As a CFO, you want to ensure your team achieves objectives and performs to the best of their abilities. Performance reviews are the traditional way to track whether team members are meeting expectations. But are they effective?
An eye-opening 94% of CFOs believe formal evaluations are effective in helping employees improve performance. However, just 31% of their employees agree. This disconnect doesn't mean you need to scrap performance reviews. However, you should ensure the process objectively evaluates progress and provides meaningful feedback.
Below, we explore the roadblocks and challenges that hinder the performance review process and discuss how CFOs can improve performance reviews to provide more value for everyone involved.
What Is a Performance Review?
More than just a checklist of accomplishments, performance reviews can offer critical insight into how an employee has been doing the past year. This process allows managers and supervisors to assess an employee's performance by evaluating achievements, strengths, weaknesses and areas for improvement. From honest reflections to goal-setting exercises, well-conducted performance reviews can be helpful tools that foster professional growth. Formal performance reviews may occur quarterly, semi-annually or yearly, although informal check-ins often occur more frequently.
It's not hard to understand why CFOs like performance reviews. As financial leaders, CFOs tend to value metrics and prefer to make decisions on data rather than "gut feelings." And performance reviews — especially those with a numerical grading scheme — provide data upon which to make decisions about raises, performance bonuses and promotions.
The problem is that performance reviews are rarely as objective as they initially seem.
Potential Challenges of Performance Reviews
Performance reviews can do more harm than good if they are not conducted thoughtfully and effectively. As such, employers need to examine how their performance review process may negatively impact their employees to ensure that it benefits all involved. Here are a few common ways performance reviews fall short.
No Honest Feedback
Employees are reluctant to provide honest feedback for fear of repercussions, and otherwise good managers resist having difficult conversations. The performance review process has little value or meaning without open and honest dialogue.
Semi-annual or annual performance reviews are not enough. If managers aren't giving employees regular feedback, the situation has either been resolved or is ancient history by the time the employee hears constructive feedback or praise. As a result, performance reviews feel like an unnecessary rehashing or an afterthought.
Unconscious (or Conscious) Bias
Performance reviews are often influenced by the manager's bias. For example, managers may be too quick to judge employees who do not fit a certain mold. Or they may be influenced by the halo effect, whereby managers overestimate an employee's achievements if the employee has other positive attributes.
Ratings Are Subjective
Many performance review systems ask managers to assign a numeric value to an employee's performance. But on a scale of 1 to 10, what's the difference between a six and a seven? Or a three and a four? It's impossible to label employee performance with an absolute number. As a result, it's not unusual for employees to get higher or lower grades when a new manager evaluates them.
Emphasis on Compensation
Many organizations tie compensation to performance reviews but decide on raises and bonuses before meeting with the employee. As a result, managers spend the review meeting justifying their decision, and employees feel discouraged and stressed out.
Strategies to Improve the Performance Review Process
Performance reviews aren't the time to return to past problems or justify compensation. Instead, they should be an opportunity to help employees develop skills and continue contributing to the organization.
Here are some steps you can take as a financial leader to improve the process for your teams.
Provide More Frequent Feedback
The first strategy is allowing more frequent check-ins or feedback sessions between managers and employees — an approach becoming increasingly widespread in organizations today.
Providing real-time, continuous feedback throughout the year can help ensure managers address performance issues promptly and provide ongoing development and support throughout an employee's tenure.
Remove any bias or halo effect from performance evaluations by establishing clear criteria for assessing performance.
According to the Harvard Business Review, establishing calibration committees is one way to ensure standardized scoring. These committees review assessment scores and revise them as needed to ensure consistent scoring. This helps ensure performance reviews are based on objective measures rather than subjective assessments.
Separate Performance Reviews and Compensation Discussions
A third strategy is to separate reviews and compensation discussions. Managers can then view reviews as a chance to mentor, provide development resources and help employees set and reach goals.
Setting goals gives employees clear targets and helps them understand expectations. Reviewing progress against goals can help identify strengths and weaknesses and determine whether they need additional training. Separating these conversations helps to de-emphasize the pressure on management to deliver high ratings and large raises and encourages employees to focus on building skills and improving performance over time.
Looking Toward Automation
In most organizations, managers are spread thin, and it's tough to allocate 210 hours per year to performance reviews — let alone provide more frequent and thoughtful feedback.
Fortunately, automation can support the performance review process by streamlining how data is collected, analyzed and reported.
Performance management software can drive significant time-savings by freeing up managers to focus on managing and developing people rather than filling out reports. They also minimize the potential for human bias to creep into the appraisal process by using data analytics and artificial intelligence to sift through feedback and comments, ensuring that ratings are determined in an objective and unbiased manner.
When organizations automate data gathering and evaluation, managers have more time to focus on having meaningful conversations instead of simply crunching numbers or looking up past performance data.
Performance management automation can be a powerful tool for streamlining the performance review process and ensuring that feedback is consistent, accurate and timely. However, automation doesn’t replace conversations and relationship building. Good performance management requires managers to build relationships with their teams and have meaningful discussions about how employees can develop skills and grow within the organization.
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