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NEWS & ANALYSIS

Where no performance review has gone before

By a show of hands, how many of you use annual performance reviews? And how many of you think that there must be a better way to manage your employees? If so, read on.

The trend

A growing number of Fortune 100 companies state that they are either moving away from traditional numerical ratings or abandoning performance reviews altogether. But why? The cited reasons vary.  Some companies mention frustration with trying to accurately capture the entirety of an employee’s contributions by simply checking a box or assigning a numerical rating.  Others note that annual reviews are time-consuming and unpopular with both management and employees. Some say that reviews create a focus on “grading” an employee rather than developing that employee, particularly when an ongoing issue is raised for the first time in a review.

Further, some companies question whether it makes sense to evaluate employees by looking back at the past year instead of providing real-time feedback, knowing that most of us do not clearly remember what happened 11 months ago. In a retail environment, where turnover is expected, many employees will not be there for a year, rendering the process ultimately ineffective.

Some companies also note that the annual review model is not consistent with the company’s culture and it is not actually a helpful tool in improving performance, particularly for Millennials, who may prefer more frequent feedback.

Pros and cons of performance reviews

Let’s discuss the legal issues that could arise from a performance review. If you terminate an employee for performance reasons when she has 10 years of positive reviews, then those reviews may undermine your termination decision. You can also have problems if your management rushes through the process or provides colorful commentary. For example, “Alfred is a great employee when he manages to make it to work,” when Alfred has just recently been on leave under the Family and Medical Leave Act, or a comment like “You can’t teach an old dog new tricks,” to a 55-year-old employee who is struggling.  Supervisor bias or favoritism can also create inconsistency, which can give rise to discrimination claims.

All that being said, there are benefits to annual reviews. First, using the same performance system for all employees in a particular job setting can help promote consistency and objective evaluation of employees. Additionally, performance reviews may be helpful supplemental documentation to support performance-based discipline or termination. And, of course, they can improve employee performance and reestablish expectations.

Applying a uniform evaluation system can also provide support as to why certain compensation decisions were made. The federal Equal Pay Act of 1963 prohibits sex-based wage discrimination where the jobs require equal skill, effort, and responsibility unless the difference in compensation can be traced to a factor other than sex, such as a consistently-applied merit system.  Title VII prohibits pay discrimination based on race, color, national origin, sex, or religion. Arguably, a pay discrepancy based on age (disfavoring older workers) or disability would violate the Age Discrimination in Employment Act or the Americans with Disabilities Act. In addition to these federal laws, many state pay equity laws require equal pay, not only for employees in the same position, but also for employees in “comparable” positions.

Regular and objective performance ratings may help an employer explain pay discrepancies between employees in the same (or comparable) positions.

Alternatives to the annual performance review

If you abandon the traditional annual performance review model, what’s the alternative? The answer to that question will depend on your company, your resources, and your needs. In general, if you want to move away from a traditional review process, think about processes that will allow you to give feedback more regularly and less formally. Consider an electronic platform that would allow you to provide continuous or regular documented feedback to an employee as you notice issues or when you want to recognize successes. Additionally, consider the generations represented in your company. For example, if you employ primarily Millennials, you may consider using a platform that is interactive or makes use of images. You can also consider providing a mechanism for employees to be able to request mini-evaluations, and ways to provide both short- and long-term goals. You can also consider whether to provide for feedback from someone other than the employee’s immediate supervisor.

Creating and troubleshooting a new system

If you are interested in creating a new review process, you could always start by taking a page from the book of another company that has revamped its performance assessment systems: Adobe. In 2012, the company’s vice president of people resources decided to abolish the performance review system, and created “Check-in.” On its website Adobe describes Check-in as “an informal, ongoing dialogue between managers and their direct reports that has employees feeling more engaged and empowered.” Adobe describes the process as focusing on regular discussions with managers about priorities and expectations; providing feedback on a quarterly basis (at minimum), without any formal written documentation; and assessing performance without providing rankings or ratings. Adobe’s program is outlined online and is free to the public.

