I was being interviewed for a book my colleague and friend is writing about how leaders can create an intentional culture of well-being and the many layers involved in the process. When she asked how we could bake wellness into the performance review process I couldn’t help but put my “comp” hat on and talk about what was wrong with the current process, which led us to begin formulating ideas on how to make it right.

The traditional once-a-year performance review which is often tied to a “pay-for-performance” philosophy is a bit of a conundrum. It’s been long outdated yet seems to be an archaic construct that we just continue to apply because it’s “the way we’ve always done things around here.” We know they don’t work but we are afraid to abolish them.

The First Problem – Trying to fix the wrong things.

One reason, I speculate, has to do with how nice and neatly this end of year process ties with a fixed merit budget. Some companies I’ve worked in moved to twice a year reviews, switched from 5 ratings to 4 to 3, or added in a few more personal components to the review process. These attempts to make the process more effective missed the boat. The whole intention is to measure performance but what counts as performance? It’s more than results only. It’s effort. It’s innovation. It’s relationship management. It’s agility, flexibility, growth, leadership and influence. It’s more than checking a few boxes. It’s not only did you get the job done but how did you go about doing it? Were you inclusive? Did you work towards building great relationships with your team and customers? Did you look for opportunities that would save time, money, and frustration or just keep the status quo?

The Second Problem – Lack of agility and meaningful goals.

Regardless of how effectively it’s designed, an infrequent performance review process doesn’t make sense when the world of work changes at lightening speed.

The goals set at the beginning of the review period are often replaced a couple of months later by new initiatives precipitated by the top of the organization that mid-level managers and directors weren’t privy to. A lot of time gets wasted setting goals that end up sliding down on the priority list or being eliminated altogether.

When review time comes, what’s a people manager to do? They think about what you’ve done recently and grade you on those things.

The Third Problem – Merit and Pay get in the way.

Again, why do we do this? We can’t ignore the fact that the performance review process is coupled with the merit budget. Organizations need a way to justify their merit increase distribution process. Decades ago, merit review budgets could be as high as 8-10% of base pay. Pay for performance made sense in this case, the differentiation was meaningful.

Since I’ve been in the workforce (over 20 years) those merit budgets have consistently been averaging out at 3%. The widest range I’ve ever seen was 2.5% (during the 2008-2009 recession) and 3.5% at the high end.

Having coached dozens of managers on the process, I always found myself struggling to help them reward their team members in a meaningful way while sticking within these tight confines. It’s a zero-sum game, where your top performers are left feeling less than satisfied, especially if you have more than a couple on your small team. Rather than focusing on each individual team members true performance, managers are distracted by the implications of their assigned ratings to their merit budget. It’s more difficult to separate the two and to stop comparing and contrasting employees versus measuring them against their specific goals and development. 

What ends up happening is that we find other ways to pay top performers outside of the merit process – a promotion, a retention bonus, or spot bonus coming from another part of the budget, but it’s not always a guarantee we will retain them or keep them happy.

The Question Is: What Is The Better Way?

To solve this complex problem, let’s start with the end in mind. What are we looking to accomplish in the performance review process? Ideally, we want to achieve or surpass business goals while creating the conditions for employees to thrive in the process.

Some considerations:

• Monthly performance meetings and weekly/biweekly individual touchpoints/check-ins. We must address the biggest barrier which is the frequency of conversations around performance. Imagine how frustrating and time wasting it is for your employee to go off in one direction and then to learn months later that they misunderstood or didn’t have a piece of pertinent information that would have made things a lot easier for them. More frequent check ins help build trust and tackle issues head on.
• Start with a pilot group. Find a small team to test it with and build from there. Keep it simple. Use a one-page worksheet with some questions. Focus on the conversation not the form. Ask for feedback and incorporate it. Share this with the wider team and start to slowly gain buy in and build trust in the process.
• Since there are so many facets to performance, think about creating different focuses for your monthly meetings. Some can be more geared towards career development and growth. Others can be focused on team or particular initiatives.  

Advantages:

1.  Employee has greater clarity on how to prioritize work and what matters most right now. With greater clarity comes greater purpose and increased engagement.
2.  Problems and potential problems are dealt with proactively.
3.  Manager has opportunity for to hear direct feedback and learn how to best support their employees.
4.  Eliminates the invisibility factor from working remotely.
5.  Eliminates the need for people managers to review dozens of employees at once and compare and contrast to justify merit increase differences.
6. Improved communication. More conversations are created with your direct reports instead of trying to cram things into one conversation at the end of the year.
7. Better business outcomes. We are able to be more agile and shift resources and energy more quickly and be more responsive when disruption occurs.

We can start to incorporate more touchpoints and conversations today, even if our company still follows a traditional performance review process. As our workforce becomes increasingly virtual the need for more effective communication and time with a human will also increase. It can only result in better outcomes for us all.