Are annual performance reviews valuable?

More and more organizations, across a wide variety of industries, are concluding that annual performance reviews are not very helpful. Annual reviews are too infrequent for the cycle of work today in most enterprises. Goals negotiated at the beginning of the year have often become obsolete and irrelevant by the end-of-year review. Millennials crave much more frequent and qualitative feedback and coaching than is provided by the standard formulaic performance review. Managers complain about the time, effort, and cost involved with traditional systems, many of which force them to rank employees in ways that undermine teamwork and are counterproductive and demotivating. In the end, nobody ends up pleased with the results. Survey evidence from CEOs, HR professionals, managers, and line employees alike perennially shows rampant dissatisfaction with performance management systems.

What’s one thing managers can do to make them more helpful?

If an organization is wedded to an annual review, I would recommend shifting one’s frame of reference away from “performance management” and toward what I call “aspiration management.” The performance conversation should entail a deep discussion of what individual employees aspire to and how those aspirations can be married to organizational needs, perhaps in part through the process that my colleague Amy Wrzesniewski refers to as “job crafting.” 

This requires managers to gain much greater understanding of the specific aptitudes, abilities, interests, values, and aspirations of their direct reports than is required by the traditional standardized performance-review format. And it requires managers to gather and act on feedback about how their own performance might need to change to support the long-term development of the people they manage.

What other systems would you suggest for improving employee performance?

One of the most effective ways for managers to improve employee performance is through real-time coaching, which is easiest to implement when managers are themselves engaged in “real work” alongside their reports. For instance, SAS Institute—the largest private software company in the United States—historically has had relatively little by way of formal performance evaluation. Managers work alongside their direct reports at least some of the time. (Even SAS CEO Jim Goodnight is reputed to spend a considerable chunk of his time doing programming!) This practice enables managers to serve as effective and timely coaches and to gain a deeper understanding of the abilities and aspirations of those they are leading.