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Optimizing Performance Reviews: An Employer’s Guide to Success

Understanding 7 Challenges and Applying 7 Best Practices


Written by HRCap, Inc.

August 4, 2023


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Due to the competition and the rapidly changing business landscape, all companies must consistently strive for improvement and optimization to stay ahead of the market. Though hiring the right talent is essential, it is just as important to have effective performance management to ensure growth and engagement.


Performance management, as defined by SHRM, is the strategic process of maintaining and improving employee job performance through performance assessment tools, coaching, and counseling. Performance reviews are a crucial component of performance management that not only evaluate an employee’s performance but also drive ongoing communication and engagement between managers and employees.

Companies that conduct effective performance reviews are 30% more likely to meet their financial target

In a 2019 Reflektive survey, 64% of U.S. employees said they had received helpful feedback from performance evaluations. Organizations that had higher performance management utility reported 14% higher employee engagement rates than those that had less performance management utility. Higher employee engagement rates lead to increased productivity which results in greater profitability. In fact, companies that conduct effective performance reviews are 30% more likely to meet their financial target and are three times more likely to manage change successfully.



7 Challenges of Performance Reviews


Employers may encounter various challenges when conducting performance reviews. To ensure an effective evaluation process, we must gain a comprehensive understanding of the various difficulties companies may face during these reviews.


1. Lack of Objectivity


When conducting performance reviews, unconscious biases can affect objective evaluation. 68% of employees admittingly reported letting bias impact a performance review. The lack of objectivity can lead to an inaccurate evaluation of the employee’s performance.


2. Inconsistent Evaluation Criteria


Many managers do not use evaluation rubrics. Without consistency and objectivity in evaluations, employees may not comprehend their results and feel that the process is unfair. Since an overwhelming 85% of employees would consider quitting their jobs if they perceived their performance review as unfair, employers should implement a consistent evaluation rubric.


3. Limited Frequency of Feedback


Another shortcoming of performance reviews is that managers do not provide sufficient feedback throughout the year. Although companies may conduct performance reviews annually or bi-annually, employees seek continuous feedback throughout the year. This can disrupt productivity levels as 40% of workers are actively disengaged when they get little or no feedback.


4. Time-Consuming Process


Another potential challenge is that managers are forced to spend more administrative time than they should on completing these performance reviews. In a CEB survey, managers said they spend an average of 210 hours a year in performance management activities. This can interfere with other essential responsibilities and time-sensitive business processes.


5. Disconnect from Organizational Goals


Many companies do not know how to connect performance reviews with organizational goals, resulting in employees’ limited understanding of how their performance contributes to the company’s objectives. Only 30% of employees strongly agree that their manager involves them in setting their goals at work.


6. Untrained Managers


Another challenge is that many managers do not receive the proper training on how to complete the performance review process. Only 38% of employers provide training about how to complete the performance appraisal process for managers. This contributes to the overall lack of structure and effectiveness of the process.


7. Outdated Performance Review


If an organization fails to regularly update its performance review, an outdated process can grow repetitive which does not benefit either managers or employees. 95% of managers are dissatisfied with how their company conducts performance reviews. This may affect the attitude through which both parties approach and conduct the review.



7 Best Practices for Effective Performance Reviews


All employers must optimize performance reviews by incorporating these 7 best practices.


1. Implement 360-Degree Feedback System


A 360-Degree performance review allows holistic feedback on an employee’s performance from multiple stakeholders, which may include direct supervisors, direct reports, peers, cross-team members, clients, and customers. 85% of Fortune 500 companies use 360-degree feedback.


2. Establish Evaluation Criteria


Evaluation ratings can be based on a competency review (timeliness and quality of work), a five-point scale, or an objective-based review (goals achieved). By having a rating system, managers can evaluate employees more efficiently, consistently, and objectively.


3. Increase Frequency of Feedback


Managers should give more frequent feedback to employees, even if they are informal. Many employees only receive feedback once a year during the formal performance reviews. By receiving frequent feedback, employees can be better aligned with the team goals and get the necessary coaching needed to improve throughout the year. 85% of workers who have weekly check-ins with their managers report higher levels of engagement. This also drives more alignment on current tasks, future deadlines, and urgent concerns that may require immediate solutions.


4. Utilize Systematic Evaluation Process


Creating a consistent, systematic evaluation process will make it easier for both managers and employers to understand and drive performance reviews effectively. A structured system in place not only facilitates the review process but also enables organizations to keep track of all performance evaluations more efficiently. 31% of organizations are already adapting their performance management goals, highlighting the increasing recognition of the importance of a well-structured evaluation system in enhancing performance reviews.


5. Engage Employees on Setting Objectives


Organizations must set goals in collaboration with the employee. Involving employees in the goal-setting process can better ensure that performance objectives align with the company's goals, promoting a clearer understanding of how to achieve them. 84% of organizations indicated that the objectives are set in collaboration between the employee and their manager.


6. Conduct Training for Managers


Companies must provide the necessary training for managers on conducting performance reviews. By training managers, the review process will become more efficient and effective. High-performing managers know when to give encouragement and when to give constructive feedback. 57% of workers believe their managers could benefit from training on how to be better people managers.


7. Update Performance Management


Organizations need to also devote sufficient time to regularly review and evaluate the effectiveness of the performance management process. As with any process, troubleshooting and updating the process can benefit the company. A recent survey of employers found that 67% are either planning to revise their evaluation process or have already done so in the past two years. This proactive approach to updating performance management ensures continued relevance and alignment with evolving organizational needs, fostering a culture of continuous growth.



Conclusion


Companies that optimize their performance reviews are able to create a more efficient performance management process, further benefiting employees, managers, and the organization as a whole. Employees and managers have better alignment, communication, and engagement, leading to greater ownership of career development and stronger team performance.



Moreover, a systematic performance review that involves both employees and managers enables companies to identify organizational skills gaps, resulting in well-informed data-backed decision-making to drive greater business efficiency and scale-up. These holistic performance reviews can offer critical data and invaluable insights that influence strategic talent and business investments.



While performance reviews are a vital component of performance management, they also work in conjunction with other essential HR elements, which we will soon explore in our future blogs.



Source: HRCap, Business News Daily, Gartner, Deloitte, Business Wire, Officevibe, HR.com, SHRM, XpertHR, Washington Post, Forbes, FlexJobs, HBR, Indeed



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