The annual appraisal system is increasingly being challenged and, in some cases, replaced by more dynamic performance management methods. While the intentions behind annual appraisals are well-founded – to assess performance, provide feedback, and align individual goals with organisational objectives – they often fall short in practice. Below are the main problems associated with the traditional annual appraisal system:
The most significant shortcoming of annual reviews is that they’re just that: annual. A lot can happen in a year, and by the time the review comes around, many of the feedback points might be outdated or irrelevant.
Employees really need regular feedback to adjust and improve. Waiting a full year to hear about their strengths and areas for growth hinders proactive improvement. Of course using a traditional annual appraisal system doesn’t mean managers can’t have regular meetings as well, in fact they should. But with the best will in the world these can slip, be forgotten or not be focused on performance.
Time lapse can also lead to bias and inaccuracy – the longer the time between performance incidents (whether achievements or challenges) and the feedback, the more room there is for memory-based biases. Managers might unduly focus on more recent events (recency bias) or be influenced by singular significant events (halo or horn effect).
Anxiety and stress
The annual appraisal often carries a lot of weight, which can lead to anxiety for employees. This stress can not only impact the honesty and effectiveness of the appraisal conversation but also affect employee well-being and job satisfaction. If performance conversations are a regular normal thing, the anxiety is reduced.
Overemphasis on past performance and limited scope for development
While understanding past performance is essential, a yearly review often doesn’t provide enough forward-looking feedback. Employees need guidance for the future, not just a summary of the past.
With a focus primarily on assessment, there’s often not enough emphasis on personal development in the traditional appraisal process. This means employees might understand where they stand but not have the tools or direction to improve.
Lack of flexibility
Business goals and environments can change rapidly. By adhering strictly to goals set a year in advance, there’s a risk of misalignment between what an employee is working towards and what the company currently needs.
Perceived as a box-checking exercise
Many employees and managers see annual appraisals as a necessary evil, rather than a beneficial process. This can reduce engagement with the process and make it seem more like a formality than a genuinely valuable exercise. For those working in HR or leadership, the very task of actually getting all managers to complete annual appraisals for everyone can feel like pulling teeth, and it can be a painful and negative experience all round.
Potential for surprises
Without continuous feedback, annual appraisals can bring up unexpected issues. It’s demoralising for an employee to discover, at the end of a year, that their performance hasn’t been meeting expectations. A key principle of annual appraisals is that nothing should be a surprise, so if you retain the traditional annual appraisal, it’s important to encourage managers to raise things promptly in-between appraisal meetings.
Strains manager-employee relationship
A once-a-year formal conversation can create an unnecessary distance between managers and their team members. This lack of regular interaction can weaken the relationship, making it harder to address performance issues in a constructive manner. It can also feel like a very big deal, and even confrontational.
While traditional annual appraisals have been a long-standing practice in many organisations, their shortcomings are becoming increasingly apparent. Many of the pitfalls above will not be news to managers, but when highlighted together, it can prompt discussion about alternative approaches, to ensure your performance management is dynamic, accurate, constructive, agile and employee-centric.
If you’d like some support shaking up how you manage performance in your small business, do get in touch.