Leadership is lifting a person’s vision to higher sights, the raising of a person’s performance to a higher standard, the building of a personality beyond its normal limitations. ~ Peter F. Drucker

When a team outgrows individual performance and learns team confidence, excellence becomes a reality. ~ Joe Paterno

Last month I took aim at the old annual strategic planning model and suggested a new, dynamic model. This month I want to focus on another relic from days gone by: the annual performance review.

If you’ve been in the workforce for any length of time, you probably remember vividly at least one or two performance reviews from some point in your career. They might have gone something like this: Your boss pulled out your performance appraisal and read aloud a litany of your accomplishments over the past year. Perhaps he/she assigned you an overall rating in a series of arbitrary categories, such as “attitude” and “cooperation.” When the boss came to the section of the form titled “Development Opportunities,” he/she mentioned two or three trivial items you might want to think about. By the end of the recitation, you felt as though you alone were responsible for the company’s success over the last 12 months. So when the boss announced that your next paycheck would reflect a 2% raise, you were dumbstruck. But the boss probably shook your hand, thanked you and hurried you out the door before you could formulate the obvious question: If I did such a great job, why am I getting such a lousy raise?

Or perhaps the performance review you remember went more like this: Your boss read the performance appraisal to you. But, instead of glowing praise and “walks on water” ratings, you heard a litany of criticisms and shortcomings. So it wasn’t a complete surprise when the boss announced your 2% raise. But as you sat at your desk later that day and tried to absorb it all, you became more and more angry. Why hadn’t the boss told you about these performance issues sooner so you could have addressed the problems and earned a better raise?

Nobody likes the annual performance review. Managers hate devoting hours to filling out the forms almost as much as they hate delivering the news to employees. And employees, both strong and weak performers alike, almost always feel blindsided or cheated in the end. And not many participants really see much value in the process.

It’s time to replace performance reviews with performance management. A performance management system provides feedback to employees on a regular basis, so they always know whether or not they’re meeting expectations. Employees who aren’t cutting it have ample opportunity to improve their performance. If they can’t or don’t improve, they can be removed before they undermine performance and morale throughout the department.  Performance management systems are not easy to create or implement.  Cookie cutter approaches don’t work; they must be defined to fit the vision and culture of the company and require lots of communication (all of which builds alignment and team building when done well) and conversation.

A performance management system also recognizes that performance reviews are separate from salary reviews. The reality for most businesses today is that raises are determined more by the state of the economy and the company’s bottom line than by an individual’s performance. Separating salary discussions from performance reviews helps employees understand this distinction. It also allows management to implement compensation programs that encourage teamwork and reward teams for accomplishing the company’s strategic objectives.

There is still a role for performance reviews in a performance management system. But instead of a one-sided rehashing of past performance, these reviews should focus on the future. They should be two-way discussions of what the employee is doing to achieve his/her current objectives, as well as his/her long-term career aspirations and what is required – from both the employee and the company – to achieve them. Ideally, these performance development discussions should occur several times throughout the year.

Case Study

We are currently working with a company to replace their outmoded performance appraisals/salary reviews with a performance management system. The management team has been unhappy with the old system for some time, but has had trouble articulating what they needed to do. We achieved a breakthrough recently when the company president suggested decoupling the performance appraisal system from pay raises. This alone has created lots of conversation and controversy, necessary elements of a change process.  The CEO hopes to create a bonus system that rewards employees based in part on overall company performance and in part on the performance of their specific department as well as bonus for exemplary individual performance.

The new and evolving system will also encourage teamwork by making it part of regular performance reviews. Management hopes these reviews will be candid discussions of what team leaders are doing to improve team performance, as well as career goals and development. We’re still working out the details, but the company is optimistic that the new performance management system will not only motivate their workforce, but help improve their bottom line.

You owe it to your employees and your balance sheet to implement an ongoing performance management system. It’s time to blow up the annual performance review.