Is the Annual Review Going the Way of the Dodo?

In the last year, buzz has emerged suggesting that there is no place in business for the performance review. We’ve read the articles, we’ve reviewed the data, we’ve even chatted about it internally, and we’re on the fence, so we figured we’d present the facts and let you decide whether you can drop them from your corporate to-do list.

They Aren’t Capturing Metrics that Count

If your employees are engaged in a production or sales role, you could ostensibly review them based on numerical targets. However, these numerical targets don’t look favorably on the salesperson that rarely closes his/her own deals but is integral to rallying the team or training all incoming sales candidates to be A-plus closers. Furthermore, these targets don’t accurately track the contribution that someone who is a little slow on the line made before they devised a whole new system that has created efficiencies throughout the company and helped you to boost your bottom line. And beyond folks playing a numbers game, how do you review those in creative fields—those who provide a service to your company—such as web development—that you certainly need but don’t really understand and therefore can’t even begin to review? These qualities—which are crucial to the long-term success of your company—are tough to quantify and nearly impossible to include on a performance review, but you’d be doing a disservice to the employee and to your company too if you do not recognize them.

Once a Year Isn’t Enough for Feedback

Some HR experts suggest that sitting employees down once a year should not be necessary if the working relationship is already healthy because informal feedback should be exchanged on a regular basis. If an employee does something exceptional, it is far more effective to recognize their contribution in the moment than to wait to celebrate it during a performance review. The same rules apply for poor performance issues, with workers benefiting more from discussing the problem in the moment and taking action immediately to prevent it from happening again. Furthermore, these informal chit-chats—if used optimally—should include regular as-needed updates on the future direction of the company and how the team and said worker are going to need to adjust for continued success.

They Don’t Result in Improved Performance

The idea behind the performance review is that you draw attention to the areas where the employee is nailing it—and equally, the places that you need to see them pull up their socks! However, multiple studies suggest that performance reviews don’t result in actual improvements in performance. Rather, they enforce hierarchies and drive divides within teams and can actually prove detrimental to your employees future performance as they become less motivated in their role and disenfranchised with the broader team and company.

They Are a Waste of Billable Hours

Conducting a performance review is a real-time sponge! It pulls employees away from their work to write up the self-evaluation. Then managers must review the employee evaluation, determine if they agree or disagree, write their own performance review, send it up the ladder for review, and formalize it. Then the two folks must find a time to meet, go over the review, and then (if there’s any change in compensation stemming from the performance review (more on that later!)), that has to be sent to the accounting department for review, approval, and initiation.

In short, it’s a whole lotta work for what studies are showing is not a whole lot of benefit.

They’re Typically Only Top-Down

In order to truly improve performance, feedback needs to be free-flowing. Under the typical performance review structure, you only review the people who are beneath you and are only reviewed by those above you. However, your direct reports have valuable insight into your on-the-job performance that can help you improve the way that you work or even help improve how your team—and the broader company—functions. This 360-degree model is already proving popular in progressive companies and is being lauded for its ability to defray many of the pitfalls associated with traditional reviews, such as biases, discrimination, and perceived hierarchies.

Sliding Salary Scales

If you’re using your performance review to determine changes in salary, studies suggest you’re missing the point. The performance review should focus on how an employee is doing in the role—or even preferably be task-based if the role allows—and how the employee can elevate his/her game moving forward. Adding talk about money to the discussion negates the overall message of the performance review and even raises questions in the mind of the employee as to whether his/her review is accurate or if the company is simply trying to save a buck. Instead of merging salary discussions with performance reviews, consider holding a salary review—which can certainly be tied to performance—at a completely separate time. This conversation should include a discussion of how salary, bonuses and other monetary perks are calculated within the company and how compensation will be changing moving forward based on these metrics.