shred of evidence that tells me they improve performance.

So why on earth do we persist in this charade?  I’ve given up trying to work out why people carry on believing in things that have no basis in evidence.  Astrology, homeopathy, detoxing… habits or norms are adopted that people don’t even question.  With annual appraisals, I think many organisations do them because they think they should.  They’re a big business practice that’s copied by smaller businesses without asking why.

So what exactly’s wrong with an annual appraisal system?  And, from my experience leading innovative tech businesses, what should you do instead?

Demoralising and demotivating

Fundamentally, annual appraisals have the opposite effect of motivating staff.  They can be soul-crushing.  ‘Here’s a list of all the things you didn’t do well this year and another list from your colleagues of all your inadequacies.  So, we can’t give you a pay rise or promotion – sorry. Because your performance isn’t where we’d like it to be.’  Just miserable! 

Too often, companies make it the employee’s fault that they’re not getting paid more because performance is linked to compensation.  How is any of that motivating?

    Designed for the organisation and not the employee

    Appraisals feel like they’re designed for the organisation to check up on the employee.  I don’t know a single person who’s told me that they benefited from an annual review. Not one.

    Often, they involve two-way feedback with managers asking for opinions from employees and vice versa.  These 360 reviews are anonymous and secretive.  If you’re not careful, they foster toxic cultures.  Instead of people feeling they have psychological safety, speaking openly and honestly, feedback is cloaked in secrecy. Staff stab each other in the back with vague criticisms like, ‘X isn’t a team player’ or ‘She’s not very strategic’.  What does that even mean?  Do they know what being strategic looks like?  Are they a good judge?  This feedback is pointless and undermining.

    Annual horizons are too long

    Annual horizons are too far away. Who can remember what they’ve done over a whole year? What’s the point of telling someone that they’ve underachieved for 12 months?  As a result, managers make the mistake of looking at what’s happened most recently instead of the bigger picture.  If they’re not taking the time to document things as they go, they’re only likely to recall the beginning and end of the employee’s year. 

    People dust off their appraisal from a year ago, vaguely remember the conversation, realise they haven’t looked at it since and generate some ad hoc evidence that they’ve done what they committed to.  What a pointless waste of time.

    Bring in project-based feedback and OKRs

    Instead of this annual approach, move towards a culture of regular feedback.  Bring teams together for retrospectives after every major project.  Get them to talk openly about how things went and what they achieved.  This will naturally lead to discussions of their ‘say:do’ ratio ie. whether people are living up to the promises they make.  By encouraging radical candour, team members will give each other meaningful feedback and hold each other accountable. 

    OKRs (Objectives and Key Results) can be particularly useful here.  At most, they will be 90-day goals.  Some will be considerably shorter because the key results might be spread over days or weeks of delivery.  The great thing about OKRs is you can focus them on outcomes rather than activity.  Rather than saying, ‘I’m going to manage my team better,’ they can be worded as ‘I’m going to improve team satisfaction levels from x to y’. Focusing on something measurable can transform an employee’s sense of progress.

    Introduce job scorecards

    To increase motivation, performance and energy, introduce job scorecards. They’ll give you a structure around the performance levels you expect and this will be clear to everyone.  Assessment becomes consistent and objective. Every member of staff knows inherently what a good day looks like and how they’re going to be measured. 

    Using scorecards has revolutionised our clients’ businesses. For each role, there’s a scorecard that’s individual to that job. This process recognises that the company is investing money in this role. And so these are the outcomes it requires for that investment. 

    There’s always one main number or metric of measurement with supporting numbers in the form of leading and lagging indicators.  These are measurable on a weekly or even daily basis so that the member of staff knows, objectively, whether they’ve performed well or badly.  And whether the company is getting good value out of their investment.

    Contrast this with annual appraisals and their random objectives.  Staff spend a whole year not knowing if they’re winning or losing.  This is important.  To feel engaged, people need to know what you’re expecting them to do.  It’s no surprise that this is one of the most important questions in the Gallup Q12 survey of staff engagement.

    Put in a behavioural framework

    Do you have core values?  Then use them to get really clear on the behaviours you want to see in every one of your employees.  If these aren’t obvious, you’ll have no mechanism for tricky conversations. 

    Consider introducing a behavioural framework. Your managers will have a new vocabulary to highlight when people have done well or call out destructive behaviour.  It will be crystal clear what’s expected and anything that’s no longer going to be tolerated.  

    If this framework has been properly communicated, managers can get really specific in their performance-based discussions, relating back to the core values and pinpointing exactly when they’ve observed positive or negative behaviours. As MD of Peer 1, we developed a leadership development framework where our expectations of behaviours changed with seniority. So staff knew what they needed to work on if they wanted a promotion.

    And most importantly, bring in 1:1s

    So you’ve put in frameworks – job scorecards, OKRs, project-based feedback and a set of behaviours to measure people against.  Where does all this take you?  To 1:1s.  If there’s only one piece of advice you take from this blog, bring in weekly check-ins.

    A big thank you to Marcus Buckingham who, in his best-selling book ‘Nine Lies About Work’ demonstrated strong evidence for the value of weekly check-ins.  He describes how Cisco moved to a weekly rhythm of 1:1s with managers but this was rolled out inconsistently. They got an amazing set of data tracking performance against the frequency of 1:1s. If these took place weekly, there was a massive uptick in productivity.  This dropped dramatically when 1:1s were monthly and at six weeks or more, they had a negative impact, meaning you were better off not doing them at all.

    By choosing to move from annual appraisals to weekly 1:1s, your managers will start to become coaches.  In these regular check-ins, team members can assess themselves against the clear frameworks you’ve put in place. They can tell their manager how they think they’re doing and what they need to work on.  Together, they can look at results, work through any issues and look towards the future. And the regularity of this feedback will energise, motivate and engage your people like nothing else.

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    Written by business growth coach Dominic Monkhouse. Find out more about his work here. Read his book, ‘F**k Plan B’ here

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