Back to blog

The Best Alternative to the Annual Performance Appraisal

Young woman drawing continuous improvement on a screen.

Replace appraisals with a sys­tem that real­ly works

If you’re frus­trat­ed with your cur­rent approach to per­for­mance man­age­ment, you’re like­ly to be search­ing for effec­tive alter­na­tives to appraisals. This is under­stand­able, giv­en how inef­fi­cient and time-con­sum­ing year­ly appraisals have proven them­selves to be. You might have heard that annu­al appraisals are dying out, and you want to be ahead of the curve, ready to adapt to new per­for­mance man­age­ment trends that will get real results, improve employ­ee engage­ment and enhance over­all com­pa­ny performance.

With our years of expe­ri­ence in per­for­mance man­age­ment, we’ve devel­oped a sim­ple and effec­tive per­for­mance man­age­ment sys­tem, based on the prin­ci­ples of Con­tin­u­ous Per­for­mance Man­age­ment. Our proven frame­work is already being used by many thou­sands of employ­ees around the world and we’ll be explain­ing it in this arti­cle. Specif­i­cal­ly, we’ll cover:

  • Why annu­al appraisals don’t work
  • The five prin­ci­ples of effec­tive per­for­mance management
  • Why con­tin­u­ous per­for­mance man­age­ment is a great alter­na­tive to annu­al appraisals
  • Why per­for­mance review soft­ware is inte­gral to the suc­cess of con­tin­u­ous per­for­mance management

Why annu­al appraisals don’t work

Annu­al appraisals are a rem­nant of an old-fash­ioned approach to man­ag­ing employ­ees. Appraisals date back to World War I, and were orig­i­nal­ly used to iden­ti­fy poor per­form­ers for dis­charge or trans­fer. Giv­en the con­text of the time, appraisals made per­fect busi­ness sense.

Today, though, the busi­ness land­scape is fun­da­men­tal­ly dif­fer­ent. Busi­ness is more agile, faster and more com­pet­i­tive. Set­ting annu­al objec­tives and assess­ing staff against them only once or twice a year no longer makes any sense. Year­ly appraisals try to achieve too much in one sit­ting, and they focus too much on past behav­iour rather than future per­for­mance. In such a fast-paced envi­ron­ment, employ­ees require more ongo­ing guid­ance, com­mu­ni­ca­tion and feedback.

Below are the four main prob­lems with year­ly appraisals:

  1. Man­agers hate doing per­for­mance appraisals. In fact, research from the CEB has shown that 95% of man­agers aren’t sat­is­fied with their appraisals. As a result, man­agers avoid con­duct­ing them, or com­plete them quick­ly to get them over with. When this occurs, lit­tle to no mean­ing­ful dis­cus­sion takes place.
  2. Employ­ees aren’t fans, either. A Tow­ers Wat­son sur­vey found that 75% of employ­ees see appraisals as unfair and 66% say appraisals inter­fere with productivity.
  3. Appraisals don’t add any val­ue. A Deloitte study showed that only 8% of organ­i­sa­tions say appraisals add val­ue, and hard­ly any com­pa­nies feel they’re an effec­tive use of time. When you con­sid­er how much time annu­al appraisals require, how many forms need to be com­plet­ed, the time it takes to arrive at rat­ings, and the length of an aver­age annu­al appraisal, the process should real­ly be more pro­duc­tive than it is.
  4. Appraisals are not improv­ing employ­ee per­for­mance and engage­ment. That’s real­ly the bot­tom line. A meta-analy­sis of 607 stud­ies of per­for­mance eval­u­a­tions found this to be the case. The study also found that 30% of the per­for­mance reviews actu­al­ly end­ed up decreas­ing employ­ee per­for­mance.

The five prin­ci­ples of effec­tive per­for­mance management

Before we can look at alter­na­tives to appraisals, we need to get back to basics and under­stand what an effec­tive per­for­mance man­age­ment sys­tem is try­ing to achieve, and why hav­ing a for­mal, defined frame­work is important.

Com­plete­ly remov­ing per­for­mance dis­cus­sions should not be con­sid­ered; when com­pa­nies aban­don per­for­mance man­age­ment, they notice a drop in employ­ee per­for­mance of 10% and a 6% fall in employ­ee engage­ment. At its core, per­for­mance man­age­ment is all about improv­ing these two ele­ments, using the fol­low­ing ingredients:

  1. Aligned smart objectives
  2. Fre­quent feedback
  3. Reg­u­lar sup­port from manager
  4. Employ­ee recognition
  5. Per­son­al and career development

Below, we’ll show how con­tin­u­ous per­for­mance man­age­ment is a great alter­na­tive to appraisals, as it fac­tors in all the ingre­di­ents above, with­out being an admin­is­tra­tive burden.

Con­tin­u­ous per­for­mance man­age­ment as an alter­na­tive to annu­al appraisals

We at Clear Review are strong advo­cates of con­tin­u­ous per­for­mance man­age­ment (or agile per­for­mance man­age­ment as it’s some­times known). This is not only because of the research show­ing that infor­mal one-to-ones and real-time feed­back are much more pow­er­ful dri­vers of per­for­mance than annu­al appraisals, but also because we’ve seen it work time and time again with organ­i­sa­tions of all sizes and from all busi­ness sectors.

Unlike a per­for­mance man­age­ment sys­tem that has a spe­cif­ic start and end date, con­tin­u­ous per­for­mance man­age­ment is an ongo­ing cycle of per­for­mance and devel­op­ment dis­cus­sions and feedback.

