Many HR groups and organizations struggle to decide which method is best for handling employee evaluations and compensation adjustments. While in the past, many organizations used anniversary-based reviews, focal reviews have now eclipsed anniversary reviews in popularity. Though both have their merits and challenges, the consensus seems to be that focal reviews allow for a fairer performance management process that is easier to manage. Let's look at both in more detail.
The pros and cons of anniversary reviews
Anniversary reviews are often used in organizations that do a lot of hiring on an ongoing basis. Because every employee receives a performance appraisal and sometimes a compensation adjustment on the 1 year anniversary of their start in a job, and at 1 year intervals thereafter, this process is seen as fairer. All employees get reviewed and receive compensation adjustments at the same interval. Anniversary reviews also work well in organizations that need to evaluate individual employee performance against established standards, rather than against the performance of other employees.
Proponents of this approach also feel that it lightens the managers' workloads and increases the likelihood that they'll spend more time on their employee performance reviews, since they're not caught trying to do them all at once. In addition, they spread out HR's appraisal related workload over the year, avoiding processing peaks.
But anniversary processes also present numerous challenges:
- They are much harder to administer, because a single process runs for an entire year. Changes to roles and reporting must be managed on an ongoing basis.
- It can be harder to make changes to forms or to your process, and implement them in a way and at a time that is fair for everyone.
- It is more difficult to gather workforce analytics on performance because the data is constantly changing, as new reviews could be done virtually every day.
- Compensation allocations may not be fair, as executives and managers try to accommodate the cyclical ups and downs of the company's business and manage the compensation budget. An employee who's review is scheduled for the end of the year may get a lower increase simply because there is no money left in the budget; or an employee who's review is scheduled for a quarter that is typically slower may regularly get lower compensation increases than an employee who's review falls in a quarter with traditionally higher revenue.
- It's more difficult for a manager to review employees fairly and consistently because the manager is always only considering the performance of an individual, not evaluating the performance of all their employees and thereby comparing each employee's performance to the performance of their peers.
- It's more difficult to establish corporate goals and ensure alignment of employee goals, because of timing.
- On-time completion rates are typically lower, because there isn't a larger organizational "push" to get the process completed.
- If you're using your performance appraisal process to gather succession planning data, you must wait a whole year before you have any measurable or usable results.
The advantages and disadvantages of focal reviews
Focal reviews, also called common date or scheduled reviews, have organizations evaluate all of their employees at one set time; the process usually takes 1-2 months to complete depending on the number of employees and the complexity of the process.
The benefits of this approach are numerous:
- They require less administration time from HR, because the process typically runs over a few months rather than an entire year.
- Corporate goals can be established before you begin your process, so everyone in the organization can align their goals to these.
- Managers can also assess employee performance in light of business results, further linking individual and organizational goals.
- Everyone's performance is being evaluated at the same time, so managers can easily compare employees' performance and provide ratings and feedback that are fair and consistent.
- Any changes to evaluation criteria, forms or workflow can be rolled out to everyone at the same time.
- On-time completion rates are typically higher than for anniversary processes, because the entire organization is focused on completing appraisals at the same time.
- It's easier to arrange and offer training on your tools and process, as well as on the management skills needed to conduct effective employee performance appraisals, since you're training your entire organization at once, and people will be applying the learning immediately.
- If compensation adjustments are being made at the same time, it's easier to keep them fair and consistent, and unaffected by changing business cycles. Focal reviews also make the whole compensation budgeting process simpler and easier.
- If you're using your performance review process to gather succession planning data, you can access and work with that data immediately, once the process is complete.
- HR and executives have access to overall workforce analytic data as soon as the process is complete, making business planning much easier.
Some of the challenges of a focal review include:
- Newer employees and those new to a role will not have a full year of performance to be evaluated. Organizations need to have a firm policy to address partial-year reviews and managers need to keep this in mind when conducting reviews.
- Managers with a large number of employees will need to dedicate significant time to the review process, and neglect other tasks for a period.
Choose what works best for your organization
In the end, you need to choose the approach that best fits your organizational needs and goals. Consider your business planning cycles, organizational culture, hiring practices and need to compare employee performance in your decision making.