OPINION : Do Better, Performance Reviews Deserve a Refresh
It’s Time to Reevaluate the Annual Performance Cycle
After more than 25 years of experience with the annual performance management process, I’ve seen it evolve through numerous iterations, culminating in the industry standard we know today. A pivotal change along the way was linking performance to compensation—a concept that makes sense on the surface. However, this approach rests on the assumption that evaluations are accurate, fair, and consistently reflective of each employee’s contributions. In large organizations, this is a difficult standard to meet; the calibration processes often dilute the individual connection to the employee’s work, pushing us further from assessing the person as a whole.
Impact on Workforce Morale
Year after year, it’s clear that the performance cycle has a significant impact on employee morale. This cycle is more than just an annual event—in the minds of most employees it effectively dominates nearly six months of the year. Four months of thinking about upcoming preparation, followed by two months of post-review reflection and response. Employees invest considerable energy into the process, not least because their pay is often directly tied to these reviews. Unfortunately, the stress, distraction, and anxiety generated by this process frequently outweigh its intended benefits, leaving employees to question if the outcome is worth the effort.
Impact on Organizational Decision-Making
Perhaps the most profound consequence, visible only over the longer arc of an organization’s history, is the tendency to encourage short-term decision-making. This phenomenon, which I often refer to as “writing checks you don’t have to cash,” is an outcome of tying rewards to the calendar year. When success is measured and rewarded annually, the decision-making horizon inevitably shrinks. In organizations where employees rotate across roles to gain broader experience, this problem intensifies, as decisions made during one period may not fully reveal their impacts for months, years, or even decades.
An example illustrates this flaw: a manager decides to cut overhead costs by redistributing a task to an operating unit, saving the company money on paper. In an annual cycle, this cost-cutting move may lead to a reward or promotion, yet, over time, that task might be neglected by the operating unit, resulting in an operational or safety failure down the line. In this case, the immediate gain hides the long-term risk—an unforeseen check written to cash later.
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Reassessing the Cycle for Lasting Success
Organizations would do well to consider an approach that balances short-term performance with long-term impact. Continuous performance feedback, for example, fosters growth and accountability throughout the year without the stress and intensity of a single annual review. By reimagining performance assessment to focus on ongoing contributions and collaborative achievements, companies can better align compensation with actual impact and reduce the risk of short-sighted decisions.
The current approach may make sense in theory, but with our collective experience, it may be time to evolve. A yearly performance cycle tied to compensation feels increasingly out of sync with the demands on today’s workforce and the complexities of modern organizations. Moving beyond this rigid structure can help companies foster a more adaptive, resilient, and accountable workforce—one that’s better equipped to meet both immediate needs and future challenges.
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Corey Linder P.Eng PMP
Managing Partner, Strategy & Ops