March 20, 2022

Why Performance Reviews Matter & How They’re Changing

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Traditionally, many companies have used annual performance reviews as a time when managers can check in with those they’re managing. During these meetings, a manager might provide feedback on the employee’s performance, potentially offer a raise or promotion, or instate corrective actions to improve performance. 

In 2021, the Society for Human Resource Management (SHRM) reported many well-known companies were ditching the annual review, including GE, Deloitte and Adobe. Annual reviews have been on a steady decline since 2016, as they often create negative employee sentiment, ranging from tears and anger, to increased competition among coworkers.

While companies may have good intentions with performance reviews, Gallup research shows only 14% of employees strongly agree that a performance review motivates them to improve their work quality. In one-third of cases, the feedback can actually worsen performance.

It may not be time to ditch performance reviews altogether. Instead, your business can take a different approach that delivers meaningful feedback more frequently, to engage employees and improve results for your company. 

Why Annual Performance Reviews Fail

There are several reasons why an annual performance review may be ineffective or worsen the work quality of your employees. These include:

  • The annual performance review is the only feedback a manager gives. If your managers are only meeting with the employees they manage once a year, this can present problems. An annual review that features a collection of issues from over the past 12 months could overwhelm employees. Infrequent feedback makes it harder for employees to correct past issues, which results in wasted time and energy dedicated to the review.
  • Your managers aren’t trained to have effective performance review conversations. Managers who aren’t used to giving feedback or who have to present complex information (like salary or bonus details) may not communicate effectively. This could leave employees feeling confused or frustrated.
  • There’s no clear roadmap for improvement. When managers provide negative feedback with no clear insights for how to improve, employees may disengage from the work or look for another job altogether. Even positive feedback, when it’s not accompanied with career development opportunities, could turn off employees.

Managers account for up to 70% of variance in employee engagement. Since they’re the ones who typically deliver the performance review, it’s essential to train them before they present feedback to employees. The performance review reflects you as an employer and can significantly impact an employee’s loyalty and enthusiasm for working for your company.

How to Make Performance Reviews More Effective

One way to effectively engage employees is to provide frequent feedback. In January 2022, Gallup reported when employees strongly agree that they received “meaningful feedback” in the past week, they’re nearly 4x more likely to be engaged compared to other employees.

SHRM reports 85% of workers who have weekly check-ins with managers report higher levels of engagement. Gallup research echoes that, finding when managers provide weekly feedback instead of annual feedback, employees are:

  • 2.7x more likely to be engaged at work
  • 5.2x more likely to strongly agree they receive feedback that’s meaningful
  • 3.2x more likely to strongly agree they’re motivated to do outstanding work

A May 2021 report found the average worker received performance feedback nearly 3 times per month. But more than one-third (33.4%) of full-time employees want to receive more feedback from supervisors.

Companies can use this knowledge to transform their performance review models. Traditional annual performance reviews might have been hour-long meetings between a manager and the employee, where everything from salary to work performance was discussed. 

Today, managers might have monthly or more frequent one-on-ones with employees. During these check-ins, they can discuss work expectations and provide insights for how employees can be more successful and grow their careers with the company.

A career development plan can help. These roadmaps show:

  • What an employee needs to achieve in order to progress in their career with the company
  • Training, development and goals to complete
  • Benchmarks for how to measure progress

Career development plans provide transparency and give employees something specific to work towards. They can help guide manager conversations when they’re providing feedback to employees.

Performance reviews should also be an opportunity for employees to provide feedback to their managers. While past reviews may have been one-way conversations of a manager delivering employee-only feedback, a two-way conversation enables employees to express their thoughts and concerns, which can help your managers and company improve.

Another way to make performance reviews more effective is to set up clear expectations for each review meeting. Train managers on how to deliver and solicit feedback. You might use templates for each performance review meeting, so employees know what to expect and the meetings are more efficient.

In each subsequent performance review meeting, the manager and employee should check in on how they incorporated the past feedback into their work. Encourage an open-door policy, so employees can discuss performance whenever they want with their supervisor.

Provide Frequent Feedback for More Effective Performance

Your employees crave feedback. When they get it, that can increase employee engagement, result in better manager-employee relationships and help you address performance issues more swiftly.

Use goal-setting and career development plans to steer your employees’ performance toward better results for your company. When you use standardized performance review criteria (like a number-based system), you can measure and analyze performance data to continually evolve your process.

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