It usually begins with a calendar reminder or a polite nudge from an automated email, the annual employee appraisal is due. Palms get clammy, heart rate quickens, anxiety and panic sets in. Not just for the employee but for management as well.

How did all this start, where are we currently, and is it time to rethink the process?

Historically, formally reviewing a worker’s performance hasn’t been around that long. Here are a few of the key U.S. milestones:

It wasn’t until the 1900s that employers started making the correlation between worker satisfaction and greater work productivity. Development of performance appraisals in United States industry began with early work in salesman selection by industrial psychologists at Carnegie-Mellon University, who used trait psychology to develop a man-to-man rating system. The army used this system during World War I to assess the officer performance. After the war, business leaders, impressed by the achievements of the army researchers, hired many of the men who had been associated with the work in man-to-man appraisals (Scott et al., 1941; Wiese & Buckley, 1998).

In the 1920s, Elton Mayo, the Father of Human Resources, measured the relationship between productivity and the work environment. As a result of the Great Depression, pensions, labor standards and minimum wages were instituted.

By the mid-1950s, formal performance appraisals were much more commonly known, with companies using personality-based systems for measuring performance. Towards the end of the 1950s however, an unease at these systems began to develop, as not only was there no element of self-appraisal, but the personality-based approach did very little in terms of monitoring performance – rather, it monitored the person’s inherited personality, instead.

The government chimed in about worker satisfaction in the 1950s with the Performance Rating Act (Outstanding, Satisfactory and Unsatisfactory) and the Incentive Awards Act, where government employees could be rewarded for good work with cash and recognition.

In the 1960s, Pay for Performance was introduced with the adoption of the Federal Salary Reform Act of 1962 allowing an additional pay increase high quality performance by federal employees. As the decade progressed, performance appraisals began to do a better job of actually assessing performance, by focusing more on goals and objectives, and including more value by the use of self-appraisal.

The term “performance management” was coined by Aubrey Daniels in the 1970s. During the 1970s, there was a lot of criticism about how appraisals were being conducted, and several cases were even taken to court. A lot of this was down to how subjective and opinion-based most appraisal systems were, and so as the 1970s progressed, companies started including a lot more psychometrics and rating scales.

The 1980s brought about management by objectives (MBO). Companies began measuring brand new metrics as part of their appraisal process, such as self-awareness, communication, teamwork, conflict reduction and the ability to handle emotions. Many of these are still very relevant in performance reviews to this day.

In the 1990s individual performance management was reshaped by the increase in popularity of self-assessment of performance, sometimes followed by feedback sessions with line managers. Then integration between strategic performance management and individual performance management facilitated by the introduction of integrated tools. Organizational goals became reflected in individual goals and individual measures became aligned with organizational performance measures, in an effort to increase the accountability of all employees.

In the 2000s, performance management embraced interactive mobile technology and developed online processes and documentation.

In recent years, performance management has evolved even further, with many companies pulling down the traditional hierarchy in favor of gaining input from all working levels leading to systems having the ability to track and record multiple feedback sources when assessing an employee’s performance, 360-degree.

With mobile technology giving us more flexibility, and with more companies recognizing the importance of company culture, the definition of what good performance is will continue to shift, and that the people who will be the change makers in an organization will have tremendous influence on how employees are assessed. The demographics of the workforce is seeing a tidal shift, and at the crest of the wave, driving the surf are the Millennials.

Millennials now make up the largest position of the workforce. In fact, forecasts predict that by 2025, millennials will comprise 75% of workers. And it’s not just the head count that should concern you. Can you guess the average tenure of a millennial employee? It’s two years. In comparison, the average tenure for Gen X employees is five years, and seven years for baby boomers.

YMAZING Is it time to rethink the annual employee review?

Millennials want to grow, even it if means growing out of a company. They change jobs more often than any generation in history – and that’s not necessarily a bad thing. It is this flexibility that makes it possible to change job titles, organizations, or even careers on the fly.

What’s the key takeaway here? Millennials what opportunities to grow. They want to work when they want, where they want (don’t we all). The difference is this group truly believes this is not only reasonable but an expectation. Increasingly, Generation Y-ers are also convincing companies to offer more flexibility; this includes variable hours as well as telecommuting and non-traditional workspace.

The New York Times reported “An estimated 3 million Americans work from home, and that number is expected to increase 63% over the next 5 years.” To compete for the best millennial talent, companies are having to change in fundamental ways. Goldman Sachs, for example, recently announced its intention to improve the work environment of its junior bankers by having them work less. Of course, that flies in the face of Wall Street tradition, in which new recruits often work late into the night and for entire weekends.”

