The dilemma of this year’s annual employee performance review and how to manage it.

For many organizations, this is the time of year when they start the somewhat fraught process of reviewing employee performance for the previous 12 months. In previous articles, I have noted the many challenges in developing a meaningful approach to tackle this important issue and, indeed, have questioned whether such an annual review is an appropriate way to handle the diverse needs of employee feedback, bonus allocations, promotion decisions, future development needs etc.

However, recognising that such an annual review is still the norm for the majority of organizations, this year’s cycle will pose unique challenges that will require careful thought and clarity of guidance for all involved. The core issue that has thrown this unexpected ‘spanner into the works’ is of course the Covid-19 pandemic!

When employee goals were set around this time last year, there was no inkling of the disruption that was about to unfold. Personal performance goals, derived from wider strategic organizational directions, are of course always subject to the uncertainties of predicting the future. However, part of the rationale for setting annual employee goals is to focus the employees on delivering a future outcome which meets the aspirations of what the organization seeks to achieve. In setting the strategy on which these goals are based, allowance should have been made for foreseeable risk factors that could derail aspects of this future plan, and therefore specific employee goals should have factored in the need to meet the Attainable component of the S M A R T criteria.

But the pandemic has undermined all of this! For the majority of organizations, it has been a difficult, verging on catastrophic, year. Survival, rather than strategic growth, has become the imperative. For a smaller group of organizations, it has been a year of unrivalled opportunity with shifts in traditional market patterns allowing some to realise significant and unimagined gains.

In either scenario, it is likely that targets set 12 months ago are now substantially different to our expectations of what employees might have been able to achieve. Additionally, many organizations have made demands on employees which would previously have been deemed to be extraordinary, both in terms of timeframes to deliver and the agility required from employees to grasp and redefine core aspects of their roles. All of this has been requested at a time of great personal uncertainty for these employees. Many have become isolated from their workplace and workmates as a result of ‘work from home’ diktats. Many employees have, however, tackled these challenges with positivity and creativity and achieved much more than they might have, had the traditional status quo been maintained.

All of this raises the key question as to how we will now ‘evaluate’ performance that may have been exceptional, but may bear little resemblance to the priorities and goals that we had set previously?

So, what are the rules that can be applied:

Step 1. Recognise that we probably cannot use the employee goals set this time last year.

The goals themselves may have changed, but even where this is not the case, targets associated with these goals will almost certainly not be relevant as yardsticks to judge performance. Some organizations will attempt a pro-rata approach to retrospectively adjust targets in a misguided belief that this will ensure a fairness of assessment whilst maintaining some mathematical credibility to ‘employee scoring’. A brief trial application of such an approach will quickly show this to be a flawed and valueless approach doomed to create a thousand ‘exceptions’ which will ultimately undermine the process.

Consequence 1 – we will need to communicate, swiftly, that a substantially modified approach to annual employee performance will be instituted this year to deal with the exceptional circumstances of the pandemic

Step 2. Determine whether there is scope for bonus payments or salary increments

Most annual performance reviews attempt to disguise that the ‘elephant in the room’ is actually how the outcome (‘score’) will be used to compute bonus or other cash rewards such as salary increase entitlement. Economic realities this year may mean that any additional monetary payments may not be possible. Where some form of bonus is possible, it will not be logical to tie it to goals and targets that are no longer relevant yardsticks of individual employee performance.

Consequence 2 – move to a ‘ex gratia’ thankyou bonus where each employee receives a common percentage of base salary to reward their unique and exceptional response to the pandemic

Consequence 3 – institute a ‘spot bonus’ reward pool where business unit heads can nominate those employees who have gone beyond and above expectations in supporting the business during the last year.

(nb. Detractors of the above approach will undoubtedly point to those employees who have potentially not delivered, or even abused the ‘freedoms’ that have resulted from loosening of ‘control mechanisms’, and will challenge why they should benefit from ‘Consequence 2.’ In response to these criticisms, be aware that this is an 80:20 approach. We know who our underperformers are! If we choose to not take action on this group, then that is our failure of management. Do not penalise the many for the actions of the few!! This year, it’s about saying thankyou for the efforts of the majority of our committed workforce. Similarly, to those who might point to the potential lack of rigour in determining eligibility for the spot bonus, I would again point to the reality that we generally know who has ‘gone the extra mile’ without a formal scoring system. Simple peer review checks and balances can easily eliminate any obvious favouritisms or frauds, which will anyway be a minority of cases.)

Step 3. Move appraisal to a ‘self-determination’ basis

Having abandoned the existing employee goal sheet, ask employees to ‘nominate’ their top 5 achievements during the last year. Evaluate each achievement for ‘impact’ (overall effect on wider organizational outcomes) and ‘difficulty’ (level of challenge in delivering the outcome). Add an additional supervisor/ management assessment component for ‘engagement level’ and ‘adaptability’ to provide further behavioural evaluation components. Engage peers in the behavioural component assessment where practical.

Consequence 4. Communicate the approach to be used and its rationale. If necessary, develop a simple ‘scoring methodology’ to support review meetings.

Step 4. Focus more on progression and personal development as the reward for achievement 

Where financial reward options may be limited, focus rewards around employee development. This can include promotions, opportunities for job rotation or job shadowing activity to broaden skills, or specific training and development opportunities.

Consequence 5. Use communication to realign employee thinking behind the value of personal growth and the organization’s commitment to invest in the future of its high performing people. Establish the importance of this approach as a new norm in thinking about employee performance reviews

Step 5. Prepare for future uncertainty through a self-managing approach to future goal setting

It’s unlikely that 2021 will be substantially smoother or more predictable than 2020. It therefore makes little sense to revert to the traditional employee goal setting process that, based on the above recommendations, we have had had to abandon for this year’s review. Instead, consider a process of ‘goal self-determination.’ Instead of setting rigid goals and targets, spend time communicating priorities and expectations at a business unit/department level and allow each employee to ‘self-determine’ how they will contribute. Delivery of core job tasks as set out in a job description are a minimum baseline and can be evaluated retrospectively without the need for codifying them into an employee performance plan. Instead at the end of 2021, employees will again be asked to ‘nominate’ their top 5 achievements. This transfers the onus on ‘how and what to achieve’ to the employee, with the recognition that spot rewards, personal development etc will go to those who are prepared to push hardest and achieve the most.

Consequence 6. Brief all staff with managerial responsibility on the new approach to future employee gaol setting.

Who knows – an unexpected consequence of the pandemic may be a more enlightened and cost effective approach to managing employee performance appraisal which actually delivers real business performance outcomes that exceed our expectations?????.    

Nigel Penny is a strategy, performance and leadership consultant with over 35 years international experience. An ex-partner of KPMG in Melbourne, he was a VP of Balanced Scorecard Collaborative where he worked with Professor Robert Kaplan and Dr David Norton. His clients include major private and public sector organizations and he has consulted to CEOs and Government Ministers.

Comments and thoughts are always welcome.