Pros and Cons of Annual Performance Reviews

For many in the corporate world, annual performance reviews might feel like an inevitable rite of passage. Managers know that reviews will give them a chance each year to evaluate their workforce. Employees, on the other hand, may view review time as a gauntlet with the promise of feedback or a raise waiting at the exit. And while a 2013 survey by Mercer found that 94% of businesses had an annual review process,1 shifting opinions in the business world have many organizations leaving performance reviews behind once and for all.

Are annual performance reviews a valuable practice for your business, or might you consider a more casual way of giving feedback to employees? By taking a look at some of the advantages and disadvantages of annual reviews, and exploring some best practices for conducting those reviews, you may find the clarity you need to implement the review system that will work for your organization.

Performance Reviews: The Pros

There’s a reason so many companies conduct traditional reviews on a yearly basis. Annual performance reviews are a reliable way to schedule and organize critical conversations that may otherwise be difficult to conduct. Here are a few pros to conducting annual reviews:

  • Dedicated Time: By putting annual reviews on the schedule far in advance, it makes it much easier for both parties to make the time for feedback. Within the allotted time, there’s more room for both employer and employee to talk openly without fear of the conversation being cut short.
  • Structured Feedback: By adopting a standardized review process, you’ll be able to structure not only the information you collect about your employees’ performance, but also the way in which you report your feedback to them. This can help in comparing performance within departments, across the company, or even for an individual employee from year to year.
  • Company-Wide Access: There may be tiers of management that don’t have daily interaction with some employees. Standardized reviews and reports can give upper management an easy way to keep tabs on their strongest (and weakest) performers, and have more intelligent conversations with middle managers about their workforce.

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Performance Reviews: The Cons

While annual performance reviews do have their strengths, they also have a fair share of weaknesses. These are some of the primary concerns among those employers who avoid annual reviews:

  • Complacency: With such long gaps between performance reviews, some employees may grow complacent throughout the rest of the year. This is especially true in situations where raises are tied strictly to reviews.
  • Faulty Reviewers: With so much riding on one meeting, some high-level managers may be nervous about the way an individual conducts a review. Large panels of reviewers can be unnecessarily frightening for employees, but individuals are prone to make mistakes, or to let emotion or personal biases cloud judgment.
  • Anxiety and Tension: Anxiety levels can go through the roof leading to performance reviews, as employees enter meetings unsure of what to expect. In situations where reviews result in ranking or scores that aim to compare employees’ performance to their peers, annual reviews can also create unwanted tension among workers striving to be number one. Tips for Conducting a Successful Performance Review Tied up in both the pros and cons of annual reviews are plenty of opportunities for reviews to go wrong. According to the research of international best practice insight and technology company CEB, 95% of managers aren’t satisfied with how their companies go about performance reviews.2 If you decide that you do want to proceed with annual reviews as a way of benchmarking employee performance, consider these tips.

Tips for Conducting a Successful Performance Review

Tied up in both the pros and cons of annual reviews are plenty of opportunities for reviews to go wrong. According to the research of international best practice insight and technology company CEB, 95% of managers aren’t satisfied with how their companies go about performance reviews.3 If you decide that you do want to proceed with annual reviews as a way of benchmarking employee performance, consider these tips.

 

1. Incorporate peer reviews into your process.

According to the research of international best practice insight and technology company CEB, 95% of managers aren’t satisfied with how their companies go about performance reviews.3

According to the Washington Post, “Nearly 90% of HR leaders say the [performance review] process doesn’t even yield accurate information.”4 It makes sense that a single 30-minute interview can’t tell a manager everything. Particular topics can arise to dominate the entire discussion, or dishonest answers can result in less-than-accurate review findings. One way to solve this problem is by incorporating feedback about the employee’s performance from their coworkers into the review process. Having more than one perspective on an employee can help validate findings, or reveal inconsistencies between reports. Another good approach is to perform less intense reviews more often to keep your team and their supervisors in communication about everyone’s performance and duties.

2. Challenge any answers given in self-reviews, and look for data to support your conclusions.

Many companies employ self-reviews as the first step in the annual performance review process. Employees will answer a series of questions about themselves, and managers will use those questions and answers as a jumping off point for in-person review meetings. CEB’s HR practice leader, Brian Kropp, says that these scenarios allow for self-promoters to perform best under the light of a review.5 In order to make sure that your most successful employees are also not the ones who are just most likely to sing their own praises, challenge answers given in self-reviews and, where possible, look to data—timesheets, project reports, HR records— in order to back up claims made by employees.

3. Do away with rankings and competitive scores.

When Accenture made its move away from annual reviews in 2016, one of the major problems they cited was the way many organizations score their employees and rank them against one another.6 In some extreme cases—like Yahoo under Marissa Mayer—companies have been known to outright fire their lowest ranking employees. This can make employees desperate to stand out and can undercut your efforts as a manager to build a strong, connected team of employees. By doing away with scores and focusing on the individual employee’s potential to grow, you can limit the tension and increase your chances of developing your trusted employees into even stronger members of your team through the review process.

4. Don’t put too much stock in the outcome of one review.

Companies who tie raises and promotions to annual performance reviews put a lot of pressure on employees to look good during that one meeting per year, with little opportunity in between to move the needle. Reduce that pressure by tying raises to other ongoing metrics that can be evaluated more frequently, or by moving to a quarterly review schedule. Of course, you could also take the much bolder approach of the Netflix and IBMs of the world and abandon regularly scheduled reviews altogether. This could take the shape of weekly check-in meetings—although there are those who say additional meetings can be their own source of tension—or a more organic reliance upon daily, constant, clear communication between managers and employees.

There is no single right way for any business to go about evaluating their employees and offering feedback. While feedback itself is crucial, each organization has unique challenges, personalities, and business considerations that will inform management’s decisions about how to best perform reviews. Regardless of your situation, if you can keep focused on the reason for performance reviews—to help employees grow and bring value to the company—you’ll find the solution you need.