Out with the Old: Annual Performance Reviews - Preferred CFO

Out with the Old

One of the benefits of working directly with small to medium-sized businesses as part-time CFOs is that we get to experience the culture of many clients. Some cultures foster results and innovation, encouraging and motivating employees to do and be better. Other cultures leave employees feeling scrutinized, judged, and sometimes, the target of blame. One of the most significant areas of success or failure we’ve noticed is in the way that those companies provide feedback to their employees—particularly the procedure and timing of that feedback.

I read a blog article by Beth Miller that discusses departing from the culture of the performance review. Beth points out that most employees feel that they are being judged and sentenced during these annual reviews. Many companies use numerical rating systems to score employees, which procedure can often leave employees demoralized. Finally, tying compensation to a process often viewed with so much negativity results in employees feeling that their compensation is arbitrary and they tend to resent the outcome.

Beth Miller suggests a few potential techniques that companies can utilize to change their feedback culture:

1. Replace the annual performance review with consistently regular, one-on-one meetings. These regular appointments provide an open forum for employees and their supervisors to discuss performance and make adjustments to recent successes and failures.
2. Pay top dollar for you positions, and don’t tie compensation to performance reviews. This is the hardest for companies to implement, but if employees feel adequately compensated, they won’t come to the regular meetings looking for raises. Instead, use those meetings to recognize significant contributions they’ve provided and if warranted, give bonuses for good efforts and results after-the-fact, or company-wide bonuses for company successes.
3. Eliminate the grading scale. Use qualitative measurements and specific examples to back up opinions, but don’t “rate” employees. Discuss their decision-making and what has turned out right and what has gone wrong and why.
4. Coach your employees, don’t review them. Your appointments should not be viewed as an opportunity to weigh their successes against their struggles—to see which one has more tallies. It’s also not an opportunity to criticize. Use open-ended questions to ask the employee what challenges they’ve faced or what they’ve done to stretch themselves. Explore goals and plans—this is an opportunity for mentorship and growth.
5. Integrate peer feedback. A colleague’s opinion can be worth more than a supervisor’s in some cases.

I recently spoke with a friend of mine at a smaller company. She was recently moved from a front-office role in the company to a back-office role. She felt that she had been promoted, but the change did not come with a compensation increase. Her anniversary date with the company recently came up and she requested an annual review. In this company, unfortunately, the typical annual review leaves employees discouraged. She didn’t want the typical review and took the volition to prepare the agenda for the annual review herself. Interestingly, her preparation resulted in a positive meeting of coaching, mentoring, and goal setting. She sought peer feedback in preparation for the meeting and was rewarded with additional insight. Her supervisors were impressed with her preparation and gave her very positive comments on the whole process. They did not tie compensation to the review, unlike other reviews, and she left encouraged and supported.

Every company is different. You should discuss with your employees what they feel would be helpful for them, and you should see what works for you. By keeping these ideas in mind, you’ll find a more positive environment in which your employees will thrive.