Annual Employee Performance Reviews: Why They Still Matter and How Software Can Make Yours Better

Let's see. There's the Dream Team, the Justice League, and the Beatles. After that, it gets pretty hard to think of a team that couldn't possibly be improved in some way.

Perhaps that's why annual employee reviews can be so uncomfortable. By definition, honest employee evaluation means having some difficult conversations along the way. Still, the annual review persists as one of the most fundamental processes in human resources management.

For years companies have relied on annual employee reviews to create a structure for:

• Facilitating management/employee communication,
• Identifying employee strengths and weaknesses,
• Setting individual goals,
• Making informed compensation decisions, and
• Generally ensuring human resources are leveraged to the maximum benefit of the organization.

The annual review under fire

But new philosophies in human capital management have brought the annual employee performance review under fire. Trusted business media outlets like Entrepreneur and The Wall Street Journal have joined the chorus of critics questioning the effectiveness of the annual performance review. Large employers like Adobe have even made news by publicly announcing they are moving away from the practice. In an article published by Human Resource Executive Online, author Julie Cook Ramirez summarized much of the popular criticism regarding annual performance reviews:

Performance reviews demoralize the workforce because they focus too heavily on flaws in employees’ performance, rather than on building their strengths. Employees desperately hide their shortcomings instead of asking for managers’ help. The result is stagnant performance and a team of demoralized employees who are not getting the support they need to grow and develop.

The potential for employee stress, resentment, and manipulation arising out of an oppositional dynamic is leading many to question the practice as a whole. Additionally, annual employee reviews are frequently seen as an ill-suited alternative to what really should be occurring: continuous feedback between managers and employees. In light of these issues, many organizations are considering saying goodbye to the annual review.

Refocusing the criticism

The criticism of annual employee reviews is well-intentioned. After all, critics of annual performance evaluations are joined by a vision of more effective companies and happier, longer-tenured employees. Who wouldn’t want that?

But the vilification of annual employee reviews is largely misguided—or more accurately, misdirected.

Consider again the most common critiques of annual reviews, which describe the evaluations as:

• Overly-reliant on manager opinion, rather than objective data.
• Too focused on employee flaws leading to worker resentment.
• Too infrequent, causing both employee stress and missed development opportunities.

Notice that these criticisms are not actually inherent to the practice of annual reviews. Rather, they are criticisms of the business environment within which many annual reviews unfortunately take place. Negativity, subjectivity, and a lack of communication are significant organizational management issues; annual reviews merely offer a window through which these deeper problems become visible.

Ultimately, there is no reason an annual employee review cannot be data-driven, focused on employee development, and a key part of a continuous and positive cycle of management/employee feedback.

Removing annual reviews will not ensure appraisal objectivity or improve communication between management and staff. In fact, eliminating the structure provided by the evaluation process is likely to only exacerbate issues.

Identifying a better approach to employee reviews

If doing away with reviews is not the solution, how can organizations more effectively appraise employee performance? It’s not a theoretical question. Each company’s answer directly impacts its ability to maintain top talent, foster development, and optimally deploy employees to drive business growth.

Utilizing dedicated employee appraisal software is one method for improving employee reviews. And, it’s an approach that makes a lot of sense. After all, what’s been lacking in many employee appraisal practices—namely an organized, analytical approach—is precisely the thing which software delivers.

Businesses are catching on to the effectiveness of using task-specific employee evaluation software, as well. According to 2013 research (free registration required) published by human resources software provider SilkRoad, which considered responses from more than 500 companies, more businesses now leverage employee review software to conduct performance evaluations than paper forms and spreadsheets combined.

Improving the employee evaluation process with software

Of course, where there’s smoke, there’s fire. The reason for the large scale adoption of performance management software is because it fundamentally improves the employee evaluation process in three very concrete ways. Performance appraisal software helps:

1. Provide the means for data-driven employee analysis,

2. Ensure the balanced feedback and constructive criticism necessary for employee development, and

3. Increase both the quality and frequency of management/employee communication.

Let’s take a closer look at each of these three core benefits offered by a software-enabled approach to performance evaluation:

1. Data-driven employee analytics

The mere mention of a performance review triggers the notion of a series of opinion-oriented questions where workers are rated along the lines of awful to excellent. Given the historical prevalence of this type of approach, it’s no wonder many critics have decried the reliance on this sort of subjectivity in the annual employee review.