“45% of millennials will choose workplace flexibility over pay,” according to a Millennial Branding report. Millennials want a mentor, not a manager. Millennials bring a new perception of what office life should be like. They’re changing how relationships between employers and employees can be structured.

“Research suggests that the #1 reason millennials leave their job is because of their boss.”
If millennial employees feel supported and valued by leadership, they’re more likely to develop a strong relationship with their company and the people in it. Plus, by investing in corporate learning, employers can address essential millennial retention areas like talent acquisition, job readiness, and corporate culture.

Millennials are the most educated generation—ever. When it comes to the collective identity of millennials, everyone’s got an opinion. Some say they’re engaged; others say they’re entitled. But when it’s all said and done, the numbers say they’ll be the most educated generation in American history.

Why is this so important? It’s because educational attainment is highly correlated with economic success. On virtually every measure of economic well-being and career attainment – from personal earnings to job satisfaction – college grads outperform their peers with less education.

They’re hyperconnected, entrepreneurial, and collaborative. They dominate digital platforms – like the Internet, mobile technology, and social media – to construct personalized networks. They shake up the status quo. And they give employers a reason to step up their game and do what’s necessary to keep them from jumping ship.

The reality is that today’s workplace is changing and performance reviews need to change in order to remain effective. Many companies allow employees to work remotely, and more employees want weekly or even daily feedback so that they can hone their skills. According to Reuters, “4 out of 5 U.S. workers are dissatisfied with their job performance reviews and would like to see them better reflect their work.”

Employers are changing, starting with the larger companies. Professional services giant Accenture announced recently that it’s scrapping annual appraisals, joining the likes of Microsoft, Apple, Gap and Expedia. Start-ups such as Google, Facebook and Netflix have bypassed them entirely.

Why? The mood within many larger companies is that too often the annual appraisal had deteriorated into a ritualized, bureaucratic process, a distraction from the regular feedback conversations that managers should be having with their people. It was hard to justify whether the time and effort involved really did improve performance management enough. The annual appraisal came to be seen as just one of a number of processes encumbering organizations, without adding enough value.

Appraisals aren’t all bad. In a recent PwC survey, two-thirds of employees said it helped them understand how their performance compared and 48% said it enabled them to think about their long-term career goals. When appraisals focus on coaching and not judging, people found value in knowing where they stand and letting them know periodically whether they’re on track.

Of course, those companies ditching annual appraisals aren’t abandoning performance management. Instead they intend to concentrate on developing practices that create a continuous feedback culture, with regular catch-ups concentrating on development. By pointing out problems as they arise, employees have the opportunity to change their behavior in a way that makes an immediate difference. And because it happens in the here-and-now, continuous feedback is more likely to be honest and fair.

Before you go and change your current practice of annual appraisals, how performance management really work in your business. Keep your eye on the bigger picture: in the context of your particular environment, where do people need to develop and where would improving individual performance make the biggest difference? What would it take to change the process and training?

Start with broad principles that are sensitive to your people. If you want your staff to achieve great things, you’ll have to ensure that you’re giving them the right kind of support. So, what will enable them to do the best job that they can and give them the opportunity to develop?

Most importantly, it comes back to management. Yes, your management team needs to buy in and support the change away from the traditional model. But more than that, do your managers have the skills and encouragement/expectation from the Executive team for regular connection, engagement and feedback conversations with their staff? This can be difficult to answer. Organizations “say” one thing and “do” another. You may need to reevaluate what makes a “good” manager. It is becoming more apparent that a manager’s abilty to interact and communicate is quickly becoming more valued than specific job task knowledge. Even after all the education and training take place and you have adopted a new model, it is critical that managers are allowed to manage. Specifically, that it is not frowned upon but endeared that a manager sets aside time to interact with staff on a regular basis.

Ultimately, all changes take time but we are in a rapidly changing environment. An organization’s ability to be nimble is becoming a vital asset not just a strength indicator on the graphic SWAT analysis. It is not the speed of the change, since there is only one, “fast“. It is the planning and communication that will drive the change. It may very well be time to end the annual performance appraisal, but not because of the appraisal itself but rather what the workforce desires and what businesses need to compete now and into the near future. You may have a great company, innovative products, wonderful service, a heart felt mission but that will all disolve quickly if you do not engage, support and promote the passion and engery of your employees.

Is it time to rethink the annual employee review?
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