Annual Employee Performance Reviews: Why They Still Matter and How Software Can Make Yours Better

Last Updated: December 9th, 2021
Researched and Written by: Adam Bluemner

The employee performance review is a time-honored tradition at every company around the world. Whether annual, quarterly, or monthly, these performance indicators are vital for showing who needs improvement, who is exceeding expectations, and who needs to be let go. Yet the process for performance reviews has evolved greatly over the years, particularly in light of rapid changes in business technology.

Dilbert comic illustrating annual employee performance review

Companies rely on annual employee reviews to:

  • Optimize employee management;
  • Facilitate better management/employee communication;
  • Identify employee, team, and department strengths and weaknesses;
  • Set individual employee goals;
  • Make informed compensation decisions, and;
  • Generally ensure human resources are leveraged to the maximum benefit of the organization.

In order to keep up with the times, many companies are turning to performance management software or HR solutions to automate and streamline employee reviews. Here are 3 tips for improving your assessment process by using software.

3 Tips to Improve the Employee Evaluation Process

Although they’ve fallen out of favor, annual performance reviews are still important for gauging your employees. Follow these top 3 tips for improving your performance management:

  1. Perform data-driven employee analysis
  2. Offer balanced feedback and constructive criticism for employee development
  3. Increased quality and frequency of management/employee communication

The reason for the large-scale adoption of performance management software is because it fundamentally improves the employee evaluation process in three very concrete ways. Take a closer look at how each of these tips is enhanced by a software-enabled approach to performance evaluation:

1. Data-Driven Employee Analytics

The mere mention of a performance review causes workers to imagine a series of opinion-oriented questions where each answer is rated by management along the lines of awful to excellent. The wrong answer can lead to demotions or dismissal based on what the manager considers the “right” answer. Yet these assessments fail to take into account preexisting relationships between the manager proctoring the review and the employees they oversee. Given the historical prevalence of this type of approach, it’s no wonder many critics have decried the lack of subjectivity in the annual employee review.

To be fair, manager opinions are not without value. After all, they know how their employees perform on a daily basis. But the data-driven approach provided by performance appraisal software offers an insurance policy against bad personality matches, faulty manager memories, or other factors which may lead to inaccurate reviews.

Rather than simply cataloging managerial opinion, performance management software packages objectively defined employee performance based on relevant key performance indicators (KPIs). Each KPI can be set up to measure employee: productivity, quality of work, internal influence, and goal attainment. Some systems even quantify financial impact by attributing estimated revenue generated to each employee.

For instance, does your company value quantity over quality? Vice versa? Both? What really matters to your business? Select KPIs can reflect which employees are delivering the right metrics for personal and company success.

Example: The Interact HRMS program allows for the authoring of tailored performance management plans, which can be customized to track definable employee KPIs.

2. Balanced Feedback and Constructive Criticism

An employee may chafe at the idea that their performance was deemed to be only “average” by an assessment–or, worse, the assessor. It’s hard not to take any criticism about performance personally. Any negative feedback can discourage employees from attempting improvement or maintaining their “sub-par” status quo.

Accurately drilling down to employee metrics is not only important in terms of making decisions about things like compensation and resource allocation. It’s also a cornerstone strategy in terms of making sure that criticism remains constructive. Performance evaluation software packages enable the collection and tracking of the vast amount of data required to analytically ground evaluations. This often makes criticism easier for employees to handle, as it’s a lot harder to argue with facts than opinions.

Interestingly, moving the review conversation from the subjective to the objective is only one of the ways that performance evaluation software promotes constructive feedback. Another useful strategy for delivering balanced review feedback is introducing more perspectives into the conversation via peer reviews. In a case study of Halogen Software detailing the adoption of the performance evaluation application, an executive from the profiled health care organization noted one of the primary benefits was the ability “to create a safe, non-threatening peer review process that promotes development.”

Example: Halogen Software allows for the option to augment performance evaluations with peer reviews. Managers are able to maintain control through the process by defining customizable access control, form set-up, and review criteria.

3. Less Stress via More Frequent Communication

One of the main issues with annual reviews is their infrequency. In addition, having only one chance to impress the boss or secure a raise has historically caused an increase in employee anxiety. In fact, there is no shortage of articles offering advice to nervous employees on how to ace a performance review. Even quarterly reviews may be too infrequent for certain industries with agile goals.

What’s largely driving the anxiety for many employees, though, is a fear that their employer’s opinion of their contributions will vary dramatically from their own. Performance evaluation software can eliminate the chance of a nasty surprise at annual review time, instead allowing for continuous feedback in weekly or monthly increments. Employee-accessible performance dashboards are particularly useful, as they can make the real-time monitoring of goal achievement transparent to managers and employees alike.

