Annual Performance Reviews Don’t Work. Here’s What to Do Instead.

Annual Performance Reviews Don’t Work. Here’s What to Do Instead.

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If nurturing your team’s learning and development is on your to-do list, then upgrading your old ways of performance management to effective “employee success practices” should be at the very top. And if you’re still conducting annual performance reviews, consider this:

  • Only 1 in 5 employees is confident their manager will supply regular, constructive feedback during performance reviews — even though it’s something they really want
  • 58% of the executives believe reviews don’t drive success
  • 95% of managers are dissatisfied with annual performance reviews
  • 90% of HR leaders don’t even find annual reviews effective

So what’s wrong? Why are annual performance reviews missing the mark?

The problems with annual performance reviews

Traditional, annual performance reviews are based on tired, outdated assumptions about what employees — and managers — want and need from the process. They tend to overemphasize employee ratings and competency scores, create tension in manager-and-employee relationships, and oversimplify performance. 

Let’s break it down.

Employee ratings are major de-motivators

Employee ratings are a common element of traditional performance reviews. And while ratings are intended to drive performance forward in an objective way, they often have the opposite effect. 

After examining more than 23,000 employee ratings across 40 companies, the NeuroLeadership Institute found “per­for­mance rat­ings have no rela­tion to orga­ni­za­tion­al per­for­mance whatsoever.” None. Zip.

Why? Employee ratings tend to keep employees fixated on the past, rather than focusing on making progress in the future. And if an employee’s rating is anything other than stellar, they can get fixated in a big way. As HR consultant Mary Jenkins points out in her book Abolishing Performance Appraisals, “People simply think they perform better than other people. Unless you rate someone in the highest category, the conversation shifts away from feedback and development to justification.”

Annual reviews harm employee-manager relationships

Few things drive success and career development like a positive manager-employee relationship. Trust and connection lay the foundation for morale, productivity, and retention

Annual reviews and the traditional top-down performance management process, unfortunately, are the antithesis of all that.

Here’s why. Manager-employee relationships that foster growth and lead to innovation and productivity are grounded in trust and psychological safety. They’re a two-way street: The employee feels comfortable coming to the manager with questions, confusion, and feedback, and the manager helps the employee problem-solve and level up. Top-down performance reviews create an uncomfortable dynamic between managers and employees in which one person is judge and jury for the other.

This dynamic results in worse performance and creates an environment where employees neither trust their managers nor feel psychologically safe. The worst part? Employees instead adopt a defensive posture, making them less open to receiving feedback, stymying growth mindsets, and limiting their opportunities for development.

Ultimately, it’s not just the relationship that suffers: It’s the employee. Which is to say: Your entire workforce. That’s the old way of “performance management” in action.

Annual reviews are prone to bias

One more strike against annual performance reviews: At the end of the day, the measure of a person’s work product can’t be boiled down to a single number. Not only are ratings prone to bias and damaging to morale — often, they’re not even accurate.

Employee ratings and rankings are notoriously prone to bias. Between recency bias, similarity bias, and confirmation bias, objectivity is nearly impossible, despite a manager’s best intentions. And when employees feel pre-judged, it can completely derail a conversation — or even the relationship itself.

In fact, CEB found that two-thirds of those who received the highest performance scores on reviews were not actually their company’s top performers. “Performance is more complex than that,” says Rose Mueller-Hanson, HR practice leader at the CEB, “A good system needs to highlight significant incidents, provide clear examples of positive and negative behaviors, and include specifics.” 

Using a review form composed of check boxes and numbers won’t allow managers to supply examples of specific behaviors, narrative content, descriptive evidence of growth, alignment with company values, career trajectory, or team fit.  In short, we need more data points, and of different varieties, if we’re going to deliver effective performance reviews.

So at best, rating systems don’t drive productivity or performance. And at worst? They’re rife with bias, often reflect the quirks of the rater over the qualities of the ratee, and can really stymie an employee’s growth mindset.

The solution: Continuous performance conversations

Continuous performance conversations boost motivation

Jim Barnett of Glint astutely points out that anything we’re still doing on an annual basis — whether it be performance evaluations, goal-setting, or surveys — just doesn’t make sense in the world we now live in. Instead, we should be focusing on creating a culture of continuous feedback, development, and progress — fueling faster decisions and more agile problem-solving. In short, “employee success”.

Of employees who receive real-time coaching conversations with their managers, 94% are willing to stay at their current company longer when leaders invest in their career. Having a coach, rather than a mere manager, is a critical piece to that investment.

That’s why companies that move performance conversations from yearly to quarterly are 1.5 times more likely to say these reviews actually reflect employee performance.  

Continuous performance conversations bolster employee-manager relationships 

The old model for performance management prioritized keeping people in check — and in some cases, literally standing over employees and overseeing. In this relationship, reports were employees first, not people. 

In contrast, a coaching mindset (and an employee success model) involves ongoing, real-time, meaningful connection and true collaboration. 

As a result, trust grows because the success of the manager is intertwined with the success of their team members. Growth opportunities are more likely to be well-assigned because managers have ongoing conversations with their employees about their preferences and interests, alignment, history, and skills.

In case you’re wondering how much of a difference a strong manager-employee relationship can make:

  • Managers account for as much as 70% variance in employee engagement scores
  • Disengaged, unprepared managers cost the U.S. economy $319 to $398 billion each year
  • Engagement rises to 61% on teams led by managers who focus on strengths, rather than weaknesses

Continuous performance conversations support goal-setting

John Doerr complemented his now famous OKR (objectives and key results) framework with a system of CFRs — Conversations, Feedback, and Recognition. He believed that CFRs gave “OKRs their human voice.” While OKRs ask, “What will we accomplish?” CFRs answer the question, “How will we develop and motivate our people in order to accomplish it?” Regular performance conversations are a big part of the answer.

Regular 1-on-1 Sync-Ups offer a way to keep OKRs in the forefront of managers’ and employees’ minds. They provide a consistent, safe space for ongoing progress updates, goal-setting conversations, timely feedback, encouragement, praise, and personal interaction. These are the CFR pieces that add up to great accomplishments.

Revamp your performance conversations

We hope this article helped bust the myth of the counterproductive, fundamentally inaccurate annual performance review. Because at WorkTango (where we pair quarterly performance Check-Ins with weekly 1-on-1 Sync-Ups and feedback), we’re serious about making workplaces, well, work. If you’re ready to join us, let’s talk.