Why We Cut The Annual Performance Review

Why We Cut The Annual Performance Review: Compensation Edition

Written by Nora St-Aubin, Illustrated by Simon Lavallée-Fortier

April 16, 2019

This article is a follow-up to one we wrote when we first cut the Annual Review.

It’s been over a year since we cut the annual performance review process from our feedback cycle and as promised, we’re going to fill you in on how our new processes have been working, what still needs refining, and of course, we’ll answer everyone’s burning question: What do you tie compensation to?

First, let’s acknowledge the elephant in the room – cutting the annual performance review, or getting the buy-in to do so, is easier said than done. It’s a deeply embedded and ubiquitous workplace practice, and people have valid concerns: How are pay and promotions determined? When is constructive feedback given? When and how do you talk about performance?

Today, we sit down with Valerie and Cyril from our Culture & Organization (formerly known as Human Resources) department to give you a clear picture of where we’re heading in this untraditional landscape of performance management – and why it’s time to move away from a grading system.

One thing’s for sure: we won’t go back.

Recap: Why We Cut the Annual Performance Review

The worn-in annual review has no place in the bright future of work. To unlock your employees’ creativity, build high-performing teams, and attract the best talent to your company, you need to create human-centered processes that are developmental and motivating, rather than retrospective and fear-based.

An annual performance review, or performance appraisal, does not work because:

  • It takes meaning out: The best work comes from a sense of purpose and passion, not the promise of a pay increase at the end of the year.
  • It puts fear in: Feeling that you can’t make any mistakes at the risk of missing out on a raise or promotion is the ultimate creativity killer.
  • It’s not developmental: Performance reviews are retrospective, looking back at where employees were, not ahead to the possibilities of where they can go.
  • It’s not accurate: A whole year’s work is far too much for anyone to assess in a comprehensive way. Plus, a variety of biases can impact our ability to accurately review others’ performance.

The key is that continuous and forward-looking feedback and development are facilitated between managers and employees, with regular touchpoints and open lines of communication. Many companies use tools like Officevibe to enable real-time feedback and communication between managers and employees.

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We ask the experts: How have we evolved from the outdated Annual Performance Review?

Image presenting Valérie and Cyril - employees at Officevibe
Valerie Gobeil and Cyril Boisard, the dynamic duo of our Culture & Organization department, are constantly re-imagining our internal structures, policies and procedures to ensure that they fulfill our ‘people-first’ promise.

First, what does employee performance look like to you?

Cyril: Having everybody being leaderful in their role – you don’t want leaders and followers. You want everybody to take ownership of what they do. You want everybody to take responsibility, and to have the power to make decisions about the work that they do. That’s performance.

Valerie: Performance happens in that area for each person where there’s a clarity or alignment with why they’re doing the work. Where there’s enough mastery, but enough sense of something to be gained or learned. They feel motivated, they feel on the edge of their skills and they feel that there’s room to grow – the space where they’re just challenged enough, but not overwhelmed.

There may be many takes on a what a performing employee looks like, but one thing’s for sure: employees are most likely to excel when they have a sense of purpose, challenge, and direction in their work. Employee development is the new performance management, and this is where we’ve been putting our biggest focus since we cut the annual review.

Without the Annual Review, how do we track development?

Valerie: We want to support managers with tools that can help them reach their objectives. We don’t want to force managers to embrace a particular tool, we want them to embrace a mindset, and then to have the flexibility to see what works best for them and their employees.

Shows multiple and different kinds of tools, all aranged in a rectangle to illustrate harmonization

Below, we outline some of the tools we’ve been using on our teams.

What is the Heatmap, and how are we using it?

The heatmap is an employee development tool that is not tied to compensation. It details company values, and employees and managers can use it together during one-on-ones to find opportunities for growth. Based on what projects employees have coming up, they can prioritize their professional development focus both short- and long-term.

We outlined an earlier version of the heatmap in our first article about cutting the review, and one recurring comment we got was that assigning colours to each criterion still felt like an evaluation.

Internally, the feedback from employees and managers alike was that the criteria were a bit redundant, and often the focus seemed to be more on past work than the future, even if the intention was otherwise.

Valerie: Currently, we’re experimenting with a more streamlined version of the heatmap that compresses some of the criteria and makes more explicit the notion that looking forward is as important as looking back. This test version also eliminates the use of colours to avoid any kind of grading, and rather for each criterion, you discuss what’s going well and where there are opportunities for improvement.

We also want to communicate to our managers that the heatmap is one tool that can help, but if they prefer to use other tools, or if they have constructive feedback without using the heatmap, that’s also okay. Cyril often says we’re not for standardization but for harmonization – things need to work together, but they don’t need to be standardized processes.

And this isn’t the only thing we’ve been testing. In the spirit of building leadership at all levels, we’ve been trying out peer development structures on some teams.

How does Peer Coaching and Development work?

Illustration of someone balancing plates on sticks

Managers have a lot on their plates (and tend to have many spinning at a time), and it can be unrealistic for them to follow each of their employees’ development in an effective way. Not long ago, our own manager was conducting 14 one-on-ones a month, which just wasn’t sustainable.

We decided to test a peer development structure to help give all employees the benefits of regular feedback, check-ins, and a sounding board for anything from personal goals to team conflict.

Essentially, some employees act as peer coaches and have regular one-on-ones with their teammates. Our manager still meets with all team members on a quarterly basis to keep a high-level view on each employees’ individual development.

