Do annual reviews work?

The annual review is an event that many people – both those administering and those receiving – usually dread. It is a time at which, as an employee, you must account for your actions and prove your worth. For managers, it’s an occasion to deliver praise or tackle difficult issues.

The ‘serious’ bit aside, the annual review traditionally coincides with pay increases and bonuses, so is something that staff depend upon every year. The absence or delay of a review can understandably cause individuals to feel quite aggrieved.

The question as to whether annual reviews are worthwhile is a divisive one; while it’s undoubtedly important to review performance from both the business’s and employees’ perspectives, is this the right way to do it? Is the annual review outdated and hated, or rated and eagerly-awaited? Essentially, do annual reviews work? We put the question out on social media for some thoughts.

 

YES

The average person requires the satisfaction of several basic needs, according to Maslow’s famous Hierarchy of Needs. These cover financial security, job security and feeling like you belong. Not to mention self-esteem via achievement, attention, recognition, reputation and self-respect. Whilst no doubt appearing simplistic, these needs can all be met during the annual review process when it is facilitated properly.

Consequently, it’s good for employees to understand how they’ve performed over the last year. That’s not the only reason, of course. Annual reviews offer the opportunity for employers to identify and address problems; to determine and bridge skills gaps; to establish career paths and personal development plans and ultimately, to nurture and retain their most talented, valuable employees. They serve as a useful forum through which manager and direct report can talk uninterrupted, helping to build rapport and respect.

Craig Travers, HR Business Partner at Skandia, emphasises this point: “They can make a difference; this is an opportunity for managers and employees to discuss performance over the past 12 months and also set the expectation and focus for the next 12 months.”

Suzie Noble, Head of Organisational Effectiveness at Endsleigh Assurance concurs: “I think it is nice to have a more formal review to discuss progress, development, career aspirations, etc, as too often we narrowly focus on the immediate tasks at hand rather than taking time out to discuss the bigger picture.”

What’s more, due to their usual association with financial reward, annual reviews can motivate staff, so are consequently something that most employees look forward to year round. This is especially so if the yearly appraisal is the only platform through which they can approach the dreaded salary conversation.

Swati Tandon, Reward and MI Analyst at Cushman and Wakefield highlights that for this reason, the review is worthwhile: “There are some quieter, steady workers [for whom the annual review] is extremely sensitive. In many cases, the outcome will be a leave or stay decision.”

 

YES, BUT

While there are undoubtedly many benefits associated with holding annual reviews, for them to work successfully, it’s key that certain conditions are met; crucially, as Craig adds: the “right framework and management capability”. It’s therefore a case of: annual reviews work, but…

The ideal review should be clearly communicated, consistent and supported by additional reviews; tracking progress against defined, but realistic, objectives. “Keep it fair, transparent and methodical,” says Swati. As this is a subjective process which relies on the reviewer’s professionalism, management training is vital for avoiding bias and helping managers deliver tough messages.

Kasia Baldwin, Franchise Marketing Manager at Driver Hire expands on the point: “[It] all depends on the working relationship of those in the process and what the expectations are on both sides with regards to the purpose of the annual review. It’s important that parameters are set before the review so expectations can be met and decisions made [on] when and how to discuss hot topics in more detail.”

The sentiment is shared by Vicki Neidhardt Rowan, Office Manager at Cigna HealthSpring, who says: “I think they work if you have a boss – and work for a company – that value their employees. One bad boss could change your career path.”

Where reviews are linked to pay, Swati adds that they can only work providing there is sufficient funding, otherwise “doing a basic one per cent increase can feel like a slap in the face.”

Craig agrees: “Swati’s point is crucial as you need adequate funding in order for it to actually mean anything. The annual review should be linked to performance, whereby if you are a high performer you should be receiving a higher level of any budget.”

Better still is if they are part of a review process that includes quarterly or even monthly reviews. The consensus is that an annual review is not effective if carried out in isolation. Suzie asserts: “Expectations should be managed on an ongoing basis with regular feedback.”
It can equally act as a barrier to innovation, as Deborah Bates-Leary, Digital Content Editor at First Wessex, says: “One review a year isn’t enough. It doesn’t provide enough opportunity for experimentation in terms of approach to your role, trying new tools, etc.”

NO

Naturally, there are many people who resolutely disagree with the concept of annual reviews – claiming that the point is lost as employees concentrate solely on the reward element and crucially, as Phil Baker, Head of Change at Endsleigh Insurance says on LinkedIn: “It can disengage the top performers”.

He makes a good point. As the review is so intrinsically linked with pay and bonus, the process can actually demotivate. Often, HR, Reward and/or line managers are forced to determine performance ratings expressly to fit a distribution curve.

Suzie ponders the point: “The one area I continue to question is the ongoing practice of ‘rating’ colleagues – does this really incentivise ALL people to perform at their best or only the top 15-20%?”

This practice can cause huge issues should an individual discover a peer has received a better bonus or increase than they have purely to ‘fit the curve’, plus it’s simply unfair. One bad experience can prompt a swathe of individuals not to bother, as they know they won’t ever be rewarded for their efforts, rendering the annual review useless.

What about reviews that don’t link to financial reward? Are they any better? Maybe, providing they are complemented by other, routine reviews. Otherwise, as Deborah adds: “It’s not fair to judge an employee once a year on their work/behaviour for the past 12 months. After all, what if your boss said I was really upset when you said XYZ six months ago? You weren’t to know, so couldn’t change your behaviour accordingly.”

 

AN ALTERNATIVE?

Perhaps there is a better way to manage performance and reward staff? Sharlyn Lauby, who runs the HR Bartender blog, writes about separating the ‘appraisal part’ from the ‘increase part’ and thereby removing the emotion from the process. “It’s not mandatory to talk about performance and pay at the same time”, she says.

By doing so, the review can become more constructive. She cites the example of US-fast food chain, Texas Road House, which revamped its review system into one which focused on the future, concentrating on growth, planning and support – not what’s happened over the last twelve months. The initiative is supported by regular 121s and pay increases occur at any time on a discretionary basis. Management says turnover is low and engagement is high.

The subject of whether annual reviews work continues to be hotly contended, but the fact remains that managing performance is important for both the business and individuals. As Sharlyn concludes: “in order for it to be successful, the company must clearly define what the performance process means and focus the time spent solely on accomplishing that mission.”