Here's What is Wrong with Performance Reviews

Every year, employees have to go through the annual performance review. It's where managers and employees discuss the latter's job performance. But, do performance reviews actually work?

According to Gallup, only 14% of workers strongly believe that their performance reviews inspire them to improve. For most of us, the performance review is just how we do things. After all, how else are we supposed to determine pay and establish accountability?

But lately, many employers have begun to question the necessity of performance reviews. Here's the truth about performance reviews:

1. Performance reviews in many organisations actually do more harm than good.

According to this study, the traditional style of performance reviews is usually so bad that they make employee's performance worse about 1/3 of the time. Here's why it's so bad:

The manager has not been giving employees regular feedback. Employees need to receive feedback regularly so they can improve ASAP.
Most managers have not been trained to evaluate performance, give feedback or create a developmental plan.
Most performance reviews are trying to do many things in a single conversation such as offering advice on how to improve, setting an employee's bonus or raise, deciding on a promotion, and justifying a future dismissal.

It all depends on how you conduct performance reviews.

2. The alternatives to performance reviews

Many organisations have tried several ways of doing performance evaluations with mixed results. There is no universal proven method for performance reviews. What works for an organisation in an industry might not work for other organisations in other industries.

Here are some ways organisations have tried to improve performance reviews:

Some companies have simplified the process to make it more flexible and relevant to the work being done. This is popular with both managers and employees.
Other organisations taught managers and employees to have more frequent and meaningful conversations about work expectations, progress and development which improves engagement and performance.

A study found that when organisations replace annual reviews with more frequent or more subjective systems but do not provide enough training, they quickly find their managers don't know how to talk to employees.

3. When employees are rewarded for putting themselves ahead of their team, it fuels greed and dysfunctional competition.

Good performance management systems reward employees who help others (and do good work by themselves) and punish free-riders and backstabbers.

But only 22% of employees strongly agree that their pay and incentives motivate them to do what is best for their company.

Here's one crucial question for employers: Who gets ahead in this organisation, is it the people who help others succeed or the people who put themselves before the team?

If you do not want to encourage a back-stabbing culture, you should include collaboration and helping others in performance reviews. Most organisations should include team and customer goals as part of a performance review

With regular feedback, employees will find performance reviews much more effective.

4. When managers know how to have regular and constructive talks with team members about how to improve performance, then there is no need for the annual performance review system.

If performance feedback only happens 2 or 3 times a year, the chances for it to be meaningful is very low. But when formal progress reviews are accompanied by frequent, consistent, and honest feedback, they can be affirming and motivating.

Based on Gallup's study, when managers provide weekly feedback (as opposed to annual), 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

When managers cannot have honest conversations with their team members, the result is unhappy employees who are also not a good fit for their role do not move on. They continue to receive false praise and encouragement. What's best for them is to make a change or find a better position.

What role should your managers and the performance management system play?

The best managers are the ones of can have effective coaching talks. Through genuine dialogue, employees will feel that their opinions matter and they feel like they are cared about.

Additionally, the best managers:

Create a continual learning environment that helps employees to openly collaborate.
Aren't bound by their performance management system, tools and metrics.
Listen and focus on a level of individualised development that can only be achieved by a deep familiarity with employees' strengths and aspirations.

The reality is performance reviews are imperfect as they only communicate what is and is not important for employees to do. But what they do well is that they highlight the overall contributions and opportunities for improvement and plans for what's next.

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Source: Gallup