Why it’s time SMEs ditched the annual appraisal

For the first time in history we have five different generations in the workplace.

By 2020, around 50 per cent of workers will be made up of Millennials (those born between 1980 and 1995). The workplace is changing like never before, but are HR practices adapting too?

There’s no doubt that HR processes are evolving, especially where technology is embraced. HR software is streamlining many HR processes and providing a more effective tool for performance management. But many HR practices are still based on what has worked in the past. So why are so many businesses still conducting annual performance appraisals?

Traditional annual appraisals used to be the accepted channel for providing employees with feedback, negotiating pay rises, and discussing promotional opportunities. Recent years have seen a switch by many forward-thinking businesses to a different method of monitoring performance. Continuous performance management is proving a much more effective way of providing employees with frequent feedback, which is resulting in improved productivity, and increased staff retention.

A certain level of staff turnover isn’t necessarily a bad thing; new blood and fresh ideas can reinvigorate a stagnant business. Modern businesses can also benefit from a more flexible workforce, being able to contract when business hits a quiet spell, and expand in busier times. But, the combination of flexible working with out-dated methods of performance appraisal, may inadvertently be causing the exodus of valued employees.

The nature of work is changing rapidly, as are the demographics of today’s workforce. The Millennials’ sense of loyalty to any employer is less than it has been for previous generations. As a result, businesses need to adapt and find innovative ways to retain talent. Ditching the annual appraisal and switching to continuous feedback is the first thing SMEs need to do to if they want to keep in touch with their savvy workforce.

4 reasons why you should ditch the annual appraisal

1. The annual appraisal is one of many HR practices that were adopted in a different era

The annual appraisal worked in an era of long-term careers driven by wage increases and job title. Today’s workforce is different. Salary and title matter less to Millenials, who instead need to be challenged, and feel they are making a difference in the organisation. These needs aren’t being met by a system of annual reviews.

SMEs need to motivate, engage and retain talent. Millennials require different management techniques to past generations, and as they are set to make up at least fifty per cent of the working population by 2020, it’s time businesses adapted to meet changing needs. To retain talent, businesses need to provide a platform enabling continuous feedback and communication.

Millennials are renowned for job-hopping. On average they stay in a job for a maximum of three years. But much of this could be due to dissatisfaction with how they are treated at work. Millennials don’t want to be just another cog in the machine. Continuous feedback suits Millennials. Contrary to belief, Millennials aren’t narcissistic in their need for feedback. They’ve been brought up in an age of rapidly changing technology. They feel uncertain and need to know instantly if the work they are doing is OK.

2. One size doesn’t fit all

Meet the Millennials, a report published by KPMG, highlights the fact that for the first time in history we have five generations working together under the same roof. This surely means we need to review the effectiveness of the one-size fits all approach to employment appraisals. It makes perfect sense to communicate with employees on an individual basis more frequently if we want to engage, motivate and retain such a broad spectrum of talent across the generations.

3. Good employees often leave following an annual review

The annual appraisal was and still is a soul-crushing experience. It is often seen as an awkward and stressful meeting, rather than one of encouragement and positivity. The annual performance review system pits person against person, and often doesn’t allow individual contributions to be recognised.

According to a survey carried out by Adobe of 1,500 workers, annual performance reviews evoked the following:

  • 52 per cent were taken aback by the feedback they were given
  • 37 per cent left the performance review feeling resentment for their manager
  • 22 per cent of workers cried after the session

Recruitment company, Debut, argue that traditional performance reviews are causing stress, drive as many as a third of employees to look for other work, and that regular, qualitative and collaborative feedback might be the key to retention.

4. Annual performance reviews are time consuming and inappropriate for fast-paced businesses

Deloitte is one of many companies who have reinvented performance management. In a study of the organisation, they found that completing the forms, holding the meetings, and creating the ratings for annual performance reviews consumed close to 2 million hours a year.

Deloitte report that over the past 5 years, organisations have radically changed the way they measure, evaluate and recognise employee performance. Agile goal management, check-ins and continuous feedback are becoming a common means of evaluating employee performance.

Businesses are ditching the annual appraisal and finding ways to be more responsive. Fast-paced business employees need continuous feedback. According to a recent article in Management Today, one company found that effective performance-management practices drive a 20 per cent increase in retention and engagement of talent at all levels. In today’s fast-paced business community, annual appraisals are inflexible, impersonal and don’t support wider business objectives. If SMEs are serious about retaining talent, then it’s time they ditched the annual appraisal.

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