Performance Management

Replace Your Annual Review Process With these Performance Appraisal Guidelines that Actually Enhance Employee Performance

Reviews are standard in almost all companies, but are they actually useful? Fifty-eight percent of employees say no. And with big-name companies like Adobe, Deloitte, and GE nixing the performance review process, all signs point toward a cultural overhaul of performance evaluations.

The old review process of lumping salary, promotion, and performance reviews into one long marathon-of-doom once a year is outdated at best and driving top talent away at worst. But engaging employees regularly on their performance and growth is still critical to retention.

In this article, we'll outline some guidelines for creating an ongoing evaluation process that, unlike a traditional performance review, actually enhances employee performance.

What are performance appraisals?

Performance appraisals, sometimes called employee evaluations or annual reviews, involve benchmarking employee performance against a set of expectations and setting future performance goals. Appraisals help employees identify their strengths and weaknesses, connect to growth moving forward, and help inspire the goal development process.

A performance appraisal should always involve both the staff member and their manager. Unlike traditional annual reviews, which are typically a one-way evaluation based on a year’s cumulative performance, appraisals are a two-way discussion. When done properly, a good performance appraisal should increase employee-manager rapport and engagement and should wrap up with clear goals to focus on.

Compared to traditional annual reviews, ongoing performance appraisals are much more collaborative. Instead of getting a report card-style grade of your strengths and weaknesses like in traditional reviews, appraisals are a more active, personalized way of auditing employee skill sets.

Unlike traditional annual reviews, appraisals are a two-way discussion.

Use a more personalized review model

Replace rigid assessments from a static template with a more individualized model. Your employees aren’t one-size-fits-all, and the best way to evaluate one isn’t necessarily the best way to evaluate another. Instead of sticking to archaic models like rubrics and algorithms that try to squeeze all staff into the same box, consider more subjective review models.

Consider, for example, using the same rubric to evaluate an entry-level IT person and an executive-level salesperson. The skill sets that make each succeed in their jobs are vastly different, and the level of competency you should expect varies wildly with experience. A young IT professional would likely be disheartened and frustrated to be evaluated on managerial competency. On the flip side, a sales leader being measured by his technical systems knowledge won’t be thrilled with his review either. That's why you need to consider more flexible review models.

This shift is vital, not only for you to get the most accurate performance appraisal of your employees, but for employee happiness too. Today’s workforce wants a company that takes a people-first approach to investing in and developing their staff. Switching to a personalized review model can increase both employee engagement and retention.

Personalized review models give you a way to collaboratively set individual goals, make objective benchmarks ahead of time, and revisit them regularly to adjust as priorities change.

There are several fluid review models, like self-assessments, management by objectives, and (our personal favorite) 360 reviews. Choose a model, try it out, and be open to pivoting to something else if the personalization isn’t resonating for your organization.

performance appraisal example with lattice of peer reviews
Peer and upward review is part of the performance review process at 360Learning.

Set SMART goals for moving forward

For your performance appraisal goals to resonate moving forward, make sure they’re SMART. Goals that are nebulous and unfocused have a very low chance of being achieved. SMART is a method of goal-setting that helps ensure your objectives are measurable, specific, and, ultimately, successful. Here are some of our guidelines for setting the most effective OKRs.

When collaborating with your staff on their goal planning, make sure each finalized goal includes all of the following components:

  • Specific: Setting specific objectives allows your staff to set mini internal deadlines and helps goals take more precise shape. It also gives your staff a framework to build within and helps you as the manager have a clear picture of success. “I’ll be a better salesperson this year” is vague enough to make someone crazy — what's “better”? Is my idea of better the same as my manager's? A specific, agreed-upon, objective goal mitigates that stress. A specific version of the same goal may be, “I’ll improve my sales techniques by attending two career growth workshops and presenting my lessons learned to the team by the end of Q3.”
  • Measurable: It's not enough to be specific. You have to have goals that can actually be tracked. Make sure your employees’ goals include clear, unbiased parameters to evaluate performance against. Instead of “I’ll improve my productivity,” consider, “I’ll free up 10 hours a week to bill toward professional development initiatives,” or “I’ll improve my closing rate by 15% in the next 2 quarters.”
  • Achievable: Dreaming big is great, but having goals that are out of reach can make your employees’ confidence take a major hit. In contrast, achievable goals build employees’ confidence and increase engagement. Instead of letting an entry-level staff member have “become a team leader in the next 12 months” as a goal, help your team scale their plans within their ability. For this ambitious team member, “take the lead on two internal projects this fiscal year” may be a better first goal.
  • Relevant: Help employees build objectives that tie their goals to the greater company (or team) vision. Making sure their goals are relevant is a win-win: it helps ensure that team member is developing skill sets that will ultimately help your team, and it gives them ownership of your organization’s larger goals.
  • Time-bound: Without a deadline, goals go from achievable focuses to “someday” pipe dreams. Setting clear, time-bound deadlines during goal planning helps create a sense of urgency and helps your team prioritize their goals along with their day-to-day deadlines.

Unlink performance appraisals from advancement conversations

For optimum productivity in development conversations, separate conversations about performance from conversations about pay. When money is on the table, employees will tend to focus on that rather than feedback on their performance. Splitting up wage talks from feedback separates the idea that your performance is directly linked to your raise, which lessens the pressure and invites more open dialogue.

“Performance reviews that are tied to compensation create a blame-oriented culture,” said Tom DiDonato in an article for Harvard Business Review. Research backs up this idea: only 20% of employers think compensation based on merit results in better employee performance. Instead of tying these two concepts together in employees’ minds, reserve one review discussion to be entirely about performance and another to be about pay increases. Or, if you’re like us, you can remove all negotiation out of the process, and instead opt to ‘compute’ employee salary increases, provided you have the right structures in place.

Performance appraisal system using employee levels
At 360Learning, salaries aren’t negotiated, nor are they tied 100% to a yearly performance review. Instead, they’re computed once every 12 months based on a Level system (shown above), quarterly performance reviews, and salary positioning (where you fall in our range of salaries for your Level).

Train managers on giving good feedback

“People don’t leave jobs, they leave managers” is a common saying for a reason. Employees will disengage from poor management feedback, which will result in the review process being negative and unproductive.

On the flip side, constructive and candid feedback improves the employee-manager relationship. In fact, research shows that receiving even negative feedback in a tactful way improves their performance. Providing constructive feedback to top performers is just as important as to lower performers and improves retention of top talent.

Good employees want to be better, and employees with lots of room for improvement can thrive under the right kind of feedback. Learning how to give effective peer feedback is critical to the manager-employee relationship.

Related: Classic Management Training is Failing Your Employees—Here’s What They Need Instead

Effective performance appraisal is a process, not an event

It's not enough to give good feedback — you have to lay a runway for employees to take that feedback and chase after growth.
Your feedback isn't all that helpful if it's unclear how the person receiving it can get from here to there. That's where a comprehensive Learning Organization—one that ties together coaching, ongoing feedback loops, and a robust learning platform—can help.

This is a big topic, and we have a lot more to say about it. For a more comprehensive rundown of a new, more helpful way to nurture employee performance, check out our complete performance management hub.