How do you address processes that are often tied to annual reviews, like raises and promotions? Again, it depends on your company. You might decide to combine frequent, informal feedback sessions with a streamlined annual review where compensation decisions are made, or you might base compensation on quantitative data that is gathered in the course of your business operations.

Management training will be key if you decide to move away from the traditional model. You need to be sure that your managers are conscientious about basing compensation or employment decisions on legitimate criteria, including merit and length of service. You will also want to ensure that you have written guidelines for your new performance process and that your employees understand those guidelines. Hope for the best, but prepare for the worst, in which a manager makes an inappropriate comment in a review, or an employee misconstrues and takes offense at constructive feedback.

If you decide to use an online medium or app for your ongoing performance discussions, you will need to ensure that the data you enter will be retained throughout the individual’s employment, plus the longest applicable statute of limitations for employment law claims. The ability to access ongoing performance discussions will be critical if a disgruntled or terminated employee should decide to file a charge or lawsuit.

If the informal review process (or a traditional one) is not sufficient to address performance issues, then you will need to begin a documented process to discuss the problems, set concrete expectations, and hold employees accountable.

Conclusion

Although not every employer will decide to abandon the traditional performance review model, following these tips will help you if you decide to say “No!” to annual performance reviews.

NOTEWORTHY NUMBERS

SOURCE: Survey of employers conducted by WorldatWork.

SOURCE: Survey of 500 professionals, conducted by WorldatWork and Korn Ferry (January 2018).

RETAILER'S RECAP

Jobs are back! (And so is retail.) The employment news is very encouraging lately, but the “employees’ market” could make it tough for retail employers to attract and retain workers. Or not? According to an article in the August 6 edition of The Wall Street Journal, retailers and manufacturers are hiring like crazy. Retail employers added an average of 12,000 new jobs a month for the first seven months of 2018. Just as an example, Ace Hardware opened 87 new stores in the United States in 2018, and plans to open a total of 160 by the end of the year. John Venhuizen, Chief Executive Officer of Ace Hardware, attributed the growth in retail to “the low unemployment rate, rising household spending and lower taxes.”

New minimum wages took effect on July 1. (We hope you were already aware.)

No uptick in sexual harassment charges . . . yet. The Equal Employment Opportunity Commission reported that, so far, #MeToo doesn’t seem to have created an increase in the number of sexual harassment charges filed with the agency. That doesn’t mean it won’t, of course, and the demand from employers for harassment training has skyrocketed. Meanwhile, New York State and New York City both have new laws that mandate sexual harassment training and impose specific requirements regarding what that training must contain. We expect this to be the beginning of a trend. (Currently, California, Connecticut, and Maine have sexual harassment training requirements that apply to private sector employers.) If you’d like to test your own knowledge, take our #MeToo quiz.

LGBT Central. The courts continue to grapple with whether Title VII’s ban on “sex discrimination” includes LGBT discrimination, and the parties to the various lawsuits are trying hard to get the Supreme Court to decide the issue once and for all. R.G. and G.R. Harris Funeral Homes, which terminated a transgender employee, has asked for the Supreme Court to review the decision finding that the employee had a valid claim under Title VII. Parties in two sexual orientation discrimination cases (discussed here and here) have also petitioned for Supreme Court review. Meanwhile, the plaintiff in Hively v. Ivy Tech Community College has settled her sexual orientation discrimination case with the college.

Fun with HR. See how much you know about Medical Inquiries and the Americans with Disabilities Act. Then take our Employment at Will Quiz. To top it off, see why we have “Zero Tolerance for Zero Tolerance Policies.” You’ll have so much fun, you won’t even realize you’ve become an expert!

Da states. Want to avoid California’s daily overtime requirement by adopting an Alternative Work Schedule? That’s great, but be sure you do it right. Only a “properly adopted” AWS will result in no overtime obligation. Here’s how to do it correctly, and a cautionary tale about an employer who didn’t. The Michigan Civil Rights Commission has begun interpreting the Elliott-Larsen Civil Rights Act, which prohibits discrimination based on “sex,” among other things, as including discrimination based on gender identity and sexual orientation. And if you operate in Massachusetts, you’ll need to be aware of that state’s new paid leave law.