Why Annual Performance Reviews Don’t Work

Although I worked with some very successful businesses in the early years of my career there were some very average management practices. Management training meant being trained to fill out forms, have a once-a-year appraisal conversation with your employees and tell them how they could improve.

The dreaded performance reviews. Supposedly addressing performance over the past year, after some subjective goal setting at the beginning of the year, and with the priorities of the business having moved on relentlessly since then.

There was very little to do with how I was expected to behave around here. And equally little as to how I could develop myself to be able to do the job better or get myself ready for a future bigger role.

The review was supposedly linked to a bonus scheme that no one could really explain or logically link actual performance, but it seemed that the top sales guy, who was also often the most unhelpful and disliked team member, always got the biggest bonus.

And sadly, in a lot of businesses, much of this still exists today. While the modern workplace is going through extraordinary change, a lot of the practice of management has been frozen in time for more than 30 years.

The list is long as to why annual performance reviews don’t work. Here’s my take.

Annual reviews are too often too late. When you’re only documenting performance and offering feedback once a year, you’re too late to make any meaningful changes in performance. Feedback has an expiration date. It’s most potent when it’s given immediately after the behaviour is observed, and it loses its potency the longer it’s delayed.

Annual reviews cause tension and anxiety. Managers often feel uncomfortable in the judgment seat. They know they may have to justify their opinions with specific examples when the team member asks. They may lack skill in providing feedback and often provoke a defensive response from the employee, who may justifiably feel they are under attack.

Disagreement about contribution and performance ratings can create a conflict-ridden situation. Most managers avoid conflict that will undermine workplace harmony.

Annual reviews are too subjective. The goals and objects are often too vague and not measurable. In a fast-growth business, the priorities and goals require updating on shorter time scales.

With pay increases and bonus incentives frequently tied to the numerical rating or ranking, the manager knows they are limiting the team member's increase if they rate their performance as less than outstanding.

Annual reviews often suffer from a recency bias. Managers and team members both come to the discussion with only the past few weeks or months fresh in their minds. That’s okay from a feedback perspective (because as mentioned above) but if ratings, pay increases, or promotion opportunities are tied to that performance review, then the review itself isn’t fully capturing an employee’s accomplishments. And that can lead to dissatisfaction and disengagement.

In short, annual reviews alone don't motivate employees to perform at their best. Employees need more frequent, focused and future-oriented conversations and a manager who acts like a coach, not a boss.

A much better approach is to use a Performance Development Planning (PDP) process linked to the businesses’ quarterly strategic planning process with regular 1-1 performance conversations in between.

The annual & quarterly PDP conversations are combined with monthly one-to-one meetings, team meetings and weekly “check-in” conversations.

The PDP process is designed to help individual team members gain clarity of objectives and secure the support they need to achieve many of their goals. The process is core to aligning individual contributions to the business strategy and long-term goals.

These frequent meetings allow for real-time delivery of focused feedback that can encourage a team member by recognizing what they’ve done well. Managers can highlight some areas of opportunity where they need to change behaviours. Rather than waiting 365 days to recognize an employee’s outstanding efforts or to bring up problems, a 1:1 discussion provides an easy way to communicate and provide timely feedback workers crave.

Managing the PDP process effectively is a key skill required by all leaders. Leaders hold regular “Check-In” conversations.

But these aren’t the check-ins many leaders have with their team. It’s not a quick phone call to see how projects are coming along. Instead. This approach uses a highly structured, three-phase model for their check-in conversations: Expectations, Feedback, and Development.

The conversation starts with reviewing past expectations and setting new ones, then managers and employees give each other feedback on how they’re progressing against the expectations, lastly, the conversation shifts to the employee's own development goals and how the manager can help assign tasks that aid in their development. These conversations are often held off the record, to maximize the honesty of both parties.

Check-Ins happen on a regular basis, so they’re not too late. They are specific to the employee’s expectations, so they’re not too generic. And they’re a two-way conversation, so they’re not too subjective.

In a PDP process, feedback remains integral to a successful practice. The feedback, however, is a discussion. Both the employee and their manager have an equivalent opportunity to bring information to the dialogue.

Feedback is often obtained from peers, direct reporting staff, and customers to enhance mutual understanding of an individual’s contribution and developmental needs—commonly known as 360-degree feedback.

The developmental plan establishes the organization’s commitment to helping each person continue to expand their knowledge and skills. This is the foundation upon which a continuously improving organization builds.

Finally, there is technology available that supports a new, better model for performance discussions and reviews. The right performance development system will help organizations support peer-to-peer and manager-to-team member discussions.

These systems or forms themselves are secondary to the conversations between managers and team members. It is in the two-way conversation that real engagement, ownership and commitment is established.

Want to learn how to implement a better system for driving high-performance development in your team? Check out my online training course – High-Performance Conversations .