Should small employers ditch the annual appraisal?

Sep 24, 2018 | Good Management

There has been debate about the value of the annual appraisal and what format performance management should take for some time now, with a growing number of large high-profile employers over the last few years announcing they are ditching their annual appraisal process.

This has initiated a wider discussion and led to a bit of a trend of other employers following suit. But what about small employers, is this a bandwagon they should be jumping on, or is it just a fad, or something only suitable for bigger organisations?

What’s the problem with the annual appraisal?

No one really looks forward to the annual appraisal process, but are there any more significant problems with it? Several surveys and reports have indicated that the process is not valued by staff or managers, and that many HR professionals operating the process also feel it doesn’t add value, and fundamentally isn’t delivering what is required.

Appraisals often involve lengthy, time consuming forms and off-putting formal procedures, which can lead to them not being completed meaningfully or accurately. Appraisals are frequently dominated by backward-looking discussion and examine performance based on objectives set 12 months previously which may feel irrelevant and therefore a waste of time. Conversations in appraisals can feel like rather contrived tick-boxing rather than actual useful valuable discussion.

Annual appraisals often involve assigning a grade or rating to employees. But annual grading colours the expectations and perceptions of that individual for a whole year, making change more challenging. Meanwhile rating people on a performance scale is also very likely to be demotivating rather than motivating. People who are placed high on the scale are unlikely to be surprised (and therefore motivated) by the result, meaning the impact is neutral, whereas those who are not rated as highly frequently react badly, may disagree with their rating or even if it isn’t a surprise, don’t benefit from having it in black and white with no nuance or context, fixed for the following year. This means the process may well have a negative impact on performance rather than the positive impact it should be seeking.

Using an annual appraisal system can restrict agility in objective setting or development activities. If discussions around these only take place once a year, it can make employee activities slow to respond to organisational or environmental changes, as opposed to shorter-term objectives which are set more regularly and can therefore be more relevant and current.

Annual appraisals can give rise to a culture of fear particularly if the manager has a tendency to focus on the negative, and/or if pay decisions are linked to the appraisal process, as is frequently the case. If the employer uses appraisal ratings to justify salary review outcomes, then the appraisal becomes all about that rather than a constructive discussion about work, development and goals.

What’s the alternative?

The idea with removing the annual appraisal altogether is that it is replaced by more frequent, more informal conversations about performance and development between managers and team members, a process sometimes known as continuous performance management.

By removing the weight and constraints of an annual process, the focus can be genuine useful discussion. Shorter term, more relevant objectives can be set, and adjusted more frequently. Discussions are separate from pay decisions, removing another weight from the process. Conversations can focus more easily on development, feedback can be more immediate (and therefore more impactful), problems can be picked up sooner, and the whole performance management process is more agile and more responsive to business changes and role changes.

Will it actually happen?

That all sounds very positive, but there are some things to consider. Removing the annual appraisal and replacing it with continuous performance management relies on having more frequent performance conversations throughout the year. But in a small business particularly, is that actually going to happen reliably and consistently? Having an annual appraisal is frequently the most reliable method of ensuring any performance management happens at all. Yes, ideally there would be frequent meaningful one-on-one conversations throughout the year, with feedback, goal-setting and development. But if that isn’t realistically going to happen, then retaining an annual process at least means that at one point during the year, staff are getting a proper full discussion about their performance, and an opportunity to raise concerns, ask for training and development and take time out of the day-to-day grind of doing their job to discuss their work.

Inconsistency of approach

Relying on more frequent conversations risks inconsistent application across the organisation as some managers are better at prioritising this than others, and without the prompting (and sometimes cajoling and nagging!) involved in an annual process, it’s entirely likely that while some teams get frequent supportive and meaningful conversations, for others, busy-ness means that all of a sudden six months have gone by since the last one.

Need for evidence

Having an annual appraisal provides useful evidence if there is a need to take steps to address poor performance, in a formal capability or disciplinary process. Removing the annual appraisal altogether might result in a lack of evidence of concerns being raised and support being provided and is likely to make taking formal steps more problematic and more easily challenged.

Is the annual appraisal intrinsically flawed or is it just done badly?

It does seem that a fair number of the problems frequently mentioned with annual appraisals could actually be addressed by improving the process rather than removing it. Managers could be better trained on how to have meaningful performance discussions, any link to pay decisions could be removed, forms and procedures could be shortened and simplified, ratings systems removed.

In some sectors and businesses there is a natural annual cycle which lends itself to objective setting and development activities as well as to performance assessments, and for these an annual process (combined with good day-to-day performance management and regular feedback) works well.


Reviewing how performance management works in your small organisation is definitely a good idea – consider what you want to achieve out of the process, and identify whether these goals are being met. If you feel it needs amending, then ditching the annual appraisal altogether might be something to contemplate, however if you choose to go down that route, it is vital to ensure that it is genuinely replaced by an effective continuous performance management process, which is monitored, provides data and evidence, and is conducted in a meaningful, regular way by managers who understand what to do and can do it successfully. Changing the system dramatically will require a commitment to training on how do to it well, and- buy-in’ from line managers.

If you are not sure this can be achieved, or if you feel an annual appraisal system is working well but perhaps needs adjusting, simplifying, or conducting better, then don’t be tempted to follow a trend which may not work for your business.


If you’d like some advice about performance management in your business do get in touch.