Performance reviews.
If there’s one thing most employees (and some HR professionals for that matter) hate, it’s performance reviews.
Jack Dorsey – the former co-founder of Twitter – hates them so much that, that at the end of 2023 he made the news when he announce that his new organization – Block – would be banning them altogether.
The big irony with performance reviews is that according to Workhuman Analytics & Research, 55% of workers do not actually think performance reviews improve performance. Most employees get anxious with them, and many argue their structure focuses too much on historic performance rather than future potential and capability.
And yet they persist. In fact, some companies are evening doubling down on using them. Last summer Google said its return-to-office push would incorporate attendance into its employee performance reviews.
Performance evaluations are a waste of time and money, with very little ROI
There’s many reasons why performance reviews are a waste of time and money.
From the off, performance evaluations are a time-suck. They drain hours and money from an organization.
It’s estimated they cost between $240 to $3,500 in lost working hours per employee.
And what are the results? Only 14% of employees strongly agree these reviews inspire them to improve, according to Gallup.
Worse, some research indicates that reviews actually decrease performance one-third of the time. Any other business initiative with such little—or negative—impact would be eliminated from the budget line immediately.
But here’s the kicker. According to SHRM, 95% of managers themselves are dissatisfied with their organization’s review system. That’s right. These are the people largely responsible for handling performance management in the first place.
And it’s not just an emotional disdain that people have for performance reviews. Research has also shown that performance evaluations drain company resources, demoralize both low- and high-performing employees, are too linear and subjective, and are poor indicators for potential and talent development.
Let’s look at these in a bit more detail:
Performance evaluations demoralize both low- and high-performers
Less than a third of employees strongly believe that performance reviews are fair or accurate.
And, because these reviews are closely tied to raises, what’s meant to be an objective process becomes one fraught with emotion.
For low performers, this means worrying about how the review will affect their paycheck, not how to use constructive feedback to improve.
Even high-performing employees can be dragged down by performance reviews.
Why? Well, since they typically only occur once a year, employees’ great work throughout the year may go unrecognized, leaving high-performers feeling undervalued most of the time.
Performance reviews can also markedly impact a company’s culture.
In “Annual Performance Reviews Ruin Everything,” organizational design strategist Elizabeth Ayer points out that “performance reviews tied to reward make a zero-sum trade-off against openness, trust, and [psychological] safety.”
Great work doesn’t always translate into a performance review scale
Often, companies template their performance reviews, standardizing their metrics despite employees’ varying roles, functions, and divisions.
However, what constitutes great work in a sales division might not translate to technology or finance.
Simply put, not all functions lend themselves to numerical measurement.
Only 21% of employees strongly agree that performance metrics are within their control.
The majority of workers are boxed into 1–5 scales that they’re powerless to influence because their goals have been set without their input, or their work is being measured by arbitrary standards.
Performance reviews are biased
I’m not saying that performance evaluations are sexist or racist (although there’s research to support that).
But even an employee who doesn’t belong to a protected minority group can be impacted by temporal bias, as managers typically evaluate an employee’s most recent work rather than an entire year’s worth.
Or, it could be “I need to get this done, so let me get this done as quickly as I can” bias, meaning managers – whom I’ll remind you hate performance reviews – rush to complete a review without genuinely reflecting on an employee’s performance.
This latter behavior is particularly tempting when an organization requires that all performance evaluations must be completed at the same time in the year.
The point is that performance reviews are largely subjective, completed by fallible humans, and are prone to inaccuracy and bias of all kinds.
And companies know this is a real problem.
Remember, less than half of North American employers believe their managers are effective at assessing their direct reports’ performance, according to the WTW 2022 Performance Reset Survey.
Yet organizations march on, requiring that managers do it anyway without guidance or support.
Performance evaluations do next to nothing when it comes to talent decisions
Companies that cling to performance reviews often justify them because they believe they’re good indicators of who to fire, who to promote, or who to develop.
But that’s simply not true.
Because reviews are biased, inaccurate, and occur only once or twice a year, they can’t be relied upon to make critical talent decisions.
Consider this: A high-performing employee completes a project and generates great results in the first quarter.
Rightfully, this employee will want to be acknowledged, preferably through a bump in salary.
Yet, when the employee asks for a raise, their manager says they’ll have to wait another nine months for their official performance review.
What employee wouldn’t consider leaving this company?
After all, why would they wait nearly another year for a raise that may or may not come when they could get a pay bump simply by switching companies now?
Annual performance reviews encourage inaction.
Some managers use them as an excuse not to give regular feedback throughout the year.
Others feel disempowered to make talent decisions, like a raise to keep a high-potential employee on board, simply because they can’t until “it’s annual review time.”
The compelling alternative to performance evaluations
In the past decade, companies like Microsoft, Apple, and Netflix have all abolished the performance review.
So what’s replaced them?
At our company, we’ve found a smart alternative: what we call ‘manager-employee alignment meetings’.
These meetings were inspired by an approach we use with our own clients, in which a leadership coach facilitates a conversation between a manager and an employee about the employee’s needs and goals.
Unlike performance reviews, which look backwards, manager-employee alignment meetings look forward.
Both managers and employees are equally responsible for an employee’s success.
The process begins with a self-assessment in three key areas: performance, impact, and development.
We give employees a series of prompts, such as:
- I knew what I needed to do to be successful at my job
- I performed what I knew I needed to do consistently and well
- I want to improve my job performance next year
Employees are then asked to assign a percentage to each prompt.
Managers use the same prompts to evaluate their direct reports. Together, they assess the gap between the manager’s point of view and the employee’s point of view.
The goal is to close this gap as much as possible.
For example, if I were a manager and an employee felt they knew what they needed to do only 60% of the time, but I thought they knew 100% of the time, that gap needs to be discussed and closed.
Throughout the year, managers and employees meet regularly to check how they align, discuss the results, and determine how to set goals moving forward.
The benefits of making performance management two-sided
We’re not the only ones who see the value in frequent feedback loops and alignment.
According to Gallup, when managers involve employees in setting goals, employees are 3.6 times more likely to be engaged.
Likewise, when individual goals are aligned with organizational goals, and that connection is made clear, employee productivity increases by 56%, on average.
Through these alignment meetings and weekly check-ins, performance management is no longer one-sided.
Employees have a greater understanding of what to do moving forward, and so do managers.
While this process is still relatively new, we’ve already received overwhelmingly positive feedback from employees.
They feel energized, motivated, and, most importantly, aligned with the organization.