To be sure, manager opinions are not without value. But the data-driven approach provided by employee performance appraisal software offers an insurance policy that bad personality matches, faulty manager memories, or other factors won’t lead to off-base reviews.

Rather than simply cataloging managerial opinion, performance appraisal software packages objectively define employee performance based on key performance indicators (KPIs). KPIs can be set up to measure employee productivity, quality of work, internal influence, and goal attainment. Some systems will even go a step further and quantify financial impact by attributing an estimated revenue generated figure to each employee.

Example: The Interact HRMS program allows for the authoring of tailored performance management plans, which can be customized to track definable employee KPIs.

2. Balanced feedback and constructive criticism

Accurately drilling down to employee metrics is not only important in terms of making decisions about things like compensation and resource allocation. It’s also a cornerstone strategy in terms of making sure that criticism remains constructive.

An employee may chafe at the idea that their performance was deemed to be only "average" and begrudge the assessment—or, worse, the assessor. It’s more difficult to externalize frustration that only 3 of 5 goals were achieved. To simplify this concept further, it’s a lot harder to argue with facts than opinions.

Performance evaluation software packages enable the collection and tracking of the vast amount of data required to analytically ground evaluations.

Interestingly, moving the review conversation from the subjective to the objective is only one of the ways that performance evaluation software promotes constructive feedback. Another useful strategy for delivering balanced review feedback is introducing more perspectives into the conversation via peer reviews. In a case study detailing the adoption of a Halogen Software’s performance evaluation application, an executive from the profiled health care organization noted that one of the primary benefits of adopting the software was the ability "to create a safe, non-threatening peer review process that promotes development."

Example: Halogen Software allows for the option to augment performance evaluations with peer reviews. Managers are able to maintain control through the process by customizably defining access control, form set-up, and review criteria.

3. Less stress and better employee development via more frequent communication

No doubt, annual reviews have historically caused a measure of employee anxiety. In fact, there is no shortage of articles (like this one from Forbes.com) offering advice to nervous employees on how to ace a performance review.

What’s largely driving the anxiety for many employees, though, is a fear that their employer’s opinion of their contributions will vary dramatically from their own. Performance evaluation software features can help eliminate the opportunity for the nasty surprise at annual review time by allowing for continuous feedback. Employee-accessible performance dashboards are particularly useful, as they can make the monitoring of goal achievement transparent to managers and employees alike.

Of course, allaying employee anxiety is far from the only reason to increase the touch points when it comes to delivering performance feedback. Simply put, potentially waiting up to a year to take major corrective actions doesn’t meet anybody’s criteria for a great management strategy. Consequently, performance evaluation packages generally offer a variety of means to pull performance feedback into the here and now, including: self- reporting, automated review scheduling, and performance-related alert notifications.

Example: The Covalent CPM program is an example of a product which offers robust evaluation scheduling and peer review capabilities. It also supports employee performance journal entries as another means of promoting ongoing employee engagement in the appraisal process.

Moving forward with annual employee reviews

Organizations looking to enrich and improve their annual employee reviews have many options. The following software programs represent common choices for companies looking to more effectively manage their human resources and performance evaluation processes:

Product Developer Product scope

Halogen eAppraisal Halogen Software Performance evaluation

Covalent Performance Covalent Performance evaluation
Management Suite

Interact HRMS 2Interact Human resources management (HRMS)

Accounting/ERP Solutions Epicor Human resources management (HRMS)

InfinityHR Infinity HR Human resources management (HRMS)

Valiant Vision Valiant Human resources management (HRMS)

Kronos Workforce Central Kronos Human Resources management (HRMS)

Apogee ERP Vision/R4 ERP

Ascentis HR Office Ascentis Human resources management (HRMS)

SilkRoad Wingspan SilkRoad Performance evaluation

Editor's Note: This story was originally published on Find Accounting Software's website. It has been republished here with permission.