Con­tin­u­ous per­for­mance man­age­ment pri­ori­tis­es fol­low­ing elements:

  1. Near-term SMART objec­tives. Rather than set­ting a large num­ber of 12-month objec­tives, employ­ees agree to a small num­ber of near-term SMART goals they can work on over the next quar­ter. A focus on near-term objec­tives helps to improve employ­ee moti­va­tion and builds momen­tum, and of course near-term objec­tives are less like­ly to become irrel­e­vant over time. Reg­u­lar review­ing of objec­tives also makes sense from a busi­ness per­spec­tive. A study found that 50% of com­pa­nies who review their goals each month are in the top quar­tile of finan­cial per­for­mance, where­as only 24% of com­pa­nies where goals are reviewed once a year are in that top bracket.
  2. Reg­u­lar check-in dis­cus­sions. Reg­u­lar check-in’s are the core of the con­tin­u­ous per­for­mance man­age­ment frame­work. The focus of a check-in is con­ver­sa­tion, rather than the mere com­ple­tion of forms. Talk is future-focused and action-ori­ent­ed, rather than look­ing to past per­for­mance. When per­for­mance dis­cus­sions hap­pen with greater fre­quen­cy, it allows employ­ees and man­agers to step back from what is urgent to dis­cuss what is impor­tant. Dur­ing this time, man­agers and employ­ees should dis­cuss items such as progress against objec­tives, forth­com­ing pri­or­i­ties, strengths and achieve­ments, per­son­al devel­op­ment and career goals, val­ues and behav­iours, issues or con­cerns, and action to be tak­en before the next check-in.
  3. Real-time feed­back. Hav­ing reg­u­lar feed­back can dra­mat­i­cal­ly improve employ­ee per­for­mance. Employ­ees aren’t get­ting the amount of feed­back they need, par­tic­u­lar­ly mil­len­ni­als. Fre­quent feed­back is gen­uine­ly pos­si­ble with con­tin­u­ous per­for­mance man­age­ment and made sim­pler with the advance­ment of per­for­mance review soft­ware.
  4. Mea­sur­ing per­for­mance. Con­tin­u­ous per­for­mance man­age­ment doesn’t neces­si­tate the elim­i­na­tion of per­for­mance rat­ings, although there are many argu­ments for doing so. You can still peri­od­i­cal­ly mea­sure per­for­mance under the con­tin­u­ous mod­el (in order to feed into deci­sion about pay and pro­mo­tions), but it is rec­om­mend­ed that you divorce such mea­sure­ments and asso­ci­at­ed dis­cus­sions from reg­u­lar check-in meet­ings. This allows for a more hon­est and open dis­cus­sion and feedback.

Why you need per­for­mance review soft­ware to make con­tin­u­ous per­for­mance man­age­ment work

Per­for­mance man­age­ment soft­ware facil­i­tates con­tin­u­ous per­for­mance man­age­ment and ensures the whole process is stream­lined. It can help specif­i­cal­ly in the fol­low­ing ways:

  1. Improved vis­i­bil­i­ty regard­ing per­for­mance man­age­ment activ­i­ty. Using soft­ware, man­agers and HR can make sure that every­one is actu­al­ly doing what they are meant to be doing. Soft­ware pro­vides insight into objec­tive set­ting and pro­gres­sion. It also gives HR vis­i­bil­i­ty of peo­ple who are not hav­ing reg­u­lar check-in meet­ings or receiv­ing suf­fi­cient feedback.
  2. Per­for­mance man­age­ment soft­ware relieves admin­is­tra­tive bur­den. Organ­i­sa­tions often look to pro­vide struc­ture to their per­for­mance man­age­ment by using Word or Excel forms. This might sound like a sim­ple solu­tion, but in prac­tice it’s admin­is­tra­tive­ly time-con­sum­ing for all involved. Employ­ees and man­agers end up email­ing dif­fer­ent iter­a­tions of the forms back and forth to each oth­er. The forms usu­al­ly then have to be sent to HR who have to copy and paste data into spread­sheets in order to work out who has and hasn’t had review meet­ings and to col­late the infor­ma­tion they need to make deci­sions on per­son­al devel­op­ment, train­ing, pay and pro­mo­tions. This con­fu­sion leads to dis­en­gage­ment and frus­tra­tion, which takes the focus away from good-qual­i­ty per­for­mance dis­cus­sions. Cloud-based soft­ware sys­tems pro­vide a shared, real-time view of per­for­mance man­age­ment data, which keeps every­one up-to-date and informed.
  3. Per­for­mance review soft­ware encour­ages in-the-moment feed­back. Man­agers aren’t like­ly to give instant feed­back unless they have an easy means of doing so, yet the deliv­ery of real-time feed­back is one of the most pow­er­ful ways of improv­ing per­for­mance. With­out soft­ware, feed­back can be for­got­ten, or nev­er giv­en, but when feed­back is as sim­ple as a few clicks or taps, man­agers are much more inclined to give it and the con­tent of the feed­back will be much more helpful.

Next Steps

To find out how Clear Review soft­ware can help you tran­si­tion from a tra­di­tion­al appraisal sys­tem to con­tin­u­ous per­for­mance man­age­ment, get in touch for a free 15-minute per­for­mance man­age­ment con­sul­ta­tion.

To learn more about Con­tin­u­ous Per­for­mance Man­age­ment, down­load our new eBook.