Performance reviews do more harm than good – it’s time to end them

The annual performance review is a staple of business life. However, its merits have long been questioned, and now a host of companies have decided that the system is actively harmful, writes Matt Timms

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Whether you’re packing a year’s worth of office grievances or a PowerPoint presentation of past achievements, the annual performance review is a thankless task for almost anyone involved. Few corporate practices are as old or as hated, and only after years spent ducking the firing line is the decades-old tradition finally facing the chop.

As much can be said for the offices of this very publication – according to this parish’s HR manager: “We ditched annual reviews because it felt like a mandatory check-up.” Likening it to “that dreaded six-monthly dental check”, the once-a-year appraisal is no more at European CEO – to the delight of almost everyone here.

However, what’s important isn’t the criticism, but the fact companies are finally beginning to rethink old assumptions about employee evaluation. Samuel Culbert, Professor at the UCLA Anderson School of Management and author of Get Rid of the Performance Review, said it best when asked about whether the annual performance review has had its day. “It has never had its day”, he stated. “It has always been a disaster.”

Areas for concern in performance reviews
Sometimes seen as a relatively recent phenomenon, this yearly rite of passage actually emerged in the 30s, when evidence cited by Elton Mayo of Harvard Business School showed worker productivity and satisfaction were linked to the social structure of the workplace. In third century China, job ratings were used to measure progress and in 19th century Scotland one cotton mill owner used colour-coded wooden blocks to denote worker performance. However, it was in the 1950s, when the Performance Rating Act made annual reviews for federal employees compulsory, that the format became common practice in the US and closer to home.

Rating inflation is so widespread that it undermines almost everything you try to accomplish with performance appraisal

What started out as a simple mechanism to measure and reward performance has become an anxiety-inducing process that does little to advance the company, the manager or the employee in question.

According to Satoris Culbertson, Associate Professor at the Kansas State University Department of Management: “The traditional performance review is, or should be, no more.” The mere notion employees should only be given feedback on their performance once or twice a year is absurd. Largely one-sided, with the employee expected to simply ‘take it’ and move forward, a review is not – as it should be – a two-way discussion between manager and employee. “Without an open dialogue”, Culbertson added, “managers won’t be as effective as they could be.”

Speaking about some of the more serious challenges to performance appraisals, Kevin Murphy, Senior Research Scientist at the Department of Psychology, Colorado State University, noted most organisations try to do too many things with their performance appraisal system, and often try to serve multiple and conflicting goals. In his view, the most important challenge is that there are too many incentives to give people high ratings and not enough to give them accurate ones. “Rating inflation is so widespread that it undermines almost everything you try to accomplish with performance appraisal.”

Rating bias, hypocrisy, poor communication and human error are just a few of the issues, and critics in recent times haven’t been shy about voicing their concerns. Really, it seems the process is little more than a dysfunctional pretence.

“I think the performance review fails every test”, said Culbert. “It is not objective, it undermines the boss-employee relationship, it keeps employees from telling the truth to power, it keeps workers from cooperating with each other, it makes it much more difficult for employees to learn and grow, it helps create an oppressive work environment, and it prevents workers from getting done what the company needs to get done. And that’s just for starters.”

Clearly, this is a mechanism that has failed to deliver on its promise. And the danger for now is that the idea could devolve into a destructive as opposed to constructive process, not just for employees but employers also. Fortunately, it appears there are executives wise to the zeitgeist.

Case studies
A lot was made of Accenture’s decision last year to adopt a system of continuous feedback in place of a once-a-year, backward-looking appraisal. The issue was a point of frustration not just for employees, but for managers too, who were forced to fit workers into arbitrary categories and rank them against their colleagues. Speaking to The Washington Post about the decision, Accenture’s CEO Pierre Nanterme stressed: “Performance is an ongoing activity. It’s every day, after any client interaction or business interaction or corporate interaction.”

Six percent of the Fortune 500 have chosen to replace the annual review format

Likewise, professional services firm Deloitte last year ditched its own review process for something nimbler and more individualised, “something squarely focused on fuelling performance in the future rather than assessing it in the past”, according to the firm in a guest post for the Harvard Business Review. The decision in this case was finalised after a Deloitte survey showed half of executives believed their employee review systems failed to drive performance or engagement.

Far from alone in their thinking, Accenture and Deloitte have joined the likes of General Electric, Microsoft, Gap, Adobe and six percent of the Fortune 500 in choosing to replace the annual review format. These names and others are leading the shift to focusing less on employee management and more on performance, by turning away from the backward-facing review format and looking more to the future.

However, Murphy stressed the majority of organisations still use some sort of annual performance review, and there’s little sign this will change in the foreseeable future. “More to the point”, he said, “none of the alternatives that have been proposed seem fully workable. In particular, the move to informal and simple performance reviews means that the links between what people actually do on their jobs and the performance feedback they receive are falling apart.”

This year’s model
The question, at least for now, is how exactly companies will redefine the performance review model, and whether taking away the annual element will address the issues at hand.

The problem is the parties partaking in the performance review typically work at cross purposes, with the manager on the one hand focused on performance and company evaluation, and the employee focused on issues like compensation and career progression. The reality is that an annual performance review – or any formal review format for that matter – forms far too long a feedback loop for either party to identify areas for improvement on a continuous basis.

“If you’re asking whether we’re seeing the beginning of the end for performance reviews, I’d say yes, definitely. People are finally seeing what a bogus farce performance reviews are – and how much damage they do to teamwork, creativity, morale, and ultimately the bottom line”, said Culbert. “And here’s one you may not suspect. You can always get employees to improve – performance reviews prevent managers from improving.”

Companies need be to clear and realistic about why they are doing performance reviews and focus more on fostering an open, continuous dialogue. The question of improvement is essentially a question of communication, and by opening the channels and encouraging constant feedback, companies can expect a more accurate picture of where their employees are heading.

“Most fundamentally, organisations need to ask themselves if they are willing to actually do something meaningful with performance reviews and, if the answer is no, they should not do annual performance reviews at all”, concluded Murphy.