Employee Performance Review: Is it Time to Ditch the Annual Employee Performance Review?
Updated: Oct 27
According to Gallup, only 14% of employees strongly agree their performance reviews inspire them to improve.
Annual employee performance reviews began in the 1960’s and 1970’s as forward-thinking business management and human resource leaders began to think of new ways to develop the science of human resources and evolve the process of measuring employee performance. For decades now, most businesses and organizations have used annual employee performance reviews to measure the performance of their employees.
However, there is mounting evidence that annual employee performance reviews do very little to help motivate and engage employees to reach higher levels of performance at work. In fact, study after study shows that annual performance reviews often have the opposite affect and lead to lower employee performance and increased employee dis-engagement. But why? Why does something that should be useful and positive for both the employer and employee often have negative consequences for both?
The answer, or part of the answer, lies in the way that annual employee performance reviews are conducted. Here are 9 flaws found in many employee performance review structures that undermine their effectiveness:
1. Employee Reviews are often too simplistic to measure a complex subject.
There is no one size fits all for measuring human performance. Yet many evaluation systems are designed with a simplistic numerical or categorical system that attempts to shoehorn someone into a standardized metric. An employee is scored on a 1 through 5 system or on a pass, fail or needs improvement type of system.
These examples are one of the greatest shortcomings of a traditional employee evaluation in that it attempts to quantify the value of an employee's contributions on a pre-defined metric independent of other factors often outside the control of that employee. In business, as in life, things are often gray rather than black or white. And if we take the time to truly study a problem, we find it is often more complex than what we first believed.
2. Managers are not trained or qualified to adequately evaluate human performance.
Have you trained your supervisors or managers on the science of human resources, psychology or motivation?
The fact is that many companies have managers in place that are poorly trained in the area of human resource management and are often inadequately prepared to provide an accurate measurement of their direct reports performance. So often we promote people that are ‘accidental managers.’ They were at the right place at the right time, they have been the longest tenured employee or they were good in their previous position and we assumed that they would make a great manager. But these ‘accidental’ managers are often not managers at all, and should not be tasked with the enormous responsibility of evaluating their peers.
3. Employee Performance Reviews are traditionally one-sided.
In many cases, employees are given very little opportunity to participate in their annual performance review.
The review often consists of the employee being called into the manager’s office and having their manager run through the review, shake their hand, and tell them to ‘keep up the good work.” Employees have little opportunity to provide input on something as important as their performance review that may affect their employment, pay increases and future promotion. To compound that, managers and the company may miss a valuable opportunity to collect important information as to how the company operates from someone on the front-lines.
4. Employee Performance Reviews are almost always subjective.
We try to be as objective as possible by using metrics or a set of simple scores, but the truth remains that we are all human and vulnerable to default to our commonly held beliefs and opinions rather than facts.
Often, what is being ‘evaluated’ or 'measured' has less to do with what an individual was focusing on in attempting to perform competently and more to do with a checklist about what competent people do. Worse yet, the Marcus Buckingham Company completed a study that revealed that 61% of a performance rating is a reflection of the rater and not the ratee. Different raters or managers will consistently give different ratings to the same person exposing just how ‘subjective’ performance reviews can be.
5. Some evaluation frameworks run contrary to corporate values and culture.
With traditional employee performance scoring systems, employees often feel compelled to maximize individual success ahead of team or company success thereby threatening collaboration and teamwork. And because some scoring systems only allow a certain percentage of ‘top performers’ that can qualify for promotions and other benefits, employees are naturally pitted against one another.
6. Once a year performance reviews are not enough.
A once a year meeting between an employee and their manager is simply not enough.
What positive result can come from discussing a performance issue that occurred ten months ago? All that does is drudge up a long forgotten incident, create hard feelings and lead to confusion. Evidence suggests that more frequent conversations about work expectations, progress and development improves engagement and performance.
Gallup has found that when managers provide weekly (vs. annual) feedback, team members are:
5.2x more likely to strongly agree that they receive meaningful feedback
3.2x more likely to strongly agree they are motivated to do outstanding work
2.7x more likely to be engaged at work
7. Completing a formal annual employee review process is expensive.
Like anything else that we do in business, we are doing it to achieve at worst, a modest Return on Investment.
So the same strategic thinking needs to apply to employee performance reviews. Have you ever considered how much formal performance reviews cost your company in wages, time away from completing other tasks, and other things? If you haven’t, you need to. If your employee review system isn’t delivering a Return on Investment, changing it or discontinuing it should be considered.
8. Annual performance reviews are too convoluted.
For example, performance reviews are often used for:
Justifying disciplinary action or a firing
Providing advice on how to improve
Setting an employee's bonus or raise
Deciding on a promotion
With such a diverse range of purposes, how can a manager, much less an employee get true value from a performance review? How can an employee focus on receiving and applying constructive feedback when all the employee wants to know is do I get the raise or not? The real questions employees want answered are, "What do I need to do to be more successful?" and, "What does my future look like?"
9. Employee reviews are not part of a comprehensive employee development plan.
OK, so as an owner or manager, you’ve completed the paperwork of a formal employee performance review and you’ve met with your employee. Now what?
How is the information used to help make the employee better? Is the review just filed to be used next year to track changes, or is it used as the basis to develop and implement a formal employee development plan?
If as an owner or manager you are not coaching up your staff, and using their performance review as the starting point, you are missing a prime opportunity to make the person and the business better. Not to mention, without a structured employee development plan, you will likely find yourself having a similar conversation with that same employee next year.
In conclusion, I am not casting dispersions upon annual employee performance reviews. But I do wish to bring these common flaws to your attention. I hope that you will take some time to evaluate your current method of evaluating your most valuable resource, and look for ways to improve it. For the good of your employees and for the benefit of your business.
All the Best!
About the Author
Chris Hall is a Senior Business Management Consultant that has helped business owners, leaders and managers across most industry sectors achieve more profitable and productive businesses. You can PM or follow Chris on LinkedIn or log onto www.abbusinessbuilders.ca