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Radhika Panjwani is a freelance writer from Toronto.

Around this time of year, many workers and managers are gearing up for performance reviews – the annual ritual that is often tied to compensation. But, some experts say it is time for an overhaul of the process.

“Annual performance appraisals are about as useful as giving a bald man a comb … there’s no point,” says Dan Pontefract, chief executive officer of Pontefract Group, an organization offering leadership, culture and flexible work strategies. “No athletic coach waits a year to provide feedback or metrics to improve or shift performance. Why is it we think this is a good idea in the corporate world? It’s not.”

Performance improvement must be about meaningful, constructive conversations between, not just a leader and their team members but between team members and even skip-level relationships, says Mr. Pontefract, a leadership strategist and best-selling author of five books.

“No one team member improves their performance by the hand or voice of one person, but by the choir of change,” he says.

In the employee pay-for-compensation model, workers are evaluated and assigned performance scores through annual performance appraisals to make – and justify – decisions around compensation, such as merit and variable pay increases, bonuses and promotions.

Typically, in most companies, leaders are allocated a certain amount of money to distribute pay raises against completed performance objectives. This process pits team members against one another. And worse, employees sit helplessly during their one-on-one performance appraisal annual meeting wondering why, after months of either positive or no feedback, they have yet been passed over for a worthwhile compensatory bump, says Mr. Pontefract.

Rethinking appraisals

When done right, performance appraisals can create opportunity to recognize an employee’s achievement and add clarity and alignment around company objectives. But that’s not the case. It may therefore be a good idea to re-evaluate the process, says Michael French, national director with staffing services specialist Robert Half Canada.

“During annual or biannual reviews, small problems may have festered into major challenges, unaligned expectations can lead to chasms and the special timing of the appraisal can feel intimidating to employees,” says Mr. French. “If we have learned anything in the last few years, it’s that our environment can change quickly. Companies that have regular check-ins throughout the year are better positioned to react to real-time scenarios and shifts in company performance and priorities.”

Research from Robert Half’s 2023 Salary Guide shows 42 per cent of employers are offering higher starting salaries this year. In addition, 79 per cent of managers who increased base compensation for new hires in the past year also made pay adjustments for current staff. Data from the Robert Half’s Job Optimism Survey showed 50 per cent of people planned to look for new jobs in the first half of the year, and of that 50 per cent, 62 per cent cited a higher salary as the main reason to switch jobs.

“Salary is the main motivator for people to switch jobs and your compensation has to remain competitive to retain valued talent,” Mr. French says. “If raises aren’t possible at this time, consider other perks and benefits, such as extra paid time off and flexible work options instead. Ultimately, being mindful of the employee as an individual and ensuring you are clear, constructive, supportive and sensitive are good rules of thumb.”

The obvious flaws

Having annual appraisals poses a challenge for companies to monitor and measure individual key performance indicators for a group of employees. It’s cumbersome and inaccurate. So much so, many organizations require employees to report these data themselves. Second, the KPIs are often not relevant to overall performance, write Boris Ewenstein, Bryan Hancock, and Asmus Komm, principals at global management consulting giant McKinsey & Co., on the company’s blog.

Also, during the appraisal process, managers typically rate employees on bell curves, which assumes most of the employees meet expectation, while a handful over or underperform. Rating employees on the bell curve will not develop the work force overall, the authors say.

The new way

Companies such as Google, Netflix, Microsoft and others have performance measurement policies that require continual feedback and coaching, the McKinsey & Co. blog notes. In the revamped appraisal system, organizations collect objective performance data through real-time analysis. Also, many companies are severing the correlation between evaluation and performance for frequent, fact-based development discussions. The emphasis is on team performance as opposed to individual triumphs.

Robert Half’s Mr. French says adopting a performance management system instead of an annual review will permit managers and employees to become aligned through ongoing feedback and keep teams nimble as they adjust to goals and timelines. This can lead to improved productivity, workplace satisfaction, recognition and retention.

To ensure fairness in the process, Mr. Pontefract suggests introducing two key self-worth actions. First, he recommends tasking team members to self-report on their past performance both quantitatively and qualitatively and asking them to honestly highlight what they think they’re worth.

Second, organizations should give each team a chequebook of a certain amount of dollars to distribute in accordance with their belief of their performance over the past year as having an open dialogue will enhance the process.

“Annual performance reviews really need to go the way of the ‘pet rock.’” Mr. Pontefract says. “They were fantastic for an era of war and military staff appraisals, but that day has most certainly come and gone.”

What I’m reading around the web

  • In his commencement speech to the Class of 2023, as detailed in PwC’s strategy and business blog, Adam Bryant, senior managing director of the ExCo Group, a leadership development and executive mentoring firm, says “follow your passion may seem like good advice. But it’s really not that useful.” Instead, he suggests, discovering one’s passion.
  • In this TED article Canadian sociologist Maja Jovanovic believes the sorry’s we sprinkle in our conversations hurt us. Needless apologies, she says, diminish what we’re trying to express.
  • According to a World Economic Forum report, which analyzed more than 200 million job ads, the fastest-growing, highest-demand emerging skills needed in the future workplace are artificial intelligence, cloud computing, product management and social media.

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