The once a year performance review system is outdated and fraught with issues. As work evolves so does HR processes and thinking, it is time we reimagine HR. The first process to change or replace is the annual performance review. This might beg the question, “Replace it with what exactly”? The answer would be replacing the annual performance review with continuous performance management. Continuous performance management uses OKRs and CFRs. CFR is an acronym for, Conversations, Feedback, and Recognition. When you combine OKRs with CFRs you have a continuous performance management system that promotes, accountability, transparency, employee empowerment, engagement, and teamwork.
Issues with the Annual Performance Review
Annual performance reviews are extremely time-consuming, with the average manager spending nearly 210 hours on them, with each employee spending 40 hours on them a year. The annual performance review has many other issues beyond being time-consuming. Annual performance reviews are fraught with biases and a poor measure on actual performance. Waiting a year to get feedback on performance is too slow and unproductive, work and life is not easily measured on a yearly basis.
Most annual performance reviews are tied to compensation and often a backward-looking appraisal. They are often a top-down appraisal or an autocratic system leaving little room, if any, for an employee’s opinions or goals. Most annual reviews are mistake or weakness based, leading employees deeming the annual review as unfair. When employees are judged by their weakness instead of their strengths for consideration for a promotion or raise their motivation is affected, creating an uncomfortable dynamic between managers and employees. Finally, the last issue with the annual performance review is it seems to have no correlation with results, meaning they do not add any value to company.
Continuous Performance Management
Continuous performance management is focused on continuous feedback, coaching, and process focused. As an alternative to the annual performance system, continuous performance management offers many improvements and benefits. The key is use and implementation of OKRs and CFRs. The “C” of CFR is about having rich and performance driven conversations. Conversations need to go further than mere conversations about whether a goal was achieved. Conversations need to have a broader context in terms of process, not just results. Coupling conversations with the “F” of CFRs, feedback communication provides an evaluative process to guide performance improvement amongst peers, managers, and employees. Feedback should be bidirectional, it drives performance improvement, engagement, and understanding. Feedback is a coaching process that guides incremental improvement in real-time. Finally, the “R” of CFR is recognition. Recognizing the contributions of employees fosters employee engagement, improves motivation, and empowers employees.
Divorce Compensation from OKRs
Continuous performance management divorces compensation from OKRs, making compensation a separate conversation or at least diminishes its attachment to backward focused assessments for compensation considerations. Continuous performance management promotes more frequent discussions, as an ongoing feedback process. Priorities and be set and adjusted based on changes throughout the year, opposed to the annual performance review, where priorities are set at the start of the year. With consistent check-ins and a robust feedback loop, performance, priorities, and goals cane be assessed and adjusted. By doing so, this keeps employees productive and motivated rather than employees merely coasting on their current achievements for receiving a bonus or raise at the end of the year.
Work is rapidly changing. Annual reviews are simply too slow, outdated, and a drain on a company’s resources. To have a more agile workforce making the switch to a continuous performance management system will improve productivity and performance at every level of an organization. Using Continuous performance management principles with improve every employees’ individual achievement. It will improve a company’s morale, engagement, and productivity. Although, many companies may have difficulty in divorcing compensation from some sort of yearly review. However, the conversations on compensation will be more future thinking by considering data-backed achievements of employees. In general, compensation will not be fully married to OKRs. So, ditching the annual review for continuous performance management will save time and money, improve productivity and performance, and ultimately leads to better business results.