How to Make the Most of Annual Employee Performance Reviews

An employee taking part in an annual performance review.

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 There are three key things to remember about annual performance reviews:

  1. Many people consider them a waste of time.
  2. Most businesses will require they be completed.
  3. Annual reviews should contain no surprises.

Why Annual Performance Reviews Are Considered a Waste of Time

Many HR professionals and managers believe that annual performance reviews are a waste of time. As an example, a 2016 Harvard Business Review article found that large firms like PwC, Accenture, General Electric, OppenheimerFunds, and Deloitte had ended the practice.

These and other companies are finding the reviews are often too infrequent and too formal to be of any value for the person being reviewed. However, they are something managers feel they have to do or something they are required to do. If you pick up a copy of the book "Why Annual Performance Reviews Are A Waste Of Time," however, you will find specific suggestions on how to improve annual performance reviews, so they benefit the employee and the team.

Why They Are Usually Required

Most companies require an annual performance review to be completed for every employee. The Human Resources department provides a standard form and a required grading scale. Every manager dutifully fills out the same form, or has the employee fill it out, then spends as little time as possible discussing the results.

Whatever discussion does take place is often combative, because the employee knows that this one document will determine the amount of their raise for the upcoming year. Because you can't escape doing an annual performance review, it's best to make them as useful as possible and when meeting with the employee to try to get value out of the overall evaluation of their performance by comparing their work to others on the team, or in the department.

The reason companies require annual performance reviews is to have a method for gauging how to distribute annual raises. If each employee is given a grade, raises can be given based on where the employee fits into the grading system. Unfortunately, the result is that when you do an annual performance review, the only thing the employee listens to is their grade. 

How to Make Reviews Beneficial for Employees

Using employee grades to appropriate raises is fundamentally flawed. It doesn't equate raises to how an employee helped the company achieve its goals. However, if you must use the system, use it to motivate your group to produce at optimum levels.

Do a performance review for each employee each quarter and share the results with them. This way, at the end of the year, you're merely pulling together three quarterly reviews and adding them to the employee's fourth-quarter review. Make sure the employee understands that your method is just a quarterly review so they can concentrate on the gist of their annual review when the time comes, rather than make them worry about their grade.

When their fourth-quarter review is complete, you and the employee should have a clear understanding of their performance and, more importantly, their goals for the coming review period. You should both be able to identify the same appropriate grade based on your ongoing communication. If there is a difference of opinion, it's usually because the employee doesn't understand how their performance compares to others in the group. If the employee selects a grade higher than you select, make sure you clarify why.

At the end of this year-long process, you will have accomplished the following:

  • Given the employee feedback on how their performance is helping the group achieve its goals.
  • Clarified for them how their performance compares to others in the group.
  • Motivated them to continue to improve their performance.
  • Selected with them the appropriate grade from the company grading list.
  • Completed the annual review that is required.