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The Annual Performance Review

How to maximize the benefits from this required time waster

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There are three key things to remember about annual performance reviews:
  1. They are a waste of time.
  2. They are required at many companies.
  3. They should contain no surprises.

A Waste of Time

Annual performance reviews usually are a waste of time. They are too infrequent and too formal to be of any value for the person being reviewed. They are something managers feel they have to do, not something they see as a tool to improve the performance of their group. In Why Annual Performance Reviews Are A Waste Of Time I provide specific suggestions on how to improve them.

Required

Most companies require an annual performance review be completed for every employee. The Human Resources department provides a standard form and a required grading scale. Every manager dutifully fills out the inane form, or has the employee do it, then spends as little time as possible discussing it. Whatever discussion does take place is usually combative, because the employee knows this one document will determine the amount of their raise for the next year.

Since you can't get out of doing an annual performance review, do what you can to make them as useful as possible.

No Surprises

The best way to get value out of a performance review is to make sure it contains no surprises. You shouldn't put anything in an annual performance review that you haven't already told the employee. This includes your overall evaluation of their performance and how that compares to others in the group.

The main reason companies require annual performance reviews is to have a method for distributing annual raises. If each employee is given a grade, raises can be distributed based on that grade. As a result, when you do an annual performance review, the only thing the employee listens to is their grade. They want to know what their raise will be.

Using employee grades to apportion raises is fundamentally flawed. It doesn't effectively tie raises to what an employee did during the year to help the company achieve its goals. It is just a mathematical distribution. However, you have to use it if it is the company system. Just make sure you use it in the way that is most helpful in getting your group to produce at peak levels.

Assuming you have been doing continual performance reviews as things happen, and more formal reviews every quarter, each of your employees will know how they are doing. Therefore, assembling their annual performance review is simply a matter of pulling material from their previous three quarterly reviews and adding the fourth quarter items. Make sure the employee understands that this is just a quarterly review so they can concentrate on what you are telling them, rather than worry about their grade.

When complete their fourth quarter review, you have completed the performance review part of the annual review. You and the employee should have a clear and identical perspective on their performance and, more importantly, their goals for the coming review period. You should both be able to select the same appropriate grade from whatever list the company has compiled (A, B, C 1, 2, 3, etc.). If there is a difference of opinion, it's usually from the employee not understanding how their performance compares to others in the group. So if the employee selects a grade higher than you select, make sure you clarify why.

At the end of this process, you have:

  • Given the employee feedback on how their performance is helping the group achieve its goals,
  • Clarified for them how their performance compares to others in the group,
  • Motivated them to continue to improve their performance,
  • Selected with them the appropriate grade from the company list, and
  • Completed the annual review that is required.

Now comes the hard part of ensuring that the realistic performance grades you gave your employees are commensurate with their peers; making sure that what you label as average is not called superior by another manager. For that, you will need to work closely with your boss.

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