Performance Review Remix: Time To Shake Things Up

September 20th, 2023 – SkillCycle

It’s time for a new performance management handbook

In most organizations, performance management is more about reporting past performance than taking steps to improve for the future. Because of that, most companies aren’t getting the results they should.

Here’s an all-too-common-story: HR professionals feel the crunch once or twice a year to rapidly curate and distill months worth of insights, only to see these reviews collect dust on a virtual shelf. Many Companies pour significant resources into performance review season, spending up to $35 million a year in lost working hours for an organization of 10,000 employees. Yet, employees are often unprepared for the feedback they receive.

“Historically, employees have gotten feedback in what feels like a report card, but there’s never been a good way for them to understand what they’re to do now that they’ve gotten that feedback,” says Rebecca Taylor, Co-founder and CCO of SkillCycle.

If performance review season feels like report card season in your company, what benefits does it drive for your employees? How about for your organization as a whole? If those answers don’t come easily, your system of delivering performance evaluations may be broken. There’s a better way to do it — one that benefits everybody.

According to Gartner research, “52% of chief human resource officers (CHROs) believe they are not rewarding the right behavior in employees, and only 32% of HR business partners believe performance management delivers what employees need to perform.”

These beliefs are already driving change in performance management, with 74% of companies surveyed significantly altering their performance management processes in the last five years.

If your company is still doing annual performance reviews, you’re likely missing out on the performance improvement they could drive. “That’s why it’s essential to ensure these reviews connect to clear outcomes for everyone,” says Kristy McCann Flynn, CEO & Co-Founder, SkillCycle.

In this series, we’ll explore the traditional approach to performance management, and how it affects everyone in the organization. We’ll suggest a new model that centers continuous, ongoing feedback that’s actionable for the employee, and share why a new approach can drive greater ROI for your company. We’ll also help you pinpoint if your current performance management system is out-of-date and explore what’s possible with a fresh perspective on talent development.

Out with the old: Traditional performance reviews don’t deliver

Traditional performance reviews, when delivered annually without any plan or path to take action toward goals, are an untenable system. These review cycles are one of the common failures in performance management.

According to Gallup, only 14% of employees strongly agree their performance reviews inspire them to improve.

The performance review system is often a headache for HR to coordinate. To make matters worse, HR also must address concerns from people who are upset or confused by unexpected feedback.

Without consistent communication and feedback through the year, and opportunities to improve, reviews simply become a stressor that can cause employees to lose motivation and disengage at work. These factors actually cost organizations money in the long run.

“Feedback can feel intimidating when it’s something that only happens once in a while, but when you start to build habits of noticing things and sharing that feedback with someone, that person can be less on guard because it’s more habitual to receive it,” says Taylor.

Performance reviews don’t help employees — and they don’t help you

In their current state, performance reviews create a dead end for employee development and for the organization to reap any benefits from the ongoing improvements that should be happening across the company.

In many cases, this meeting is the only time performance is discussed with the employee, and no discussion of potential ways to gain new skills or improve follows the meeting. Employees go back to work, the review is forgotten, and managers are left with the same frustrations they’ve held all year.

Even at their best, traditional performance reviews leave employees wondering how their evaluation affects their future with the company. At worst, performance reviews offer unexpected negative feedback or are used to lay the groundwork for ending an individual’s employment with the company.

“Performance management is simply a mirror to show where we all need to improve. And if you’re not proactively connecting all performance management data to actual learning, you’ll see the same reflection every year,” says McCann Flynn.

Let’s do the math: adding up the financial impact of turnover

Ineffective performance management eats away at company profits, dulling employee engagement and productivity, and driving up attrition. (And it’s likely to be your top performers who will get frustrated and leave first, if your competitors don’t scoop them first). Each time this happens, your company must absorb the cost of recruiting, hiring, onboarding, and training a new employee.

According to research by Gallup, it’s estimated that the cost of replacing employees who leave your company can range from one-half to two times their annual salary, equivalent to approximately six months to two years’ worth of their earnings. For example, if the average salary within your organization amounts to $50,000, the expenses incurred for each employee who resigns could total anywhere between $25,000 and $100,000.

Often considered hidden costs, these numbers add up quickly to a massive potential impact on your bottom line. Now envision ten employees leaving in a given year; this would translate to an annual financial outlay ranging from $250,000 to $1 million. We’ll give you a minute to check the math.

People development is crucial to the betterment of business and turnover; it’s not just a nice-to-have for overworked HR teams. Developing your people means better performance, which means greater ROI. (If you’re not proactively managing the first part, we’ve got disappointing news about the second).

Disconnected systems create unnecessary obstacles

Too many companies are managing and storing their performance, talent, learning, and development data in multiple places. These disconnected systems are costly both in the long and short term, and can’t deliver essential data, development, and performance if they don’t allow you to connect the data to tell the whole story.

Relying on too many systems also prevents HR from evaluating and reporting on the efficacy and ROI of learning and development initiatives. This analysis is imperative for HR to build effective strategies and deliver programs to fill skills gaps across the organization.

Some systems have done a good job of adding interactive features and comprehensive reporting, but they can be overbuilt in unnecessary ways, and many still aren’t doing enough for managers or employees.

“At the end of the day, it’s not connected to the data. The feedback generated out of performance reviews and performance management systems isn’t ultimately connected to the learning, coaching, and support they’re going to need to take action,” says Jeff Reid, Co-Founder, COO & CPO, SkillCycle.

Leaders can apply the same problem-solving mindsets to their performance management challenges that drive success in other areas of the company. With a fresh perspective, the conversation can shift to finding the right tools to support improved performance throughout the year.

You should be able to draw clear connections between employee performance and positive business outcomes so that progress toward goals can be made — and measured — all year round.