If you were to ask any CEO what their company’s greatest asset is, you would undoubtedly hear them talk about their employees. Any leader worth their salt recognises that it is their employees that gives their company its competitive advantage. Maximising employee performance has to be top of the priorities for any organisation. But the needs and wants of today’s workforce is changing rapidly and traditional HR practices are no longer a good fit for today’s nimble and team-driven workforce.

Only 20% of employees agree that the annual performance appraisal motivates them

For instance, it might surprise you to learn that the annual performance appraisal can trace it’s roots back to World War I, when it was initially used to assess officer performance and to identify soldiers whose poor performance merited a dismissal. Business leaders began using it to measure managerial and professional employee performance over the following decades.

But what may have worked decades ago has lost it’s effectiveness as today’s workforce has a more and more influential say in how they should be assessed and motivated.

Despite only 20% of employees agreeing that the annual performance appraisal motivates them, many small, medium and large companies still rely on it as their principal employee management tool for measuring, accessing and motivating their workforce.

What are the problems associated with traditional methods for developing employees?

So what is wrong with the process? Why is it considered so ineffective by more progressive organizations?

The main criticism from employees is that the process is inaccurate and unfair. Consider what happens when a manager and employee sit down together at the end of the year to discuss the employee’s performance.

Problem #1: The conversation is inevitably subject to what some call a “recency bias”. This is a bias towards thinking about events that have happened more recently over events that have occurred in the past. This translates to both manager and employee reviewing performance that occurred over the last few weeks, rather than over the entire year. This does not represent a fair evaluation of an employee’s performance.

Problem #2: the annual review occurs far too infrequently for the manager to provide timely feedback. The most valuable time to receive feedback is shortly after the event for which feedback is being given, when the employee can remember the detail of the event and can more easily figure out how to use the feedback to change future behaviour. By the time the annual review comes around, any feedback given on events in the distant past will appear more like criticism than constructive feedback, likely resulting in a demotivated employee.

Problem #3: Performance reviews are often a focal point for an annual rating, which determines pay increases or promotions. When an employee sees their entire year’s work condensed into a single number that determines their compensation or future career progression, their focus shifts from how to improve their performance at work to considering whether their manager is qualified to rate their performance.

It’s not surprising therefore that just 14% of employees feel that the annual performance review inspires them to improve. Many companies now recognise that the process demotivates and disengages employees more than it motivates and engages them and given the huge amount of time the process can take, leaders are looking for different ways to measure, motivate and engage their workforce.

A better solution is needed

An alternative solution must take into account the fact that the needs of today’s workforce are changing. As the baby boomer generation moves closer to retirement, Millennials are now the dominant generation in the workplace and it is this generation that are demanding to be managed differently to previous generations.

Typically, the Millennial workforce wants to do interesting work that will give them opportunities to learn and grow. They want managers who will facilitate this and who will offer job clarity and be able to help them set their priorities. They want continual feedback and guidance to help them achieve their goals, rather than wait until the end of each year for such guidance.

Managers must coach

As such, companies are realising that in order to maximise employee performance, managers must continually engage their employees through regular coaching conversations, providing feedback and helping remove obstacles to goal achievement.

But a regular coaching cadence on its own is not enough. Managers must learn that different employees in different scenarios will need different approaches to coaching.
For instance, employees engaged in less complex jobs benefit more from specific goals and more prescriptive steps to helping them achieve their goals, whereas employees in more complex jobs prefer coaching that focuses on a more general outcome to goals with greater levels of autonomy given to the employee.

There are a variety of skills that managers must possess to drive employee engagement, but coaching should certainly be one of them.

Simon Bates is CEO of Workteam, an HR Management System for businesses of all sizes with a focus on growing employee engagement. Visit http://workte.am to find out how it can benefit your organization.