The APQC Blog

Performance Reviews: The Great Debate--Should They Stay or Go?

The end of the year can mean many things for employees and their managers: a few days off for the holidays, a little down time to clean out files and inboxes, or a great time to start planning ahead for the New Year. At many companies, it is also the time when managers call employees into their offices for their long-awaited, and sometimes dreaded, annual performance reviews. 

Much like making New Years’ resolutions, the traditional annual review process starts with setting goals with each employee soon after everyone returns to their desks after a nice holiday break. Then, at the end of the year, managers and employees come together again to discuss progress made toward those goals, and employees’ compensation is adjusted accordingly.

Companies will always need a way to measure employee productivity, but many are asking: Is the traditional annual performance review really the best approach? To a growing number of companies, for a wide variety of reasons, the answer to this great debate is “no.”

What do you think? Click on the image below to vote in our poll. Then read my thoughts on the pros and cons of the annual employee performance review.

Performance Reviews: The Pros

Anyone who has ever been through the performance review process can tell you how easy it is for established goals to get pushed to the back burner in the hustle of daily work. But the process can also be a good way for managers to set clear expectations for how each employee can contribute to overall organizational goals.

When individual goals are well-aligned with business strategy, they can become part of everyday work, helping employees understand their connection to the organization as a whole and guiding their actions in the right direction. Employees may find more meaning in their work, which helps them become more motivated and engaged. And because there’s money on the table, employees may strive for higher productivity.

The performance review process also gives managers a tangible way to identify potential leaders and reward high-performing employees. It opens the doors for two-way feedback, and reveals development opportunities that can help employees grow and learn. The process may also help keep managers on their toes, as it holds them accountable for spotting and addressing low performance.

Performance Reviews: The Cons

This all sounds terrific, so why the debate? Today’s business and work environment is dramatically different from what we were experiencing a decade or more ago—change, uncertainty, knowledge work, flat organizations, empowered employees, wide managerial spans of control, etc. These changes make it harder for many organizations to reap the benefits of performance reviews. And the cons of the process are visible and costly.

Expectations set in January can feel too limiting by October, when what’s really needed is agility. Within the strict confines of their structured goals, employees may not feel empowered to make decisions, adapt, and innovate. And performance assessments can’t measure every aspect of an employee’s contributions, sometimes leading to an inaccurate or incomplete measure of performance.

Because employee retention is important, employees’ feelings matter, too. When compensation is tied to progress against goals set nearly a year earlier, a performance review can feel less like a positive talk with the boss and more like a tense dissection of a year’s worth of hits and misses.

Employees may feel that rewards are distributed inconsistently and unfairly, and they may be demotivated if their weaknesses are emphasized or their contributions oversimplified. Many feel defensive about having their activities continuously under the microscope, tied to the possibility of a layoff.

Because assessment is delayed until the end of the year, an after-the-fact evaluation can feel punitive, and opportunities for development may have been missed along the way. And, it’s often hard for an employee to act on generalized feedback about an entire year’s worth of work. 

Those are my thoughts on the pros and cons of the annual performance review. Watch for my next blog post. I will share the opinions you expressed through our poll and provide tips for deciding which side of the debate your organization should take.

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