Want to jettison the annual performance review?

In recent years, management teams and HR professionals throughout the accounting profession and in business and industry have engaged in a heated debate over the nature of performance management. Specifically, they’ve called into question the value of annual performance reviews and wondered if the much-derided evaluation system should be replaced with something else.

Annual reviews are a legacy of a different time, when limited information technology infrastructure necessitated that everything move more slowly than it does today. But now business is conducted at digital light speed, and waiting until December or January to evaluate employees’ performance on a major project that was both conceived and completed months ago seems inefficient at best. Empowered employees, including members of the feedback-hungry Millennial generation, also are eager to know how they’re doing sooner rather than later—especially when such conversations affect their paycheck.

The annual performance review certainly has its share of detractors in the CPA profession.

“Everybody just dreads that time after tax season, and what I see with firms is they procrastinate,” said Rita Keller, president and founder of Keller Advisors LLC, a CPA firm management consultancy located in Beavercreek, Ohio. Rushing around months late to complete them, she added, sends a message to staff that they’re not important.

Consequently, many firms and organizations across sectors are poised to significantly change their processes, and there’s plenty to learn from those that have already made sweeping changes. This article examines changes that firms have made, the pitfalls they have encountered, and the results of their efforts.

BIG CHANGE AT A BIG FOUR FIRM

One of the highest-profile organizations to have undertaken such changes—and to have done so long enough ago to measure the impact—is Deloitte. When the firm announced it was scrapping the annual performance review in 2015, the rest of the profession took notice, not least because of the sheer amount of time the Big Four firm spent on the process. Deloitte’s figures were startling: Some 2 million hours had been spent each year completing forms, holding meetings, and creating ratings.

In 2013, Deloitte US launched a major redesign that is now reaping results for its 80,000-strong workforce, said Erica Bank, Deloitte’s performance management leader.

“Our approach is about two things: better, more frequent conversations and better, more frequent data gathering,” Bank said. At the heart of the process are “check-ins”: weekly, future-focused conversations in which team members and team leaders meet to align priorities for the next week.

“What matters most is creating that habit of weekly conversations. We’ve seen that to be the biggest change from our old model and also probably the biggest driver of the benefits,” she said.

Other components include:

• Performance snapshot: A four-question instrument to capture a team leader’s assessment of a team member’s current performance based on firsthand experience. Snapshots use research-based questions to minimize bias and yield differentiated results, and they are collected throughout the year and evaluated alongside other data inputs to inform talent decisions. Questions to which the team leader responds with his or her level of agreement (strongly disagree, disagree, neutral, agree, strongly agree) might include: Based on 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; team member is at risk for low performance; based on what I know of this person’s performance, he/she is currently operating at the next level; based on what I know of this person’s performance, I would always want him/her on my team.
• Team pulse survey: Frequent surveys of local team members designed to drive discussion, action planning, engagement, and performance. Local leaders determine the appropriate cadence for their business, with a recommendation that pulse surveys occur at least quarterly.
• Career coach: A dedicated adviser for each professional to facilitate strengths discovery, examine performance trends, and support development and career planning.
• Talent reviews: Quarterly leadership panel reviews of a division that are used to identify a custom career-development action plan for each individual. For example, the tax business, one of the four core areas of Deloitte, runs four talent reviews each quarter, selecting employees with specific skill sets within the group to review each time.

Deloitte’s internal surveys have shown an 11% increase in employee engagement since the new process was implemented.

Teams that scored high in engagement had some common leadership traits, Bank noted: They tended to help their people play to their strengths and connected their work to a broader purpose or mission, and they provided clear expectations.

In a series of surveys conducted this past fall, 75% of Deloitte employees said the weekly check-ins are a valuable use of their time, and 79% said they regularly use both positive and constructive feedback received during check-ins to improve their performance.

