June 28, 2024
June 28, 2024

The Annual Review Is Dead. Here’s What I Do Instead:

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No one likes annual performance reviews.

Not the employee, not the manager, not the company.

So why do so many companies still suffer the brain damage? Because, like so many things in business, “it’s the way it’s always been.”

And I followed suit too (for a while). Until one year I kinda snapped. I was seeing way too much senseless work, too much bureaucracy, too many things that were taking us away from our customers.

And here’s the most ironic thing: for all the time that the annual review process takes, the feedback in each review actually sucks. It’s either out of date or forced to fill the page.

Here are three scenarios I see most often:

  1. Built-up feedback — This is the manager who doesn’t give any feedback throughout the year, therefore tricking the employee into thinking they’re doing a great job. Then, when the annual review cycle hits, the manager delivers months of built-up feedback all at once. It’s the equivalent of a sucker punch. 
  2. Forced feedback — This is the manager who gives lots of feedback throughout the year (a good thing). So by the time they get to the annual review, they’re out of things to say. But the review process insists they provide feedback. So, instead of leaving sections blank or being “overly positive,” they stretch to find some kind of feedback. But this feels artificial and only confuses the employee. 
  3. Anonymous negative feedback — This is the peer who is too afraid to confront the person in real life. So, they wait until the 360-degree annual review and UNLOAD on their peers anonymously. The person is not only surprised, but offended. They spend the rest of the year guessing who gave them such terrible feedback. And slowly but surely, trust erodes across the team.

I can literally see you nodding your head “yes, yes, and yes” as you read those three paragraphs. 

So enough was enough–we killed the traditional annual performance review and rolled out a new process. One that favors ongoing feedback and coaching and doesn’t kick the can down the road. 

In this post, I’m going to outline exactly what we did across our team of a couple hundred people. It’s not rocket science, but it is transformational. In just a few steps you can completely change how your company does performance management. 

Ready? Here we go… 

Shift Your Company’s Mindset

The first step is to shift your company’s mindset on what performance management actually is. 

Most companies think of performance management as the annual review – a big one-time event that happens at the end of the year. But the best companies (and their managers) think of performance management as an ongoing, everyday process. They develop a coaching culture that delivers feedback to its people on a continuous basis – little nudges to make sure people are moving in the right direction. Not mountains of built-up feedback that can come across as a slap in the face. 

Just think of a professional sports coach. Imagine if they watched the entire season in silence, then gave all their feedback to each player AFTER the season was over. Sounds crazy, right? Yet this is exactly what the majority of managers do when their company uses an annual performance review process. 

Instead, you need to go from “one-time” performance management to “continuous” performance management. Your goal is to shorten the time duration between the actual event (that warrants some feedback) and the delivery of the feedback itself. One-on-one meetings (1×1’s) are a perfect opportunity for feedback (more on this below), but you should also practice giving impromptu feedback as well. Here are my golden rules for delivering feedback:

  1. Must lead to positive action – the purpose of feedback is to coach people up, not tear them down. If your feedback doesn’t turn into positive action afterward, everyone loses. 
  2. Make it a two way street – Constructive feedback is a dialogue, not a monologue. Listening to the person’s perspective is key. Never give negative feedback via text, slack or email. Always start with a real conversion. 
  3. Don’t sit on it – This one hits at the heart of this article. The longer you wait, the higher the chance that frustrations will bottle up and then explode later. Or the feedback gets stale and lacks relevance. 
  4. Be clear & specific –  Don’t speak in vague terms or give broad stroked feedback. Provide actual examples to the person so they can understand it fully. 
  5. End on a positive note –  Focus on their personal success and growth. Give them the resources & training they need. Always ask if they think the feedback is fair. 

Bottom line, make feedback (both positive & constructive) a weekly, or even daily habit across your company. Get your team thinking like coaches, not dictators. The sooner you embrace this new performance management mindset, the better.

Set & Align Individual Goals

The next step is to make sure every individual not only sets annual goals, but aligns them to their team’s and the company’s. 

One of the main reasons annual reviews fall flat is because goals weren’t clearly defined to begin with. Without a shared definition of success, it’s no wonder the employee and the manager end up misaligned. Waiting an entire year to have the review just widens the divide. 

But individual goals are critically important in continuous performance management as well. Here are the steps to get this right: 

  1. Company sets annual goals – The company sets three or fewer annual goals. Each goal must be measurable. Company goals are not meant to cover EVERYTHING the company is doing – only the three most important things for the year. 
  2. Team sets annual goals – Next, each team (marketing, product, etc.) sets three or fewer annual goals for the year. These goals need to be measurable as well, and they must align with the company’s goals. If the team achieves its goals, then it should directly contribute to the company’s. 
  3. Individuals set annual goals – Then, each individual creates their own annual goals for the year. Again, three or fewer must be measurable and must align with both the team’s annual goals and the company’s. 
  4. Individual & Manager agree –  Then each individual meets with their manager to review the goals. Manager provides any feedback, and then both sides agree on the final goals. I call this step “the handshake”. 
  5. Goals are locked in – An individual’s goals don’t change throughout the year without manager approval, and this should be a rare case. 