Cyril: It grew a bit organically inside the company without us really being involved. This role is really helping the person find the right tools so they can develop themselves. It’s not about forcing somebody to get somewhere, it’s about seeing where the person wants to go and how you can help them get there. It’s knowing that you don’t have to have the answers, either.

As teams become more dynamic and hierarchical models are left in the rearview, it’s essential that we see leadership as a mindset for everyone to embrace. The future of work calls for the decentralization of management roles, building leaderful teams in which everyone is accountable for the wellbeing of the group.

Hey, Managers! If you’re thinking of trying out peer coaching on your team, it’s important that peer coaches want to take on this role, and that they develop their leadership and soft skills. On our team, peer coaches went through conscious communication training and are now in a program to develop their emotional intelligence.

What are Responsibilities & Expectations (R&E), and how are they connected to pay?

Responsibilities & Expectations help establish clarity of role and direction for employees and their managers, and they factor into determining compensation. Employees have 6-8 responsibilities that define their role, and each responsibility has 4-5 levels of expectation within it.

Cyril: The responsibilities demonstrate what you do in your role to contribute to the goals of your team and the company. Expectations show how you can grow inside of those responsibilities, the steps you can take to develop yourself and evolve within your role.

It’s also forward-looking. Unlike with a performance review where you look back at what you did, your expectations should reflect where you’re heading within three to six months. With this model instead of having to prove yourself, you can develop yourself.

When you grow within your role, you’re going to bring more to the company. That’s what I call performance.

Responsibilities and expectations correspond to business objectives, and employees decide with their manager on one or two responsibilities to focus on evolving within at a time based on their personal and professional goals.

As employees move up in their levels of expectation, it usually corresponds to a pay increase as they develop their expertise. Employees’ R&E can be revisited regularly with their manager and adjusted when needed, without having to wait for a once-a-year salary discussion.

Here’s an Example of a Responsibility & Expectations:

Develops and maintains relationships to promote the brand’s vision and mission throughout the industry

  1. Takes part in networking events and nurtures existing relationships
  2. Expands existing network by identifying networking opportunities
  3. Contributes and regularly brings added value to network and industry
  4. Is officially recognized by network or industry as a thought leader

At an organizational level, we’re dedicated to maintaining internal equity when it comes to pay, to ensure that employees with the same R&E receive the same salary. Our Culture & Organization and Financial departments also consult third party databases to establish salaries that are at the 75th percentile of the market at similar organizations.

Even with tools and structures that encourage more frequent conversations around pay, compensation is still one of the most taboo subjects in the workforce, if not the world. What’s the best way to break a taboo? By talking about it – all the time.
Two people trying to puzzle out how to discuss pay

How are we trying to break the great taboo around compensation?

Valerie: We have so few conversations about compensation, and it seems to always come with an expectation that it will have an impact on pay. I actually think we should talk about compensation without an expectation that it will necessarily impact pay. The more we talk about it, the more we break the taboo.

Cyril: Earlier in my career, I never talked with my managers about money because I felt like if I talk about money, it means I’m not satisfied, but that’s not true. If you’re in a leadership position, I think you should be the one talking about it, talking through your discomfort. You’re not just doing it for yourself; people are going to hear you talk about it, and they’ll be empowered to talk about it, too.

Talking about pay is absolutely essential – for your employees and for your organization. The more that we talk about compensation, the more we break the taboo and start building trust. When employees trust that their pay is established in a way that’s fair and objective, they can shift their focus towards their development, and ultimately, their contribution to your company’s bottom line. And this is what will take your people – and your organization – to greater heights.🚀

Screenshot of our Compensation's metric

Our team’s Officevibe score for Compensation (a submetric of Satisfaction) recently dropped, so our manager sent out a custom poll to uncover people’s uncertainties around pay anonymously. Cyril then met with our team to answer our questions and give us more clarity on how pay is determined, and now our Compensation metric is seeing an upward trend!

The 3 Keys to Communication Around Compensation

To help you effectively put your money where your mouth is, we broke down the 3 most important parts of facilitating open and impactful discussions around pay:

1. Transparency: First and foremost, information about how wages are determined, adjusted, and aligned within the company needs to be accessible to all employees. People want to understand what’s behind the number on their paycheck. For managers, this means being able to explain the system to your employees – and if you’re not able to, to have someone explain it to you so that you can.

2. Clarity: Beyond having the information available, it should be as clear as possible. Ambiguities and jargon should be avoided and pay structures should be presented in a way that’s clear and easy for employees to digest.

“It’s so important to have trust in an organization around compensation, and one of the way to nourish the trust is to be extremely clear on the system. That’s something we’re working on now, to create more clarity for our employees.”
— Valerie

3. Consistency: Finally, there absolutely must be consistency when it comes to how compensation structures are communicated. Within teams, among management, and at an organizational level, there needs to be a common understanding. This is where the role of leaders is essential – facilitate conversations on your team and spark conversations among your peers. Bring the questions that come up (and your own questions) to your boss or your HR department, and share the answers with your team.

Conducting annual performance reviews – and especially tying them to an employee’s pay – doesn’t meet the needs of today’s workforce. People want to expand and develop in their roles, and for their employers to invest in that growth.

And the kind of creativity and innovation that’s sparked when pay is no longer tied to a performance review? Well, that’s truly priceless.

How do you separate pay from performance?

Does your organization determine pay in a way that drives development? Share with us in the comments below.

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Officevibe dashboard