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In the lead up to Christmas, we question what will soon be outdated in the field of HR – and whether this could be something as routine as the annual appraisal process.

We consider whether the idea of an annual pay review is out of touch with the current practices within business.

Feedback on demand

Millennials in particular are known to want immediate feedback that mirrors how they consume technology – instantly accessible. In the last decade, generations have changed their consumer habits: from having to wait for the weekly episode of a beloved TV series to binge-watching digital boxsets of whole seasons. Patience is no longer a virtue in many contexts and why should performance management be any different?

Appraisals are the traditional system of annual employee reviews with an according system of pay increases that reflect these conversations. Whilst interim reviews operate, even then months can elapse before this process ‘catches up’ with employee achievements. In the meantime, the 84 per cent of millennials who would consider leaving their role within two years of starting it, have potentially started to explore other opportunities where they can use the experience gained from their most recent work on a successful initiative to make the leap to the next promotion.

Incentivising through open feedback

Employees value a system of feedback that works on a continuous loop to help them correct and improve the whole year round, not at defined periods on the calendar. A fluid system can arguably drive employee performance more effectively, by being achievement-based, rather than time-based. Arguably, reward is most powerful when tied to achievements as employees receive instant reward based on their contribution, incentivising people immediately without having to go through a cycle alongside their peers.

Keeping the framework of equality

The benefits of having a formal organisation-wide annual process is that this ensures people are not overlooked and everyone has access to equal opportunities. Equally, the onus is even more on the effectiveness of Line Managers to communicate effectively with their employees and understand what drives them as individuals. Some may argue that having a more flexible system undermines the effectiveness of HR itself, as this approach removes the ability of managers to rely on a defined and robust process that everyone needs to address at set times of the year.

Data driven insights to support managers

It is clear that a flexible system must still operate within a defined framework that HR can monitor and support. Ad hoc performance reviews linking performance to continuous market insight on competitive pay, removes the annual timeline of the pay review process. Whilst it requires greater support from HR in equipping Line Managers to deliver effective evaluations on an ongoing basis, this shift to rolling feedback supported by HR analytics, automation and data-driven HR models is the future of HR.

Open channels of communication

Continuous Pulse surveys would be one tool that could be used to assess whether a system of open feedback is working throughout an organisation. Pulse surveys reflect the importance of acting now, rather than a few months further down the line when bad habits can become ingrained and a cultural change can occur. The pace of change employers seek in their business needs to be matched by the HR processes they have in place to let employees frequently know that their contribution is noticed and valued.

Responsive reward

The central tenet of effective reward strategies is that they must remain agile and responsive to the needs of both the organisation and the employees themselves. A quicker feedback cycle will reflect the company’s ability to respond. Developments and products used to take years to create, making annual reviews perfectly acceptable. However, companies now regularly rise and fall within a year. Research and development windows are smaller, so instant change can be achieved if people can adjust and respond quickly – making the company’s competitive advantage.

Flatter hierarchical structures

There is increasingly a case for non-hierarchical structures and self-managed teams. ‘360 appraisals’ are increasingly common, in contrast to the traditional ‘manager-employee’ model of performance management. This latter method relies on Line Managers delivering consistent performance review discussions and effective feedback that support pay progression and bonuses. Being promoted based on technical excellence does not automatically translate into equally effective managers – leaders need support to deliver the right coaching and mentoring to maintain employee engagement.

Peer performance reviews

Technology companies increasingly model their appraisals on the project teams who all input into the performance review process – shaping the objectives and next steps on learning and development for each other. This ensures everyone plays to their strengths within a team. Individuals can also quickly act on praise and correction to keep progressing in their roles. Full feedback from the immediate team you are working with is available, as opposed to ‘hearsay’ feedback from managers, who may not be privy to your everyday tasks and would have to gather that information themselves.

Self-managing teams with HR supervision

Peer reviews and self-appraisals may be the universal future of performance management. HR can use insights gathered from across the team to provide each individual with support to determine their own performance management outcomes that feed into the pay review process. A performance management review based on the key competencies of each role ensures that everyone is supported and developed in the right direction, strengthening the longer-term employee-employer relationship.

An agile system to drive innovation

A more immediate system can drive innovation, deploying skills more swiftly and remaining agile to capitalise on opportunities as they arise – suggesting that a rigid schedule of performance management is already being managed out by business transformation. Judging by the speed at which the business world is changing, annual performance management systems could well become the past of HR’s present in the near future.

Get in touch to discuss your approach to performance management and how it can unlock the full potential of each employee.

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