Remember, just like the company and team goals, the individual’s goals are not meant to cover every single thing the person does throughout the year. An individual’s goals are only the three (or less) most important things they want to accomplish. Three things that will move the needle for their team and company. They should be spending the majority of their time on these three priorites, and the rest on everything else. This keeps people focused on the highest leverage activities without ignoring the necessary maintenance work.

With crystal clear, measurable goals now in place, continuous performance management becomes much easier. The next step will show you how. 

Make the Most of your 1×1 Meetings

The most underused tool for continuous performance management is the simple 1-on-1 meeting. But as I wrote about here, most managers get these wrong. 

But done right, in a short amount of time, the manager can:

  • Understand the person’s progress against goals
  • Align & influence someone’s behavior for weeks (nudges)
  • Problem-solve issues before they become major problems

Here’s how I usually run my 1x1s and how it ties to performance management. 

Part 1: Goal Progress (15 minutes): 

For the first 15 minutes, the individual gives the manager an update on how they are doing against their goals. Make sure that progress is communicated clearly and issues are raised early. You are the coach in this situation, and there to help them achieve their goals. 

Part 2: Their Agenda Items (30 minutes): 

Then, for the next 30 minutes, you can let the individual bring their own items into the agenda. This empowers them to bring important items to the table. But there are two key things to keep in mind with this: 

  1. If the discussion items are too low-level or administrative, you need to challenge them to bring their biggest blockers forward. Make them feel comfortable that they won’t get penalized for being vulnerable.
  2. If the person is continuously missing their goals week over week, then you’ll want to dedicate more of the agenda time towards helping them get back on track. If things are really bad, I’ll dedicate the entire meeting to just helping them get back on track. 

Part 3: Praise & Feedback (last 15 minutes): 

And then, for the last 15 minutes, I pick one item in each of these two buckets: 

  1. Praise them on something you observed since your last meeting
  2. Give feedback on something that needs coaching since your last meeting

This is a great way to end each meeting. It helps create a culture of feedback but also balances that with praise from the manager. 

Add Quarterly Performance Check-Ins

Once a quarter you should replace one of your one-on-one (1×1) meetings with a deeper performance “check-in”. Think of it as an opportunity to step back and talk about how the person is doing so far in the year. It’s like a “mini-review” without all the bureaucracy. Just a honest candid conversation between manager and individual. 

This rhythm makes sure you never go more than a few months without a meaningful performance talk. Here’s how it works: 

  1. Once per quarter, extend a regular 1-on-1 to 90 minutes. 
  2. Review progress against the person’s goals for the year 
  3. Ask the person to reflect on their performance (highlights & challenges)
  4. Have an honest conversation about improvements moving forward
  5. Ask the person how you’re doing as a manager – how can you be more helpful?

Then every six months, I add one more step: have a career conversation. This includes career trajectory and salary conversations. I still make base salary adjustments once a year, but in the case of extraordinary performance or promotion, I adjust the person’s salary during the year. But even if there’s no salary adjustment or promotion, it’s still good practice to review their career ambitions and let them know how they are tracking.  

Quarterly check-ins are the most “formal” part of the continuous performance management philosophy. But compared to the traditional annual review, they are a cake walk. 

Agree on ONE personal growth action

Traditional reviews usually have a “personal development” section. Yet, this is typically the dynamic:

  • Manager lists 5-10 things that the individual can improve on
  • Individual forgets the entire list a week later
  • Nothing improves 

Here’s the reality: trying to improve a bunch of things at once is overwhelming and ineffective. It’s like trying to boil the ocean.

Instead, I recommend that each person pick ONE—just one—personal growth action. Each individual typically has one major area for improvement that dwarfs all others. If they worked on that one thing, their overall performance would improve 10-fold. 

Here’s how you do this the right way: 

  1. Have the employee recommend their personal growth action
  2. As the manager, agree or suggest something different 
  3. Either way, come together on what that item should be
  4. Review it together as part of the quarterly performance check-in

By focusing on the highest-leverage growth opportunity, you set your people up to make transformational gains, not just incremental improvements. And that’s how you build a team of truly exceptional performers.

No one likes the annual review. So let’s get rid of it together. 

It starts by moving from a one-time performance management philosophy to a continuous performance management philosophy. 

Remember that sports coach analogy? Be the coach that gives feedback during and after every game. Don’t be the coach that waits until the season is over. 

Your people will love it, your company will perform, and those old annual reviews will soon be a bad memory

How I can help you… 

Are you a founder, executive, or manager? I’d love to support your professional growth. 

Here are three ways: 

  1. Connect on LinkedIn and Instagram – where I post practical tips about leadership and startups every day.
  1. Subscribe to my free newsletter – where I dive deep into a variety of management and operations topics that will make you a better leader & operator. 
  1. Join Highland – my executive coaching program for founders, where we help you become a top-tier CEO who can scale into the tens of millions & beyond. 

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