Banish ‘annual’ from your performance review vocabulary by Entrepreneur @FortuneMagazine October 14, 2014, 3:58 PM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons This post is in partnership with Entrepreneur. The original article can be found at Entrepreneur.com. By Beth Miller, ENTREPRENEUR One of the goals of annual performance reviews is to look at the past and motivate employees for the future. Unfortunately, these once-a-year reviews often have the opposite result. While they may be framed as a way to encourage team members to put their best foot forward, these reviews often end up making employees feel unappreciated, unimportant and deflated. For managers, performance reviews can seem like an imposition, a stressful and unfulfilling process. No matter which side of the table someone is positioned, annual reviews can lead to stress, tension and discontent. So what are leaders to do? For larger companies, performance reviews may be an unavoidable reality. But more and more organizations are beginning to understand that annual reviews often fail to positively influence their employees’ behavior, and they’re taking a new approach. Turning performance reviews upside down. Numerous companies have rejected the traditional model of the annual review in favor of providing ongoing performance feedback. The Australian software company Atlassian set out to approach reviews in a fresh way and managers held themselves accountable by publishing the results of their performance-review experiments. Atlassian moved away from the annual review to a model of providing ongoing feedback and coaching. Its methods were rooted in the notion of engagement, and managers gave the program unique touches to align it with company values and culture. They hit roadblocks along the way but achieved their goal of energizing Atlassian’s workforce through one-on-one coaching instead of demoralizing employees with traditional performance reviews. The company’s model consists of structured feedback sessions and ongoing, informal feedback immediately following an action. Atlassian also overhauled its bonus system, paying higher salaries and offering companywide bonuses instead of individual rewards. The company stopped tying compensation to reviews, focusing instead on paying employees what they’re worth. Most strikingly managers threw out the old numbers-based ranking system in favor of having a dialogue with employees about specific projects and overall performance. Overhauling the appraisal process. If you’re looking for a way to give your performance review a makeover, consider adopting the following techniques to drive better results: 1. Replace the annual performance review with regular, one-on-one meetings during which managers and employees set goals and monitor success. These meetings can empower employees to make adjustments to their performance along the way. 2. Turn your performance bonuses upside down. Pay top-of-market salaries, offer organizational bonuses and stock options. Don’t tie compensation to annual performance reviews. Pay people what they are worth: no more, no less. For example, if an employee is an account director, he or she should be paid for what the company thinks an account director is worth. Pay people for what their actual job title is worth, according to industry standards. 3. Eliminate the traditional rating system. Don’t grade employees on a number scale (ranking employees on a scale of numbers). Instead, provide regular, honest feedback and provide specific examples of exceptional and poor performance. Ask team members to identify what went right, what went wrong and how they can learn from each case. 4. Coach, don’t review. Traditional reviews leave employees feeling as if their managers are sitting in judgment of their performance. Taking a coaching approach (encouraging strong performance and supporting team members after weak performance) can strengthen your relationships with your employees and lead to better results. Rather than requesting that employees grade themselves, ask them things like “How often did you stretch yourself this month?” Open-ended questions can prompt people to think introspectively about their performance. 5. Integrate peer feedback and reviews, which can serve as a powerful development tool, enabling employees to see how their work affects others. Your organization’s approach to performance reviews should not be a carbon copy of any other company’s. Take a page from the playbook of Atlassian, say, but your policies should reflect your company’s unique culture and values. If you’re looking for new ways to approach appraisals, start with monthly meetings to check in with each team member. Continuous feedback and coaching can help you take small steps toward improving performance while relieving some of the stress of the dreaded annual review.