Why I banned the annual appraisal

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The days of the formulaic, unfair and critical appraisal system are over, says Entrepreneurs Panel member, Adrian Thompson.

I’ve been the CEO of three businesses, and in each, the appraisal system was one of the first things I got rid of – despite the traditional way of big corporate business, which dictates you can manage people through a formulaic tick box once or twice a year.

I did this because in every business, I asked the management if they thought the appraisal system was adding value, and well, you can guess the answer.

However, this does not mean performance management is not essential in a fast-moving, rapidly growing, entrepreneurial business. Far from it – employee engagement and motivation to the cause are essential.

So why do appraisals systems not work?

Well, let’s look at my own experiences, working with a large corporate. We had a plan to design the world’s best appraisal system, with the group CEOs all spending months breaking roles into successful performance attributes, skills, and you know the rest. Then we rolled our shiny new system across the entire group with mass training and HR support.

The net result on improved performance? Nil. Strangely, having a process where an employee is being judged by their line manager does not create the right environment. How does a manager grading an employee on a 1 to 5 scale every six months deliver an improved performance? How can you ask people to work as a team, then ask them to judge each other, and link this all to pay reviews?

How can you create a culture of high employee engagement by managing individuals through structured, critical and formulaic processes that put a fault line between management and their employees?

Where is the value in delivering feedback that is out of date and irrelevant, losing so many opportunities to constructively engage and learn?

In a private equity environment, where you need to be growing in double digits – ideally, above 15% to really get things motoring – a rigid appraisal system is not going to get you far, especially when managers can use them to shield themselves from actually managing people properly.

It’s not even about swapping one system or process for another. It’s about creating an entrepreneurial culture, that is people-centric and performance-based. At Aspen Pumps, we focus on how to motivate our employees and energise them within a strong support network of access to senior managers, project-based learning and a frontline manager development programme.

Challenge, recognition, and reward  

In smaller, entrepreneurial businesses, like the ones Tenzing own, the role of management is pivotal. A lot of people think they’re there as managers to stop things falling away from company protocol, but they’re actually there to grow people. We’re moving to a knowledge based economy and developing people as experts in certain areas, in which managers may not have the technical ability.

Managers are responsible for the motivation and energy levels within their teams. Their primary focus is to create a highly engaged environment, removing barriers that reduce employee energy, like bureaucratic procedures and negative criticism. Motivation can be broken down into three reinforcing activities: challenge, recognition and reward.

Within Aspen, the challenge is through involvement in interesting projects and learning through delivery with the support of the project leader, their line manager and their peers. Within the last five years we have successfully made and integrated seven acquisitions, implemented five computer integrations and changed our entire logistics platform – plenty of challenges and development opportunities without the need for a 1 to 5 scoring system!

Recognition, regular discussions on performance and lessons learnt with peers is critical to the success of a performance-based culture. Any areas of learning should be reviewed in an open, not criterial manner, and positive feedback should be given quickly and celebrated.

This is where most companies fail their employees, because a manager is not there to look down on and judge their staff, but to get the greatest result possible by working with them. It’s about projects, output and what the business is delivering in a changing market, rather than an individual’s strengths and weaknesses. Did the project go well? Did we succeed? That’s what’s important.

Giving managers confidence to manage, not mark

This can only be done if you make time for people, and if you are working remotely, doing that becomes even more important. Businesses are built around strong employee relationships, so that’s where you should be spending your time, not on grading and marking them.

This is covered in our frontline manager development, where we get the next generation of managers together as a group. Each session kicks off with a director giving their own personal views on what good managers look and feel like. As you can imagine, the wide variation of theories and experiences highlight that there is not one way to deliver employee engagement.

We also give our managers awareness training and offer peer to peer development, with both theory and practice to break away from a mechanistic view on life. A lot of focus is given to delivering constructive and timely feedback – not an easy skill, but can be mastered through practice.  

Because of this, our managers actually make time to talk to staff, and feel confident and comfortable giving regular feedback, to get the results the business needs. How can you run a business by waiting six months to tell someone how they’ve performed?

Success needs to be rewarded, of course, and there should be graduated pay rises against performance – but these don’t need to be annual. These can be done as people acquire new skills and move around the business. We should be able to justify that without having to tick a load of boxes on a piece of paper.

At Aspen Pumps, our reward system is all based on how well the business performs. If the business doesn’t perform, people don’t earn their bonuses. If the business performs, everybody gets paid their bonus, because everybody is working to achieve a common goal against the business in terms of its profit and growth.

You will reach that common goal faster when you have a management team who is comfortable in its culture, not hindered by hierarchy.

Less focus on systems, more on culture

To grow, you want a highly engaged, highly motivated team who are prepared to run through walls and enjoy what they’re doing. With an open door policy, you know whether you have this or not, by how people are behaving and talking within the business. You know when you have a learning and development culture, and you know when you have a hierarchical culture.

There will always be businesses where people like to be hierarchical and superior, who like to judge, like to tick a box and are comfortable doing that as a way of managing people – and in many cases, avoid paying them properly.

But it shouldn’t be about that. It should be about bringing people together. That’s what successful companies do – and the annual appraisal does not.

ABOUT THE AUTHOR

Adrian Thompson

Adrian Thompson

Adrian is an expert in international sales, product innovation, channel management and manufacturing. He has led Aspen Pumps through three private equity buyouts. Passionate about company culture and employee engagement, he is a people-focussed CEO. Adrian has worked with Tenzing as a member of our Entrepreneurs Panel since we launched in 2016.