But has all this shaved valuable time from the previously burdensome 2 million hours? Because of the continuous nature of the new model, Deloitte cannot measure how much time the whole process takes, Bank said.

But she noted that the goal was never about reducing the time spent encouraging the performance of Deloitte’s staff; rather, the changes were aimed at ensuring the firm is investing time in the right activities. “We can no longer differentiate between what is performance management and what is just work,” she said. “Instead of spending hours locked away in rooms, fine-tuning ratings for our people, our leaders now spend that time talking to those people. The data we’ve gathered tells us it’s time well spent, as we’re already seeing culture change we believe will be a differentiator for us.”

MAKING CHANGES

Over the last few years, a slew of companies have announced plans to overhaul their performance management systems by eliminating the annual performance review, performance rankings, or both. That list includes technology and software companies such as Adobe, Juniper Networks, and Microsoft; professional services organization Accenture; and other big name companies such as Gap, GE, and Motorola.

Research shows, however, that these changes aren’t easy—and aren’t always successful. A survey of employees and managers published last year by CEB, now part of Gartner, found that at most companies, employee performance drops by around 10% when ratings are removed, because of breakdowns in managers’ abilities to manage and a decline in employee engagement.

“While there certainly is a fairly high level of dissatisfaction with the performance review process, a lot of these companies are fearful of abandoning the annual review altogether,” said Tom Sheehan, strategic HR adviser and business partner at CAI, a North Carolina employers’ association that provides HR advice to its members.

The key takeaway from the CEB survey, said Sheehan, is that when a company gets rid of the annual review process or ratings altogether, top performers are at risk of becoming disengaged while those employees not meeting expectations “may be flying under the radar.”

Some considerations are also specific to the quantitative professions, such as accounting, Sheehan said. “What makes it a little problematic to move away from the rating list approach is the fact that accountants, engineers, people that deal in a lot of analytical data, they have an expectation that you are going to quantify their performance and interpret it in numbers.

“If you start to take away the person’s rating, and you just talk in softer terms, like ‘you’re doing great’ or ‘keep it up,’ that doesn’t really cut it with people that live in that quantitative, analytical world,” he said.

The companies and not-for-profits that most effectively move away from the annual performance review, said Sheehan, are those that are going through a quarterly check-in process during which the performance management reviewer sits down with the employee and has a scripted 15- to 20-minute discussion around issues such as challenges, goals, and objectives, as well as how the reviewee can be supported.

EVERYBODY WANTS FEEDBACK

There’s plenty of talk that frequent feedback is a need specific to the Millennial generation, but really everybody wants to know how they’re doing, said Theresa Richardson, CPA, chief talent officer at accounting and consulting firm WithumSmith+Brown, which is based in ­Princeton, N.J.

A little over two years ago, Withum decided to revamp its mentoring program, and performance management was shaken up as part of that. Instead of being evaluated one time at year end, all professional staff undergo a periodic self-evaluation called SPEAD (staff performance evaluation and development).

This 10-question, score-based evaluation happens after every six weeks of work, Richardson said. First, the team member performs a self-evaluation while the supervisor evaluates the team member separately. Afterward, the team member and the supervisor get together for a 10-minute meeting to discuss the evaluation, what the team member is doing well, and what can be improved. After this process is complete, a coach, who is usually a colleague outside the supervisor-employee relationship, has the ability to review the evaluation to see how his or her protégé is doing from a performance standpoint.

The SPEAD scores get rolled up into annual evaluations, explained Richardson: “At year end, there are no surprises. I am hearing throughout the year about SPEAD evaluations. I am hearing back from my coach. There are chances for me to make improvements.”

Withum’s career coaching program has been in place for over a year and is an evolution of the firm’s mentoring program. Everyone, including partners, has a career coach and is expected to have two mandatory meetings with a career coach per year. New talent also gets a peer mentor who is an everyday go-to person. For one of the mandatory meetings, referred to as a midyear pulse, coaches reach out to all who work with their protégé to get feedback. This process is carried out so team members know how they are doing halfway through the year rather than waiting for the year-end evaluation.

