Do you hate going through an annual employee performance review?
If so, the good news is that many companies are eliminating this management routine. The bad news for employees is that elimination of the formal employee review may be a missed opportunity.
According to an estimate in the Harvard Business Review, more than a third of U.S. companies have already have done away with formal annual reviews, including such prominent names as Microsoft, Deloitte and General Electric. Corporate leaders are hailing this development as a breakthrough in management technique, and from a short-term perspective, it is easy to see why corporate managers would be so happy. Doing away with annual reviews gives them the opportunity to delay or even avoid adjusting employee rewards to performance.
For employees, especially productive employees, this is not such a good deal. After all, at worst, the annual review is just a 45-minute ordeal. At best, it is an opportunity to make a case for your performance, your abilities and your potential. If you make a habit of making that case well, even incremental improvements in your wage adjustments can add up to a small fortune over the course of a career.
For millennials in the early years of their careers or members of Generation X hitting their peak earning years, this opportunity to use annual reviews to amass a 45-minute fortune is especially great.
What is the 45-minute fortune?
Here's an example of how annual reviews can turn into a 45-minute fortune. Suppose you and a coworker each have your annual reviews, only you are better prepared for yours. The result is that you get a $2,000 bigger raise. If that sounds unrealistic, consider that according to the U.S. Bureau of Labor Statistics (BLS) data, the average difference between earning at the median and earning at the top 25th percentile within the same job is more than $15,000, and in several professions this difference exceeds $50,000. So, significant pay disparities do develop over time.
Back to the example. If you get a $2,000 higher raise than your less-prepared co-worker next year as well, now you are earning $4,000 a year more. By the end of that second year, you would have made a total of $6,000 more ($2,000 the first year and $4,000 the second). If you do that year after year, over the course of 25 years, your cumulative extra earnings would add up to $650,000.
To further maximize that fortune, suppose you use your extra pay increases to jump-start your 401(k) or IRA retirement contributions. Between tax benefits and a modest 5 percent annual investment return, the value of these retirement savings could exceed $1 million after 25 years.
Saving for retirement is challenging, but if you consistently make the case for slightly higher pay increases and then add retirement saving tax benefits and investment returns on top of that, you can parlay your 45-minute reviews into a nice, healthy nest egg.
How to get your 45-minute fortune
Here are some tips on how to get a little bit bigger raise out of your next review, and acquire habits that will put you on the road to earning your 45-minute fortune over time:
1. Do research on salaries for comparable jobs in your area
The BLS website has data on wages by area and occupation, so this would be a good place to start. This will help ensure you are not being under-valued, and at the same time demonstrate to your reviewer you came prepared.
2. Get a feel for competition in the job market
Check local job listings to see the demand for talent with your skills. This will give you a feel for how hard to press your case, and also whether you might do better by changing firms.
3. Document how you add value
Don't try to make your case with generalities. Create a written list of specific ways you help the company achieve its mission, with an emphasis on ways you go above and beyond the average employee.
4. Make your career goals clear
If you are interested in advancement, make sure your employer knows this and is regularly reminded of it. Ask what you can do to better qualify for advancement. If you don't establish your desire to get ahead, you might get pigeon-holed in your current slot.
5. Be receptive to feedback
People get defensive about criticism and react by tuning it out. This is a mistake. The feedback you get in your review is an opportunity to find out what your employer thinks you have to do to be more valuable to the company.
6. Ask for examples
Employees aren't the only ones who under-prepare for these reviews. If your employer has criticisms of your performance, ask for specific examples rather than generalities. This will help you learn, and prevent your employer's evaluation from relying on misconceptions about you that aren't supported by the facts.
7. Agree on measurable goals
Getting the most out of this year's review isn't just about maximizing today's raise; it is also an opportunity to set yourself up to do well in next year's review. Agree on measurable goals for the year ahead, so you don't have to rely on your supervisor's subjective judgement in making the case for a strong increase next year.
8. Suggest your employer conduct staggered, off-cycle reviews
One reason supervisors can be less than open-minded during annual reviews is they are often under pressure to complete all their reviews at one time of the year. It would create less of a bottleneck, and leave room for a more constructive conversation with your supervisor, if reviews were staggered across different times throughout the year.
9. Commit to adding value year-round
This isn't a one-way street. You will get more out of your employer if you give more. Make it a point to understand your employer's business and your role in making that business successful. Having that orientation will help you find ways to add value throughout the year that neither you nor your supervisor thought of during the last review cycle. That will help you make your case in the next review.
So don't dread your annual performance review. Look forward to it, prepare for it and embrace the opportunity when it comes around. Those 45 minutes can lead to years of enjoying more generous retirement benefits.