The annual performance review: agony, ecstasy or just ticking the box?

A year ago, Deloitte announced that they were getting rid of performance reviews. Research had shown, they argued, that a critical assessment was no longer the way to gather information about staff performance. Not only did they waste millions of hours, representing a huge cost, they were demotivating and inaccurate.

Other organisations, including Accenture, Google, Microsoft and NAB have also ditched the annual review and ranking system. They were convinced by their own research and by that of outside organisations that the system was not driving better performance.

If you hate performance reviews, either giving them or being on the receiving end, you’re not alone. A poll in the Sydney Morning Herald had 87% of participants agreeing that the ‘whole process is just a waste of time and doesn’t achieve much’, with only 5% agreeing that, ‘They force employees and managers to think beyond the daily grind and see how they are tracking’ and should be kept.

Kevin Murphy, a scientist at Colorado State University and an expert on performance appraisals, told the New Yorker that there were further issues:

• Managers have incentives to inflate appraisals of their team members.
• Feedback can make people less motivated and hurt relationships as it is often perceived as biased and unfair, even when it is accurate.
• Organisations do a poor job of rewarding good evaluators and sanctioning bad ones.

‘As a result, annual appraisals end up as a source of anxiety and annoyance rather than a source of useful information’, Murphy told the New Yorker.

Other reasons given for scrapping performance reviews include:

• They focused on the last couple of months and on recent performance, rather than on the full year.
• More than half of the performance rating reflects the traits of the person conducting the review rather than those of the person being rated, due to the conscious and unconscious biases of the reviewing manager.
• They tend to reward the most self-promoting employees, who are not necessarily the best employees in the long term.
• They reflect an outdated way of working, based on the time and motion studies of the early 20^th century, seeking efficiency above all else.
• The performance review process is the single biggest cause of claims for bullying, according to research by reputation management consultants Risk To Business, who write, ‘The link between performance management and workplace bullying is unequivocal.’

Supporters of the review process argue that it is not the performance review per se that is the problem, but how it is conducted and managed.  Rhonda Brighton-Hall, board member of the Australian Human Resources Institute, has said that it is the quality of the leadership, not the form the performance review takes, which establishes its effectiveness. Handled well, a performance review can increase motivation, reward productive employees by giving them more responsibility, identify training needs and confront problems in an honest way. Staff are able to set career objectives and ask for support in achieving them. Confrontations can be managed in a considered way, and open communication is encouraged.

Supporters argue that it is important to separate the performance review from a pay review, as employees will perceive a negative review – or even any adverse comments – as a way to avoid giving a raise. Separating the two processes allows the performance review to feel more collaborative.

In a fast-paced work environment, there is no doubt that slowing down and reflecting on performance is helpful and positive.  Those who have given up the annual performance review have typically replaced it with more regular and less structured feedback and conversations. Next time we will take a look at those alternatives.