Complement the Performance Review. Don't Ditch It!

Since the introduction of the Balanced Scorecard in the early 1990 by David Norton and Robert Kaplan, many companies have relied on annual performance reviews as a means to evaluate employee performance, provide feedback, and make decisions related to compensation and career advancement. However, in the past 5-7 years, a growing number of organizations have been questioning the effectiveness and fairness of traditional performance appraisal systems. This is because the annual performance review is not without challenges.

Bias in Ratings: Performance reviews can be influenced by various biases, including the following:

• Halo Effect and Horns Effect: This occurs when an employee's overall rating is disproportionately influenced by a single positive or negative trait or action.
• Recency Bias: Employees' most recent performance is given undue weight, overshadowing their performance over the entire evaluation period.
• Leniency and Strictness Bias: Some managers consistently rate employees too leniently, while others are overly strict, leading to inconsistent and unfair evaluations.
• Confirmation Bias: Managers may seek out information that confirms their preconceived notions about an employee's performance, leading to biased assessments.

Subjectivity: Traditional reviews often rely on subjective evaluations by managers, which can lead to inconsistencies and variations in ratings. Managers' personal preferences and perspectives can heavily influence the outcome.

Limited Employee Input: Employees are typically passive recipients of feedback in traditional reviews. They may not have a meaningful opportunity to provide their perspective or contribute to the evaluation process.

Stress and Anxiety: The annual review process can create stress and anxiety for both employees and managers. Employees may dread the prospect of receiving negative feedback, while managers may feel uncomfortable delivering it.

Delayed Feedback: Waiting for an annual review to provide feedback means that issues or opportunities for improvement may go unaddressed for an extended period. This can hinder an employee's growth and development.

Neglect of Achievements: Positive contributions and achievements that occur shortly after the annual review may not be adequately recognized or rewarded until the next review cycle.

Focus on Documentation: Managers may become overly focused on gathering documentation for the review process, which can detract from their primary role of supporting employee development and performance improvement.

Lack of Alignment with Organizational Goals: Annual reviews may not effectively align individual performance goals with the broader objectives of the organization. Employees may not see the connection between their work and the company's mission and strategy.

Low Morale and Disengagement: Negative or unfair performance reviews can lead to low morale, decreased job satisfaction, and disengagement among employees. This, in turn, can have a detrimental impact on productivity and retention.

Inefficiency: Conducting annual reviews for all employees in a large organization can be time-consuming and resource-intensive. It may divert time and resources from more valuable activities.

I could add more, such as managers being unwilling to document negative behavior or managers being unable to provide evident, relevant feedback. Anyway, ?given all these challenges, many organizations are exploring alternative approaches to performance management, such as continuous feedback, 360-degree feedback, and goal-setting frameworks like Objectives and Key Results (OKRs) in addition to running annual performance appraisals, but seeking to integrate the feedback from the different “listening” and “collaboration” processes.

Some have gone so far to say “Ditch the Performance Review!”. I say "Don't Ditch It - Complememt It"

As an employee and line manager I have been in countless performance feedback sessions over the past 25 years . The most fruitful of them - where actual actionable insights were conceived on either side of the table - have not been the annual versions but the more frequent where we could discuss recent events, successes and especially failures. Having recent events in mind certainly has a big impact on evolving on your attitude and personal beliefs.

As practitioner in the talent management domain, I have also had the opportunity to work for a number of leading companies across industries and geographies. Although some have been willing to look at alternatives, I have also been surprised to see a rather large majority be skeptical about “ditching the performance review”. This is surprising, because we have seen that innovations in technology has continued, and provided new capabilities that were not available earlier to mitigate some - if no all - the issues listed above. For example, with SAP SuccessFactors you can address each of the following issues as follows:

• Bias in Ratings and Subjectivity: Using Calibration, senior management can compare evaluations from one team lead with those of another, ensuring fair and equal rating principles across teams. Couple this with insights from Report Story in Report Center for added insights.
• Limited Employee Input: Using both annual performance reviews and Continuous Feedback , you can ensure that employees can provide their own self evaluation and notes on own achievements in addition to manager feedback. This helps develop the quality of the managers feedback and increases chances that the following dialogue is fruitful.
• Stress and Anxiety: with system embedded guidance, tools like writing assistant and coaching advisor available for both employee and manager and other reviewers, the writers block and feedback anxiety can be addressed. And in 2024 with generative AI we will likely see even more improvements in this area.
• Delayed Feedback: With continuous feedback, ability to request feedback from peers and coworkers, you no longer will rely on managers asking around in the organization in "month 11", but can get relevant feedback throughout the year. The feedback can be collected with Continuos Feedback and made available at year end review, as well as in the annual salary review if needed.
• Neglect of Achievements: Again, with continuous feedback employee can get recognition from peers, project workers and others in the organization throughout the year and this can be made visible to the line manager. Also in Dynamic Teams you can document objectives and key results in a more dynamic fashion and measure progress on them.
• Focus on Documentation: system support for feedback collection, ensuring that managers are able to see? data about their line of sight, automatic transfer of documents to new managers upon manager change is there to help you out. These are administrative settings that need to be set in SuccessFactors Admin Centre.
• Lack of Alignment with Organizational Goals: This is where goal cascading and linking of objectives from employee to managers goals comes in, using Goal Management . Too many organizations are not seeing this as a key for ensuring people are working on the same priorities.
• Low Morale and Disengagement: Ensuring you run calibration on the annual performance review, plus you can use Report Story to analyze employee and manager feedback, differences in employee self evaluation vs. manager rating (which is rating of record). Also recommended to adopt 360 degree feedback (optionally via Qualtrics EX ) as this provides a mean for everyone interested to get feedback from peers, co-workers, project mangers and other collaborators in the organization.
• Inefficiency: performance reviews was never intended to be a time consuming activity. Having meaningful dialogues on the other hand should be time consuming and the underlying system is just a record of achievements. Being 100% cloud based, mobile capabilities for almost every transaction in performance management, SAP SuccessFactors was designed to be low touch, 3-clicks away

As can be seen, for every issue there is a possible mitigation strategy. It is all about seeing the trees in the forest and be able to implement and make the solutions work in a way that is compatible with organizational capabilities. All organizations that has implemented SAP SuccessFactors will have access to these capabilities and solutions, but may need support in understanding how they can be set up and especially adopted by the use of a solid change management framework in the specific organizational context.

Closing

Performance reviews have long been a cornerstone of performance management in organizations, and continue to be so. However, the bias and fairness concerns associated with traditional reviews have led many companies to explore alternative approaches. The changing landscape of work, marked by remote work and evolving employee expectations, calls for more frequent and real-time feedback. Alternatives like continuous feedback, 360-degree feedback, OKRs, and personal development plans offer organizations opportunities to enhance the fairness and effectiveness of their performance evaluation processes and in SAP SuccessFactors this is all supported, provided you adopt the latest releases and ask the right questions from your implementation partner. By adopting the alternatives, you can address biases, boost employee morale, and create a culture of continuous improvement, ultimately contributing to your long-term success and growth.

I hope you found this piece useful and I welcome your comment below.

Erik Ebert, Senior Director at Effective People

Erik Ebert is a trusted advisor with 25 years experience in information technology, human resources and commerce helping organizations transform the way they operate and work.