Most organizations still conduct employee performance evaluations. But these traditional annual performance reviews are often ineffective, cause anxiety, fear and animosity.
According to one Stanford researcher, performance reviews do more harm than good.
Employees and managers alike dread these annual reviews, which tend to focus on weaknesses and the use of arbitrary rankings. They fail for a number of reasons.
1. People can’t credibility rate others
Researchers have demonstrated that people can’t reliability rate the performance of others. This is because we lack the objectivity to consistently define and assess qualities like “business skills” or “assertiveness."
Our personal interpretations of desirable traits, along with our varying levels of strictness or leniency, can distort the evaluation process. When companies use performance reviews as a genuine measurement tool, they often overlook the impact of biases. For instance, some employees and managers may give lower ratings to appear more honest or to suggest there is always room for improvement. These biases, along with personal preferences and other uncontrollable factors, can undermine the accuracy of the evaluations. And that doesn’t include the way some managers will write top scores for every category because they are happy with their employee's work.
Unsurprisingly, unconscious biases also impact performance ratings. Performance management feedback is often more about the giver’s perspective than the truth about the person being rated. In fact, over 50% of a person’s feedback reflects the rater’s own traits rather than the other person’s. This makes performance appraisals even more misleading.
So...the numbers and rankings that performance evaluations attach to each employee? Well, they're often meaningless.
2. Feedback fails
Most managers spend performance evaluations giving what they feel is meaningful feedback. This involves telling their direct reports what we think of their employee performance and how they should do it better.
However, neuroscience shows that criticism dressed up as “feedback” triggers the brain’s fight or flight response, which hampers learning (and causes anxiety).
Managers may temper criticism by following the antiquated notion that sandwiching negative feedback around positive feedback lessens the sting.
But managers have used this method for so long that no one is fooled by this strategy. Employees receive the bit of negativity with the exact same tension and anger as they would if their manager was being direct. Many will go into their performance reviews waiting for the piece of negative feedback couched in any words of praise.
3. Highlighting weaknesses breeds resentment
Attempting to improve performance by pointing out perceived failures and prescribing fixes will not lead to exceptional results.
I’m sure everyone has heard the famous quote, “Everyone is a genius. But if you judge a fish by its ability to climb a tree, it will live its whole life believing that it is stupid.” The same goes for people. Yet this is how traditional performance reviews work at most organizations. You can even see it in the term "managing performance." As though employee performance is something to be controlled, tempered or directed.
Annual performance review templates always have a category for “areas of opportunity” or “weakness” that needs to be fixed. Thus, the manager tries to find the employee’s weakness and then highlights that as an area for development. They might even build continuous performance conversations around this one area and focus on it as the center of the next year's performance evaluations.
Employee motivation is deflated by this approach. Imagine that you are an exceptional employee. You are well-regarded by peers and leaders throughout the organization. You enjoy learning new things and happily participate in opportunities to learn and grow. You are always willing to help your peers and assume extra responsibility when needed. Customers rave about you.
You walk into your annual performance review, and your manager quickly brushes over your successes. Instead, they spend most of the time talking about one area where they say you are less than exceptional. And you know the performance management system will now show your status to be lacking in the organization.
Hey, we’re all human and not perfect at everything, and maybe that weakness is a real issue. Or maybe your manager had to seriously dig into the weeds to come up with something to check those boxes.
Managers are forced to include something in this category of the template, and it sometimes leaves them reaching. All that good energy, motivation, job satisfaction and engagement you had is gone.
You may be resentful of that manager and the organization as a whole at that point. Maybe you’ll even look for a new job.
4. Performance measurement can’t be standardized
Organizations need to revisit how they gauge excellence. You can’t create a standard scorecard, checklist or rubric to measure performance. Such ratings only measure employees against the status quo.
Excellence is unique to each individual. It can’t be predefined, and it can be hard to quantify.
That’s why using a scorecard to measure performance stifles innovation and creativity. There is little motivation for employees to go above and beyond when their performance is rated this way. And when performance reviews are used as a barrier to (or justification for) career development, they can have real consequences.
To make matters even worse, some companies resort to “stack ranking." This is a performance system where employees are rated against the rest of the staff. Studies have found that this approach harms employee morale and productivity. If there can only be one “winner,” leaving everyone else with nothing to strive for. And sometimes, winners are not chosen objectively.
