Why Annual Performance Reviews are a Thing of the Past

Annual performance reviews were standard practice for decades but today many employers are choosing more frequent feedback. Here's why.

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Traditionally, performance reviews have been carried out as a formal annual meeting between a manager and employee. The manager reviews the employee’s overall performance over the last 12 months and discusses whether goals have been met or not met or if goals have been exceeded. New goals may be set and a list of suggestions for improvement may be provided. Often, this meeting is where the discussion of a raise comes up.

As HR experts, we’re seeing more and more that annual performance reviews are a thing of the past as managers opt to provide feedback much more often – either quarterly, monthly, or after big projects are completed. More consistent feedback is useful for many reasons, including improving employee engagement, which is so critical right now with such a high percentage of employees looking for other jobs or engaging in quiet quitting.

Why Annual Performance Reviews are a Thing of the Past

There are several reasons why companies are moving away from annual performance reviews in favor of more ongoing engagement.

  1. Recency effect

When employers wait to do performance reviews once a year, there is a “recency effect” that tends to take place where only the past months’ worth of work is reviewed and the 11 months of work done before that is ignored. More frequent reviews provide a much more accurate picture of the work your employee is providing.

2. Focus on the past

An annual performance review is mostly about how an employee has performed in the past, rather than what they are currently working on. When reviews are performed more regularly, it is easier to focus on what the employee is currently working on, with a quick review of past work.

3. The time commitment

Annual reviews tend to be long because there is so much to go over when there hasn’t been a review for 12 months. When reviews are done on a frequent basis, they can be shorter and require less preparation.

4. They’re ineffective

Nearly 50% of HR professionals don’t think annual performance reviews are worthwhile because they produce inaccurate results. The reason for this is that a lot of employees get so stressed about them that they end up providing answers that they think their managers want to hear, rather than what they truly believe or feel.

5. Undervalues exceptional employees

A standardized performance review fails to recognize exceptional employees who tend to contribute in additional ways that do not necessarily fit into their job descriptions. When this type of employee is not fully recognized for the value they bring to the company, they are likely to become demoralized and start looking for an employer who will recognize them for all their strengths.

6. Overly focuses on measurable performance and stifles creativity

Not everything can be measured, particularly in certain types of jobs. For example, a server in a restaurant may not have the highest number of guests served per hour which reflects negatively on a performance review. What isn’t captured in that picture is the relationships they may have with customers who come back to be served by their favorite server.

As a result of this focus on measurable performance, employees are more likely to switch their efforts to things that can be measured on their next performance review and give up the more creative ways they were contributing to the company.

Partnering with Makai HR

Need help reshaping your employee performance review program? We’re here to help! When you partner with Makai HR you can get on with the business you are trying to grow while we take care of your employee needs from payroll to taxes, health insurance/benefits and worker’s compensation. You also gain peace of mind that you are compliant with all of Hawaii’s employer laws (if you’ve ever looked you know that the list is very long and changes happen). When choosing a PEO to partner with, there are many things to consider including cost, services, and technology solutions. 

With the cost of doing business in Hawaii at record highs, we know how important it is to keep labor costs in line with revenue. Our plans are priced competitively and include value-added services like time-in/time-out systems. Our three tiers of PEO service plans are tailored to the size of your business and specific needs. We offer a 100% paperless solution which means that your employees can manage their needs through a computer, tablet, or phone. We can truly improve your employees’ work benefits while freeing you up to operate your business.

What are you waiting for? Companies that partner with a PEO benefit from 7-9% faster growth, 10-14% lower employee turnover; and they are 50% less likely to go out of business. Contact us today to get started!

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