Here's What's Wrong with the Annual Performance Review

Ah, I love this time of year. Holiday parties, gift giving, and... performance reviews.

OK, I lied. I hate performance reviews. Does anyone actually enjoy performance reviews? It's difficult for me to find anyone who loves performance reviews, and even the people who defend it are mostly in HR and Compensation, who depend on the process as an input to other processes they are responsible for running.

I come to this opinion by three paths. First, I've lived through roughly 25 of my own annual performance reviews. I've experienced the high of being labeled "Superior," and the low of being told I just "Meet Expectations." Second, I've lived through many years on the HR side, leading the performance review process. I've sold my soul in trying to convince very smart people that force ranking their people is good for them. And finally, as an Executive Coach, I frequently hear from my clients who are struggling to see the value of this annual ritual.

Why do we keep doing it? Habit mostly, but an increasing number of companies are taking the step of abandoning their Performance Review Process for an updated approach. This is a very welcome idea in my experience, because I think it's a tough case to make that annual performance review processes actually improve performance.

I believe there is one fundamental flaw that is to blame:

Feedback is crucial to improving performance, but contrary to common belief, performance reviews contain very little feedback.

Think about more traditional uses of the word feedback. Two microphones get too close together and the result is an unpleasant sound. You shout into a canyon and your voice bounces back to you. I make a presentation and the people in the audience fall asleep. Cause and effect, action and reaction. In each of these cases, there is a fairly clear link between the action and the result, mostly because they are contemporaneous in time and space.

Compare that to the typical annual performance review. I work for a year, then my boss tells me what he thinks of my work. Maybe if I'm lucky he's shared some of his thoughts during the year, but even then, they're just his thoughts. These thoughts can more accurately be described as criticism, and therein lies the problem.

Criticism is not the same thing as feedback.

A person's thoughts often say much more about the person thinking them, than they do about the person they're thinking about. Mixed into those thoughts are all the person's own biases, fears, and skill gaps. What was originally valuable feedback goes through the wash and comes out as criticism. It's not impossible to pull the needed feedback out of the criticism, but it puts a heck of a burden on the person who needs it. When offered as "feedback," the recipient must dig to discern actual feedback from criticism.

Here's an example. You give presentations regularly as part of your job, and at the end of the year, during your performance review discussion, your boss tells you your presentation skills need work. They give you several well-thought out points about what you do well, and what you don't. You take them to heart and endeavor to incorporate them into your presentations, but you discover it's difficult to translate exactly what they meant into your actual practice.

Contrast that with a continuous feedback approach. You give presentations regularly as part of your job. During each presentation, you pay attention to the impact you're having, whether people are engaged, nodding their heads in agreement, falling asleep, etc. Afterward, you hear some immediate reactions: applause/silence, agreement/disagreement, and what people say/don't say about the presentation. Your boss may say they hated it, or they loved it. Either way, whatever reactions you get, you are able to compare it directly with your own immediate experience, making adjustments as you go. That feedback affects your next presentation, and you again get any/all feedback available, incorporating it again, in a continuous cycle.

This is how you get better at anything you do. Imagine golfing for a year and at the end you get an overall assessment of how good a golfer you are. It helps define the tour rankings, but it doesn't give you the necessary feedback to get better. Feedback is real-time and it is perishable. If it's not gathered when it's generated, close to the source that generated it, it disappears. It then has to get "re-created" again weeks or months later, but it's been transformed from feedback into opinions and criticism based on memories. To make use of this year-end "feedback," you must be able to interpret the other person's motivations, skill, and memory, and then bridge the gap in time and space to connect it to the actual performance. Even the best of us can't do that very well.

Indeed, the companies who are leaving the traditional performance review process behind are moving to a continuous feedback model. This doesn't require more time, but it does require different skills. Above all, it requires the ability to have direct, meaningful conversation with people in the moments that matter. Not more meetings, not more processes, just more connection to generate valuable feedback. Most importantly, this approach puts the responsibility on me, the performer, to make sure I get the feedback I need.

So back to the original question. Why do performance reviews suck? Because they don't actually give people what they need to improve their own performance, which means they're a big investment for very little payoff. I'll take real feedback any day.

Mike Caracalas is an Executive Leadership Coach, Speaker, and Author of the forthcoming book Corporate Life is Hell: How to Liberate the Leader Within You and Be Happy in Your Career.