Of course, allaying employee anxiety is far from the only reason to deliver better performance feedback. Simply put, potentially waiting a full year to take corrective actions doesn’t meet anybody’s criteria for a great management strategy. Consequently, performance evaluation packages generally offer a variety of means to pull performance feedback into the here and now, including: self-serve reporting, automated review scheduling, and performance-related alert notifications.

Example: The Covalent CPM program offers robust evaluation scheduling and peer review capabilities. It also supports employee performance journal entries as another means of engagement in the appraisal process.

The Annual Review: Under Fire?

For all the reasons mentioned above, many companies are moving away from traditional assessment processes. Evolving philosophies in human capital management (HCM) have brought all employee review practices under fire. In particular, business media outlets like the Entrepeneur and The Wall Street Journal have both joined the chorus of critics questioning the effectiveness of the annual performance review. Large employers like Adobe have even made news by publicly announcing they are moving away from the practice. In an article published by Human Resource Executive Online, author Julie Cook Ramirez summarized much of the popular criticism regarding annual performance reviews:

Performance reviews demoralize the workforce because they focus too heavily on flaws in employees’ performance, rather than on building their strengths. Employees desperately hide their shortcomings instead of asking for managers’ help. The result is stagnant performance and a team of demoralized employees who are not getting the support they need to grow and develop.

The potential for employee stress, resentment, and manipulation arising out of an oppositional dynamic has led many to question the practice as a whole. Additionally, annual employee reviews are frequently seen as an ill-suited alternative to what really should be occurring: continuous feedback between managers and employees. In light of these issues, many organizations are saying goodbye to the annual review.

Refocusing the Criticism: Measuring What Matters

The criticism of annual employee reviews is well-intentioned, meant to save companies time and employees stress. After all, critics of annual performance evaluations are joined by a vision of more effective companies and happier, longer-tenured employees. Who wouldn’t want that?

But the vilification of employee reviews themselves are largely misguided–or more accurately, misdirected.

Looking again at the most common critiques of annuals reviews, the evaluations are often described as:

  • Over-reliant on manager opinion, rather than objective data
  • Too focused on employee flaws leading to worker resentment
  • Too infrequent, causing both employee stress and missed development opportunities

Notice that these criticisms are not actually inherent to the practice of internal reviews. Rather, they are criticisms of the business environment within which the reviews unfortunately take place. Negativity, subjectivity, and a lack of communication are significant organizational management issues; employee reviews merely offer a window through which these deeper problems become visible.

Ultimately, there is no reason monthly, quarterly, and annual employee reviews cannot be data-driven, focused on employee development, and a key part of a continuous and positive cycle of management/employee feedback. Performance management software is an integral part of making these reviews more fair and effective.

Performance Management Software: A Better Approach to Employee Reviews

Removing annual reviews entirely will not guarantee objectivity or improve communication between management and staff. In fact, eliminating the structure of the evaluation process is likely to only exacerbate the issues causing poor performance. If doing away with reviews is not the solution, how can organizations more effectively appraise employee performance? It’s not a theoretical question. Each company’s answer directly impacts its ability to manage top talent, foster development, and optimally deploy employees to drive business growth.

Utilizing dedicated performance management software is the main method for improving employee reviews in a modern world. It’s an approach that makes a lot of sense. After all, what’s been lacking in many employee appraisal practices–an organized, analytical approach–is precisely what this software delivers.

Task-specific evaluation software is catching on as well. According to 2013 research published by human resources software provider SilkRoad (free registration required), which considered responses from over 500 companies, more businesses now use employee review software instead of traditional paper forms and spreadsheets to conduct performance evaluations. These updated methods save time and resources!

Software Options for Better Employee Reviews

Organizations looking to enrich and improve their monthly, quarterly, or annual employee reviews have many more options than in the past. The following software programs represent popular choices for companies looking to modernize and effectively manage their HR performance evaluation processes:

Best for
Ease of Use
Halogen eAppraisal Screenshot
Halogen eAppraisal
Simplifies performance evaluation
Control learning and development
Activity tracker
Best for
BI Tools
Pentana Risk Screenshot
Pentana Risk
Clear performance visibility
Project tracking
Cloud hosted
Best for
HR
InfinityHR Screenshot
InfinityHR
Full-service HR solution
Optional features
Self-service portal
Best for
OKR
Lattice Screenshot
Lattice
Objective and key results (OKR) solution
Real-time feedback monitoring
Best for
Workforce
Workforce Central Suite Screenshot
Workforce Central Suite
Automate key business functions
Engage employees
Optimize the workforce

Learn more about all the potential benefits of performance management software by requesting a free demo today.

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