Rethinking the Annual Performance Review

Matt Hulett, head of product at TINYpulse, was a recent guest on our B2B Nation podcast. The series explores a variety of HR trends and challenges through conversations with industry leaders.

In this episode, we discuss how performance reviews have changed in the past few years, whether there's a correct way to structure them, and their future. 

Below are some of my favorite excerpts from the conversation:

No One Has Ever Said That Their Performance Review Process Is Effective or Loved

“In fact, the common thought is that ‘my performance review process sucks.’ And I’ve heard that even from the most conservative HR executive of a very conservative company. We have had so much input from our customers. Performance reviews have been the number one request from our customers who use our flagship product, TINYpulse Engage.”

2016 Marks the First Time That Millennials Outnumber Any Other Age Group

“The management style for millennials is constant feedback, transparency, and a lot of mentorship. It’s important to figure out how we need to change our management styles, because we really haven’t since World War II. We haven’t had a real change in the command and control management style. To retain and attract talent, you have to conform and change your processes for a millennial audience.”

B2B Software Is Going Through Consumerization

“I used to build software without caring about the employees who would use it. I tried to sell it to the head decision-maker. You’d say, ‘OK, please mandate this software for everybody.’ And then all the users would hate it. We’d actually call them ‘users.’ We didn’t call them employees or customers. Now there are a lot of choices in software, and most of the software that’s built for HR isn’t very good. It’s not liked, but if you want to get paid, you have to use it. As millennials have been entering the workforce, and as consumers are bringing their own devices to the workplace, it’s important to build software that people actually like and use.”

6% of Fortune 500 Companies Have Ditched Their Annual Performance Reviews

“That’s shocking to me. These aren’t small companies — Deloitte, Accenture. Those are some of the biggest companies in the world, in terms of employee count. Amazon’s reviewed it. Microsoft. IBM has recently announced it. From our own data, 42% of our customers were saying that the reviews themselves are biased. They left out important information, or there was ‘recency bias.’ The manager only remembered the last good or bad thing that the employee did. 40% of those customers said that their current annual performance review process was outdated.”

“Everyone thinks it’s a colossal waste of time. Deloitte said they waste 2,000,000 hours per year in annual performance reviews. Not effective, not an efficient use of time, and full of bias. Those are three really bad things that companies are trying to solve now.”

A Lot of Companies Will Say They’re Killing the Annual Performance Review

“I’m not sure I completely believe that, because you’re never going to kill a process where you sit down and discuss your performance and salary. There’s always a process — and businesses are wired this way — where, once a year, you'’e going to have your base salary, maybe stock, maybe bonus, maybe payout of bonus discussed. That’s based on something. That’s not going to change, but how that conversation happens and when that conversation happens and how frequent that conversation happens around performance does change.”

“Every company on the planet of a certain size has performance reviews. Really, really small companies don’t, obviously. But the idea and the promise is, ‘How can you build products and technology that can scale from the smallest companies all the way up to 100,000?’”

Everyone Is Trying to Decide Their Next Step

“Everyone’s looking at something new, because there are a lot of options out there. We're not the only ones with a software product like this. There are a lot of companies like this, and it’s not just because everyone likes to compete. It's because the market’s huge, and everyon’'s looking at changing their processes.”

“Jack Welch and GE were very famous for trimming 10% of nonperformers every year. Well, they got rid of that. At one of my previous companies, we actually had that HR philosophy adopted by GE, which was very difficult to maintain. I didn’t manage my team that way. Now you have companies saying, ‘Oh my gosh, GE’s changing that process and building their own process that’s different. Maybe we got it wrong too.’”

“It’s a little bit like in the Matrix, whether you take the blue pill or the red pill. Everybody realizes they’re being chased by robots and they’re not living in the real world. The real world is a talent rush, and the employees we’re managing are younger. There are a lot of choices, and you can’t sit back and do the same old stuff that you used to do, because it’s not going to work.”

This podcast was created and published by TechnologyAdvice, a Nashville, Tenn.–based Inc. 5000 company that is dedicated to educating, advising, and connecting buyers of HR Software. Interview conducted by Josh Bland.

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