Skip to main content

If you ever catch yourself saying, "because that's how we've always done it," it may be time to change the way your business operates. Take the annual performance review, for example. It may be a common practice, but it's also a common mistake. Here's how and why you should drop it entirely.

A performance review is typically a standardized and formal audit of an employee's performance in the workplace. Conducted by the employee's supervisor(s) on an annual basis, it's intended to articulate the positive and negative outcomes of an employee's contribution to the business over a given period. Adjustments to compensation are often tied into the review as well.

I don't know any boss or any employee who likes the process. It's awkward and difficult for all parties, and just about everyone I know complains about the annual performance review. Most businesses I know are 'behind schedule' on their reviews, as all participants seem to be happy to put them on the back burner.

Why is this? If all parties agree that the process isn't as motivating or valuable as it was intended to be, why are so many still doing it? I think it's because old habits die hard and there isn't a commonly practiced alternative.

Who cares? You started your own business because the status quo in your industry created an opening for someone like you to do something differently. Don't let that stop with your product or service; let that innovation flow into all your operations.

Like me, you probably realize a few aggravating things about annual performance reviews. First, they tend to focus on the negative aspects of an employee's performance and set goals for the employee's improvement. They probably don't offer enough room for the employee to comment on your performance as a boss, or the broader business management issues that probably affect the employee more indirectly.

Second, I think conducting them annually is a complete waste of time. If you're a good manager, there should be almost nothing to talk about in the meeting because anything worth addressing in a performance review should have already been dealt with. This includes regular updates to your team's goals and objectives. Perish the thought that your annual review really needs to dig up employee issues from months ago, when all parties should have moved well beyond those issues by now.

You may know that I am a big fan Lean Enterprises and of doing less more often. This relates to everything from buying inventory to reconciling your bank statements. It's also my solution to the dreaded annual performance review. Performance reviews should be frequent, short and to the point. They can happen over lunch or a coffee break or in the middle of the day. They should be one on one. They should be documented briefly on paper so there is no confusion about what was said and agreed upon. This is a lot easier to do when you are staying on top of all the worthwhile issues and the document is only half a page. Recording your discussions avoids the risk of miscommunication or selective memory loss on behalf of you or your employee, in the future.

The only piece of the puzzle that I might agree to leaving on an annualized basis is the salary compensation review. While I do believe in frequent incentives and rewards for employees throughout the year, you probably don't want to be negotiating salary on a monthly or quarterly basis. In this case, you've really only have a few options.

First, if you are already paying fair market value for the position, your discussion will likely be tied to cost of living adjustments – and not even that much if you think you are paying above fair market.

Second, if you are paying below fair market value, this discussion needs to provide some mechanism for closing that gap. If your business is not able to do this all in one shot, some increases could be scheduled over the year, but each of those should not need to be a separate discussion.

Lastly, you may be in a position to promote someone. Again, I don't think that should wait until an annual salary review – after all, your business doesn't care what time of year it is, it needs its positions filled by the best possible people, every day. In the case of a promotion, whether it coincides with an annual salary review or not, that's obviously going to require a lengthier discussion.

To get the most out of your team, you need to create a workplace that employees are proud to be a part of. So, why not make work-life easier and more fun for you and your team? Ditch the annual performance reviews. Add brief and frequent achievement summary discussions that are two-way, so you get feedback on what you need to do. These small changes will create more open dialogue.

You'll know you are getting it right when you and your team find yourselves looking forward to these encounters and not dreading them.

Special to The Globe and Mail

Chris Griffiths is the Toronto-based director of fine tune consulting, a boutique management consulting practice. Over the past 20 years, he has started or acquired and sold seven businesses.

Join The Globe's Small Business LinkedIn group to network with other entrepreneurs and to discuss topical issues:

Our free weekly small-business newsletter is now available. Every Friday a team of editors selects the top picks from our blog posts, features, multimedia and columnists, and delivers them to your inbox. If you have registered for The Globe's website, you can sign up here. Click on the Small Business Briefing checkbox and hit 'save changes.' If you need to register for the site, click here.