5. Organizational rating systems are subjective and unfair
Employees have no control over the rating systems used to judge their performance – and their future compensation. Some organizations have a rating system where no one has actually ever reached the highest level. For example, ratings may include levels like “meets, exceed and exemplary” where “exemplary” is never given to anyone on principle.
This makes me ask—if “exemplary” is unachievable, why does the rating even exist?
Is it just there to keep the overall ratings lower?
Also, how do you account for all those immeasurable and intangible things that employees do (or don’t do) each day? An employee who goes above-and-beyond may not get the recognition under this type of rating system.
In many instances, employees are also measured against goals that are outside of their control. For example, a realtor is likely to see home sales slow when interest rates increase. Looking at annual reviews and the home sales for that realtor year-over-year might give the wrong impression.
Likewise, a K-12 teacher may be measured by students’ test scores, though there are outside factors that influence those scores. Similarly, if a factory worker is measured by the number of packages shipped, and the packaging conveyor belt broke down, is this still a fair measurement?
Common sense says no, but most organizations rate employees (at least in part) by factors that the employees have no influence over. When employees see that, the performance management system becomes an obvious charade—and a disempowering one at that.
Another question is the role of self-review. If it is the manager’s job to know what you are doing all year, why are you tasked with re-telling them what you did?
In some organizations, this is your opportunity to argue or sell the rating you think you should receive. In other organizations, selling yourself too hard is seen as arrogance.
6. Performance reviews just don't inspire better work
This point is probably the most important case against annual performance reviews.
A Gallup poll of Fortune 500 companies found that only 22% of employees felt their employer’s performance review process was fair and transparent. And only 14% percent said their performance review inspired them to improve.
If the entire performance management system isn't leading to improvement, what is it ultimately for? A reason not to reward your best employees?
Effective performance reviews would leave employers with a deeper understanding of their workforce, while also showing employees that good work is rewarded and encouraging them to keep pushing their skills.
Eliminating performance reviews is trending
Thankfully, some organizational leaders are catching on and have done away with performance reviews altogether.
Microsoft®, Apple® and Netflix® are some of the companies drastically changing or eliminating annual performance reviews. They often argue that managers should be a support for employees to find the resources they need to do their job—not a judge of them.
Apple eliminated its annual performance reviews, with then-chief talent officer Daniel Walker calling reviews the “stupidest thing American companies do.” He found them a tremendous waste of time.
What to do instead of annual performance reviews
Moving forward, there are better ways organizations can motivate employees and improve organizational performance.
1. Eliminate the idea that employee performance is a contest
360 feedback and other peer-review systems are just as ineffective. These systems pit employees against each other.
Instead, provide ongoing feedback throughout the year in an informal setting, such as bi-weekly meetings and emails. By having regular performance conversations, you can eliminate the stilted discussions that occur during a typical evaluation process. A continuous feedback loop is a more natural way to talk and share ideas.
2. Untie annual performance reviews from salary increase decisions
With the rapid rate of inflation, salary increase opportunities should be happening more often than annually anyway.
Note: These salary discussions should happen organically if step #1 happens.
3. Focus on employee strengths
People tend to thrive when you give them opportunities to do what they are best at. Reassign tasks and job responsibilities to better suit employee skills and areas of interest.
4. Don’t align development with "weaknesses" from the previous year
Forget about finding a weakness. Instead, offer flexible training and development programs that provide choices and resources. This may include providing funding, time or access to other departments for employees to develop more in their areas of strength.
A career path is personal, and employees should decide their own path. Not all people want to move into management. There should be opportunities for them to remain at the organization and grow, regardless of whether they have a desire to be a manager.
5. Train managers to recognize bias in performance conversations
Teach managers to stop seeing themselves as the holder of people’s fates.
We need to shift their mindset from being a judge of people to an allocator of resources for their team to help them do their jobs better.
Moving beyond traditional performance management programs like annual reviews can improve morale and motivation. Bringing a new way of thinking to the outmoded review process is likely to spark more enthusiasm and innovation from your team.
Ready to reshape performance reviews?
If these arguments against annual performance reviews make sense to you, you might have what it takes to make positive changes in the workplace.
With the right role in business management or human resources, your understanding of how company decisions impact the workforce can really make a difference. Check out 4 Organizational Leadership Careers for Ambitious Career Advancers to see some career options you could pursue.
Apple® is a registered trademark of APPLE INC.
Microsoft® is a registered trademark of Microsoft Corporation
Netflix® is a registered trademark of Netflix, Inc.
