Year-end reviews are a vital part of your performance management process and help your employees understand where they stand and how to improve to get to the next level.
Unfortunately, year-end reviews often go wrong. Managers dread doing performance reviews and put them off as much as possible. The employees become demotivated and sometimes leave the company after the reviews.
This is why I want to change the way we do performance reviews. The way we live and work now looks nothing like the past. But we're still using much of the processes passed down from previous generations.
In this article, you'll learn the 7 most common mistakes of year-end reviews and key tips to prevent them.
6 Tips to Have a Great Year End Review
1. Ask What Team Leaders Would Do
A study by Deloitte found that their company consumed close to 2 million hours a year for holding the performance review calibration meetings and creating the performance ratings! Many of those hours are eaten up by leaders' discussions behind closed doors about the outcome of the performance review.
Imagine the amount of productivity lost every year.
Here’s what Deloitte did: They scraped 360-degree reviews and upward-feedback surveys and replaced them with a set of different questions for each employee’s immediate team leader.
Deloitte doesn't ask the immediate team leader about the skills of each team member but about what they would do with each team member. They do this for every project completed.
That's because humans tend to be highly inconsistent when rating others, but we're much more consistent with rating ourselves.
Below is an example of the survey:
- Given what I know of this person's performance, and if it were my money, I would award this person the highest possible compensation increase and bonus [measures overall performance and unique value to the organization"].
- Given what I know of this person's performance, I would always want them on my team [measures ability to work well with others].
- This person is at risk for low performance [identifies problems that might harm the customer or the team].
- This person is ready for promotion today.
At the end of the year, Deloitte has a rich stream of information tied to each project. The calibration committees and leaders use this information to discuss succession planning, development paths, or performance analysis. Deloitte will then decide what actions they might take next.
With this powerful data stream, Deloitte sees the possibility of shifting its 2-million-hour annual investment from talking about performance ratings to actually talking about its people.
2. Eliminate Common Biases
Daniel Kahneman, a Nobel Prize psychologist, said that most decisions are based on biases, beliefs, and intuition. Only a tiny portion is based on facts and logic.
Many studies have also shown that bias is a factor in employee assessment. This is because the criteria for evaluation are often vague and open-ended. Thus it's dangerously easy for biases to creep in unknowingly.
Some of the most common biases are:
- Recency bias. The tendency to focus on the most recent period instead of the entire year
- Halo/horns effect bias. The tendency to allow the ratee's good or bad trait to overshadow others (i.e., letting an employee's congenial sense of humor override their poor communication skills.)
- Similar-to-me bias. The inclination to give a higher rating to ratee with similar interests, skills, and backgrounds as the rater.
- Primacy bias. This is when you focus on things you learnt early in the relationship, like first impressions, instead of focussing on actual performance.
- Gender bias. The tendency to use a certain set of language when evaluating different genders.
You probably have heard of 'calibration committees'. Over 40% of US firms have a calibration committee. But what is it?
The calibration committee comprises members of different generations, genders, races, functions, and time spent at the company. They usually gather every six months for mid-year and year-end reviews.
The calibration committee's purpose is to ensure that performance evaluation scores are accurate, fair, and consistent across the board.
They do this by reviewing data and feedback collected from managers, peers, stakeholders, and the employees themselves. To make the assessment even fairer, some companies made it a must to present pieces of evidence for each evaluation question.
If your company doesn’t have a calibration committee, here’s a simple way for your managers to guard themselves against biases.
Managers can write down their feedback to their direct reports. Then, come back to it later and read it with a fresh pair of eyes. Chances are, they might realize some of the feedback are biased. If they’re not sure, they can cross-check with a peer.
3. Rate People Using Adjectives
How would you feel if your manager gave you a number rating?
I'd feel anxious if I were you. Your employees would also feel the same way. This is because of how we're neurologically wired.
When a person’s performance is rated with a number, it feels dehumanizing and the experience is perceived as a threat. The threat then triggers the amygdala in the brain, which is in charge of processing fear. As a result, people get anxious and scared.
Another issue with numeric rankings is that most people have to be squeezed into a tight range that shows little distinction between superstars and poor performers. Plus, employee ratings are demotivating.
Your superstar employees want feedback that helps them move forward, not performance ratings that pull them down.
Well, instead of ranking employees on a scale, how about we describe people as we've always done: use adjectives.
