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Why Eliminating The Annual Review Caused A Drop In Performance

Source | FastCompany : By LYDIA DISHMAN

A small but growing cohort of Fortune 500 companies made headlines recently when they broke with tradition and ditched the annual review.

Executives claimed performance reviews were often inefficient. Neuroscience backed them up. One study found that the dread filling employees prior to a review can restrict creativity. Another revealed that performance reviews foster a fixed mind-set in which the employee believes they’ll never be able to improve and achieve professional growth.

So it made sense to toss the annual review process. Leadership advisory firm CEB found that the number of Fortune 1000 companies eliminating the annual review increased to 12% in 2015 from 1% back in 2011.

But CEB subsequently found that getting rid of the review didn’t always reverse its restrictive effects. In fact, it proved to drop employee engagement and performance by 10%.

CEB’s researchers polled nearly 10,000 employees in 18 countries. Workers came from a variety of industries and organizational sizes. The researchers then compared outcomes and perceptions of those employees in organizations that use performance ratings to those in organizations without ratings. They also did a series of interviews with heads of HR to get a handle on trends and challenges for performance management.

CEB’s analysis also found:

  • Manager conversation quality declined by 14%
  • Managers spent less time on informal reviews conversations
  • Top performers’ satisfaction with pay differentiation decreased by 8%
  • Employee engagement dropped by 6%

The original push to remove reviews and their attendant ratings should have given managers more time to discuss performance rather than defend ratings. That didn’t always occur.

PROBLEMS WITH PAY

In fact, after the initial glow wore off, managers reported problems. One VP of HR in the health care industry said that without the visible symbol of a rating, staff didn’t understand the process or philosophy behind the company’s pay system.

For many workers, the annual review is the one chance they have to get a raise all year, unless they get a promotion that comes with a pay increase. Could dismissing the review and ratings lessen the chance to get that crucial raise?

Brian Kropp, HR practice leader at CEB, says there certainly were some employees who reported that they received no raises in their most recent performance review. However, he points out that in most of those situations there was a broader company decision to not offer raises. It was not, he says, a reflection of the performance of employees.

EFFECTS ON TIME

As for freeing up managers’ time to engage their employees rather than sweat the details of conducting a performance review, that didn’t go as planned either. The report revealed that managers do not shift that extra time toward ongoing, informal performance conversations. This, despite the fact that research shows regular feedback helps employees feel appreciated and more engaged.

Kropp says CEB’s researchers measured employee engagement by assessing whether or not the employee is rationally and emotionally committed to the organization. “In other words, does their brain believe this organization is the right place for them to have a successful career, and is their heart attached to the organization because they like being there,” he explains.

CEB’s research has been able to show that employees who are both rationally and emotionally committed to their organization perform at higher levels and are less likely to quit.

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