All of Withum’s professional staff, some 650 people, are now working on the new system. The ultimate goal, said Richardson, is to get rid of the annual review altogether, but this comes with a caveat: “The only way we are going to get rid of the year-end evaluations is if everybody is doing a superb job at coaching.”

A “superb job” means that coaches will need to:

• Make sure they have their required meetings with their protégés.
• Every six weeks, make sure the protégés are getting timely feedback throughout the year from the colleagues and supervisors they have worked with on projects.
• Collect and communicate feedback from the protégé’s colleagues and supervisors on a constant basis.

Richardson noted that one of the biggest hurdles in the transition from old to new was getting “the software to do what we wanted it to do.” To overcome this, Withum worked with its software provider to customize the process.

Technology is an important part of the solution, and often overlooked, said CAI’s Sheehan. “A lot of companies use technology to make an ongoing feedback approach happen. The best practice would be to take a look at some software applications that are out there, that enable you to get the most of your discussions and keep the engagement levels very high.”

Effective software tools allow for better line of sight to goals and allow managers to provide and track feedback in real time. In addition, technology can provide support for peer-to-peer recognition. By using dashboards, managers can review completion statuses and rapidly analyze distribution rates, for example, in categories such as “nonperformers,” “average performers,” and “top performers.”

“Visibility to all these things improves accountability and expectation clarity. As such, performance is lifted,” he added.

WHERE TO START

Firms that have decided to overhaul performance management systems should start simply, and Keller recommended a three-step process to evaluate employees: keep, stop, start. These three questions guide the conversation about an employee’s performance, she explained:

• Keep: What should I keep doing?
• Stop: What should I stop doing?
• Start: What should I start doing?

The “stop” portion is particularly important because it addresses issues such as what employees should be doing differently or better, rather than discussing those matters indirectly, Keller noted.

Extensive changes to performance management processes are happening at a key time for organizations’ relationships with their workforces. The CPA profession is being pressed to find ways to develop people because of a talent shortage, said Bill Reeb, CPA/CITP, CGMA, the CEO of the Succession Institute LLC, a management consulting firm located in Austin, Texas.

“Retention matters as much or more than it ever has: It’s harder to find people, it’s harder to keep them. And so things like evaluations and how we do that matter on every front,” he said.

The first recommendation Reeb makes to firms and organizations he works with is to keep it simple: When people come to work for you, they have to know what they are supposed to do. In other words, what are your expectations?

Another recommendation is to create an exclusive, one-to-one reporting relationship when it comes to career and development evolution. In most organizations, Reeb explained, people might be reporting to managers on multiple projects. But there’s a difference between answering to a boss and building a relationship with a go-to individual who can be held responsible for evaluating performance and career progression.

Reeb warned against merging the annual performance review with a developmental plan. The performance review, he said, should measure performance in “the job people actually have now.” The developmental process, on the other hand, is about helping and coaching people to get better, often in the context of preparing them for their next job level or promotion, he explained.

Reeb cites the example of a California-based accounting firm that is one of the Succession Institute’s clients, as a success story in changing performance management for the better. The partners at that firm felt that annual HR evaluations were not effective, so they created a system of accountability by holding quarterly “action plans” with all staff, and then meeting with staff monthly to review performance goals and provide feedback on a project-by-project basis.

“By communicating their expectations more often and providing the required direction and support, they have experienced a higher level of engagement by their staff,” Reeb said. “As a result, they have seen their staff develop faster, take more ownership for projects, and have more job satisfaction.”

About the author

Anna Reitman is a freelance journalist based in Tel Aviv.

To comment on this article or to suggest an idea for another article, contact Chris Baysden, senior manager of newsletters at the AICPA, at Chris.Baysden@aicpa-cima.com or 919-402-4077.