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How Companies Can Use Data for Performance Reviews

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How Companies Can Use Data for Performance Reviews

December 19, 2016

Traditional performance reviews, like yearly medical exams, can be anxiety-inducing, painful to endure, and leave people feeling much better or worse about their prospects. While annual checkups remain important, annual performance reviews are increasingly being phased out. Ten percent of Fortune 500 companies and 12 percent of Fortune 100 companies are eliminating annual reviews and rankings, including prominent companies like Microsoft, GE, Accenture (News - Alert), Gap, Adobe and Deloitte. In 2011, that number was just 1 percent. 

Moving away from the annual model is the result of a body of evidence showing that performance reviews negatively impact employee productivity and satisfaction because it threatens their status, which restricts creativity while elevating stress. Furthermore, they are not even an accurate tool for evaluation. A study from leadership advisory firm CEB found that two-thirds of employees who receive the highest scores in a typical performance management system are not actually the organization’s highest performers. This means that people who deserve recognition may not be getting it, while employees who may not be great performers, but have other qualities, like charisma, are unduly rewarded. It’s difficult to remove the biases of the reviewer. 

In addition, CEB’s survey found that conventional reviews only generate a 3 to 5 percent improvement in employee performance, and that 23 percent of HR personnel say they’re satisfied with their organization's performance evaluations, which is down from more than 50 percent a decade ago

Annual performance reviews can be an unfair and flawed system. They create an environment where feedback gets stored up, so it is not delivered in the moment when it can have the greatest impact, and by the time it is delivered, can be irrelevant. As a result, employees lose out on valuable opportunities to learn and are saddled with uncertainty about their performance, which may prevent them from reaching their full potential.

While the traditional system may not serve the needs of today’s workforce, that is not to say that performance reviews have no value or are obsolete. Feedback is absolutely essential to promoting employee engagement and growth. What is needed is a new approach to performance reviews that is data-driven and ongoing. 

Rather than relying on subjective feedback, employers should look at metrics around employee performance that provide more accurate insight into how they are doing. Metrics will vary depending on an employee’s role. For sales, it could be the number of deals closed and/or revenue brought in, whereas for customer support reps, it might be queries answered and customer ratings on the quality of that support.

Not all positions can quantify success as easily as, for example, designers or writers. This is where metrics like quality of work and efficiency come in. The real question is to what extent are employees meeting their goals? Is their work achieving what it’s supposed to achieve? Answering these questions requires leaders to clearly communicate expectations and benchmarks in advance. In addition, intangible factors should also play a role in performance reviews. If an employee is known for their helpfulness and initiative, but does not, for example, check-in as much code as a peer, they should not necessarily be criticized for that effort. Rather, the manager or team leader should weigh and best position the employee to take advantage of his/her strengths in future projects.

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Outlining metrics, collecting data, and using that data as the foundation for discussions about performance help keep performance reviews fair. The focus on facts anchors the discussion so employees don’t feel overlooked or misunderstood. To further remove bias, companies can also institute “Rate the Rater” policies, where a manager’s evaluation ratings are normalized if they are found to historically be outside a selected variance relative to their peers. This helps level the playing field if one manager is either notoriously tough or lenient.

Another important step towards keeping performance reviews fair is consistent, ongoing feedback. By delivering feedback in-the-moment, leaders can recognize and reinforce positive behaviors, deter negative ones, and help employees grow. These conversations, too, provide a valuable baseline for discussion. They also prevent problems from stacking up, so formal performance reviews don’t feel like an ambush.

As millennials, with their desire for constant feedback, represent an increasingly large portion of the workforce, an organization’s capacity to provide meaningful performance reviews that help employees grow will be important for retention. Integrating data into the performance review process and breaking it out of the once-a-year model will make feedback delivery more fair, accurate and effective. Organizations have the opportunity to take performance reviews from a dreaded ordeal to one of the most positive aspects of their work experience.

About the Author

Scott Guinn is the Product Marketing Director for HR solutions at Anaplan, and a seasoned enterprise software product, program and marketing leader specializing in enterprise performance management. Prior to Anaplan, Scott covered HR, Finance and e-commerce platforms markets as a Research Director for IDC (News - Alert). Prior to that, he held various positions at PeopleSoft and Oracle in both FP&A and marketing disciplines, and as a strategic planning analyst at E&J Gallo. Scott is a former Navy pilot.

Edited by Alicia Young

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