For example, adjectives like industrious, prolific, creative, innovative, proactive, team worker, etc.
According to SHRM, at least two Wall Street investment giants (Goldman Sachs and Morgan Stanley) have replaced numeric rankings with descriptive words for a simple reason: numbers can't fully capture an employee's contribution.
“Numbers can't fully capture an employee's contribution”
— SHRM
This form of recognition might appeal to millennials and Gen Zs. They make up most of today's workforce and are all about experiences, not just numbers. What's important is that you provide employees with actionable feedback that helps them improve their performance.
4. Set Development Goals
Most managers set OKRs and success metrics related to the role but not development goals. What's the difference? Here's an example for a salesperson:
Role-Related Metric: Increase sales from Asia through cold calling from 200 to 400.
Development Goal: Feel confident speaking up in meetings from a 5/10 to 8/10 over the next quarter.
Development goals are designed to help the person further their career or become more confident or competent in their roles. These goals are just as crucial as Role-Related Metrics, if not more. This is because development goals give employees a voice, increase engagement, and improve performance.
Most importantly, development goals help the direct reports take action based on their given feedback. This is so often missed – if you give feedback to someone, you need to set development goals to help them improve on that feedback. You can’t just hope they’ll make changes.
Use this simple 3-column Goal Setting Framework to help your managers set development goals with their direct reports easily and quickly.
Have your managers make a copy and create a shared doc. This doc will be shared with their direct reports after the conversation.
When setting development goals, managers need to sit down with their direct reports and get input from them. Managers can facilitate the discussion by asking the following questions:
- What's the objective going to be?
- What would be a good timeframe to achieve this objective?
- Where are you now?
- What does success look like with this goal?
- How would you like me to keep you accountable for this goal?
Once the Goal Board is filled up, managers need to check in regularly and dig in on lack of progress. If their direct reports make progress, make sure you remember to praise them.
5. Start With Praise
I've seen this happen many times over:
Most managers start the performance review with constructive feedback followed by praise. There are a few reasons why this could be a bad idea.
Once the direct reports have heard the negative feedback, they won’t really “hear” the positive things they’ve done. They're not in the right mindset and emotions to receive their well-deserved praise.
Secondly, giving constructive feedback could take up a massive chunk of time, leaving little room for praise. When time is running out, managers might quickly go through the praises.
The simplest solution for this is to START WITH PRAISE.
Many good things happen when your managers start the performance review conversation with praise.
The direct report's defense is lowered. The praise lands properly. The entire conversation starts on a positive note. All these will ensure that the direct report is much more open to constructive feedback.
6. Use a 4-Point Scale
The most common performance measurement is the five-point scales.
But the problem with a 5-point scale is that most people tend to choose the middle point. It's a natural human bias called the Central Tendency bias.
It's a tendency for a rater to place most items in the middle of a rating scale. In my experience, choosing the middle point is often the easiest and laziest decision.
When most people choose the middle point, it's very difficult to differentiate between poor and high performers. You'll be in a position where most of the employees are ranked in the middle. Suddenly, everyone becomes an average Joe. It’s just not clear who actually is doing well and who needs extra help to enable them to perform better.
This is why many companies are shifting to a 4-point scale.
This is a great example of a 4-point scale:
- Greatly Exceed Expectations
- Exceed Expectations
- Meet Expectations
- Partially Meet Expectations
Considering Central Tendency bias, people will tend to choose between 'Exceed' or 'Meet' expectations. This forces the managers and direct reports to think more deeply about the evaluation, thus leading to a more accurate outcome.
Furthermore, these descriptive words are helpful because they make sure the manager is clear of what an employee's expectations actually are.
Free 'Running Performance Reviews' Learning Path for Managers
We designed the ‘Running Performance Review’ Learning Path to help your managers feel more confident in prepping and delivering performance reviews more effectively and efficiently.
It has 6 classes that cover the most essential performance review skills. Each class is 5 to 10 minutes long and comes with a Watch Party Guide to help you run in-house training sessions without creating content.
What's in the Performance Review Training Plan?
- Class 1: Running Effective Performance Reviews.
- Class 2: How to Drive Accountability
- Class 3: How to Set Goals
- Class 4: How to Receive Feedback
- Class 5: How to Give Feedback
- Class 6: How to Give Praise
