History of Performance Evaluations
According to a Harvard Business Review article, performance appraisals originated from the U.S. military’s “merit rating” system, designed during World War I to identify underperformers for dismissal or reassignment. Post World War II, around 60% of American businesses had adopted this system, and by the 1960s, this figure had risen to approximately 90%.
In 2011, marking a significant shift, Kelly Services became the first major professional services firm to abandon traditional performance appraisals, adopting frequent, informal feedback instead. Adobe did away with traditional annual performance reviews in 2012 and found that morale amongst employees and managers improved.
While the foundation of conducting a performance review is seemingly straightforward (setting clear expectations, observing performance, collecting data, and providing constructive feedback) the approach has evolved to meet changing organizational needs. Initially, these reviews followed a linear process: managers would establish performance objectives at the beginning of the review period, regularly observe employees’ performance against these objectives, gather relevant data on performance, and eventually share feedback in a formal, often annual, review meeting. This structured process served its purpose, offering a consistent framework to assess and improve performance.
However, as organizational structures have become more complex and the pace of business has accelerated, this traditional approach has been deemed inadequate in many respects. Recognizing this, companies have gradually shifted their performance review processes, opting for more flexible, continuous, and holistic methods better aligned with today’s dynamic work environment. The result is an evolving blend of practices that reflect the changing nature of work and address the diverse needs and aspirations of the modern workforce. These adjustments are encapsulated in the six emerging trends transforming HR performance evaluations today.
1. ) Continuous Feedback
In a poll of 1,000 U.S. workers, 92% expressed a desire for performance feedback more often than the traditional annual review. Furthermore, 85% of participants indicated they would contemplate leaving their current job if they perceived their performance review as unfair.
It is no surprise that businesses are increasingly adopting continuous feedback mechanisms, a departure from annual or semi-annual performance reviews.
Under this model, feedback becomes an ongoing dialogue between managers and employees. It allows for real-time recognition and facilitates performance improvements promptly and consistently. This feedback culture fosters trust, engagement, and enhanced productivity as employees better understand their strengths and areas of improvement in real time.
2.) 360-Degree Feedback
While most organizations tend to conduct performance reviews yearly or half-yearly, recent Gallup data indicates that these reviews only inspire a meager 14% of employees to better their performance.
This may explain why the 360-degree feedback method is gaining traction. Under this system, employee performance feedback is collected from various sources: their superiors, peers, subordinates, and a self-evaluation. This holistic feedback approach provides a comprehensive perspective on employees’ work habits, leadership potential, teamwork skills, and communication abilities. It fosters a collaborative culture where feedback is viewed as a learning and development tool rather than criticism.
3.) Focus on Development and Growth
The third trend is an increased emphasis on development and growth during performance reviews.
Approximately 83% of HR experts in a survey reported facing challenges in identifying candidates with the necessary qualifications for key job positions, with a third indicating that most applicants did not possess the skills needed for the job. A report from the World Economic Forum in 2021 projected that by 2025, more than half of all global employees will need to either acquire new skills or enhance their existing skills.
Performance evaluations are transitioning from focusing on past performance to highlighting future potential and opportunities for skill development. The focus is shifting to creating individualized growth plans that align with the employee’s career goals and the organization’s objectives. This focus on development promotes a culture of learning and growth, improving employee engagement and retention.
4.) Uncoupling Performance and Compensation
Next, organizations are beginning to separate performance evaluations from compensation discussions.
Despite the crucial role salary plays in choosing an employer, respondents identified insufficient pay and a lack of advancement opportunities as key reasons for leaving their past jobs. 31% indicated their desire to exit was due to the absence of prospects for career advancement.
The traditional method of simultaneously discussing performance and salary adjustments often led to stress and hindered honest conversations. Uncoupling these discussions allows for more transparent and objective evaluations, making performance feedback more about growth and less about monetary rewards.
5.) Technology and Data Analytics
The fifth trend is the increasing use of technology and data analytics in performance reviews. HR software solutions are streamlining the performance review process, automating administrative tasks, facilitating continuous feedback, and enabling real-time performance tracking.
Simultaneously, data analytics is revolutionizing performance assessments by providing unique insights. For instance, predictive analytics can forecast future performance based on historical data. Sentiment analysis, another aspect of data analytics, can interpret the emotion behind written feedback, offering a more nuanced understanding of employee performance and interpersonal relationships.
This blend of technology and data analytics reshapes performance reviews, fostering objective and data-driven decisions that enhance performance management efficiency. It creates a transformative shift in HR practices, enabling a more informed and continuous performance evaluation approach.
6.) Psychological Safety and Well-being
Experts predict that 36 million Americans will be working remotely in 2025, a 417% increase from pre-pandemic levels. With the rise of remote work, a growing focus is on psychological safety and employee well-being.
According to a recent Gallup study, nearly 44% of employees experience daily stress at their workplace, and only a quarter of them believe their well-being concerns their employer.
It comes as no surprise then that performance reviews now prioritize factors such as an individual’s mental health and overall well-being. Companies can enhance the effectiveness of performance reviews by creating an environment where employees feel safe to express their thoughts and feelings.
In conclusion, the evolving trends in HR performance reviews demonstrate a shift toward more continuous, comprehensive, and employee-centric practices. By embracing these trends, organizations can foster a more engaging and productive work environment that encourages employee growth and development.
Implementing continuous feedback and 360-degree feedback systems encourages communication and transparency, which fosters a culture of learning and collaboration.
A shift in focus towards growth and development helps employees feel valued and invested in the organization, thereby increasing employee retention. Similarly, separating performance reviews from compensation discussions allows for more candid, growth-focused evaluations.
The application of technology and data analytics in performance reviews brings objectivity and efficiency into the process and helps organizations make informed decisions based on insights derived from data.
Lastly, the emphasis on psychological safety and well-being in performance reviews highlights the human-centered approach that organizations are now taking. It ensures that employees feel safe and comfortable expressing themselves, which leads to more honest and productive feedback sessions.
These trends signal that the future of HR performance reviews is more dynamic, inclusive, and employee-centric, which will bode well for the evolving needs of the modern workforce.
However, the room for improvement remains vast regarding performance reviews. According to a survey conducted by consulting firm WTW, which included 837 companies, a mere 26 percent of North American firms believe their performance management systems to be effective. Further, only a third of these organizations reported that their employees felt their efforts were judged fairly. Concurrently, a Gallup survey from last year found an overwhelming 95 percent of managers dissatisfied with their organization’s review system.
As HR professionals and organizations continue exploring and adopting these trends, performance reviews will likely become more sophisticated and practical tools for employee engagement, development, and success. These practices are set to redefine the landscape of HR performance evaluations and, by extension, shape the future of work itself.
Where Commonwealth Payroll & HR can help:
Commonwealth Payroll & HR offers a complete end-to-end Human Capital Management (HCM) system that includes our Share & Perform solution. Share & Perform transforms your employees’ experience and improves the culture and engagement at your organization by encouraging employees to track their performance and explore opportunities to engage and grow within the company by keeping the most important information in an easily accessible location on a personalized dashboard. Contact us today to learn more.
*The information provided in this article does not, and is not intended to, constitute legal advice; instead, all information is for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information. This article may contain links to other third-party websites provided only for the convenience of the reader.