The Problem with Annual Performance Reviews: What You Need to Know

The Problem with Annual Performance Reviews: What You Need to Know

The annual performance review has been a staple of workplace culture for decades. Have you ever wondered, though, whether it’s actually valuable? Many HR professionals and workplace experts are saying no.

More and more companies are starting to rethink their approach to evaluating employee performance. If you work in HR, you might want to do the same.

The following are a few reasons why. Although it’s certainly important to measure employee performance to some degree (more on that later), these reasons will help you better understand why the annual review might not be the best way to go.

Reason #1: Nobody Likes Them

This is the first point worth considering. It may be a simple one, but it’s the primary reason why numerous organizations have looked at finding new methods of reviewing employee performance.

Surveys indicate the vast majority of employees are dissatisfied with the annual review process. Typically, they find it doesn’t provide them with enough useful feedback to truly grow and improve.

That’s something that should ring alarm bells for HR professionals. These days, ambitious workers are more likely to be engaged if they feel they have growth opportunities. They want to know they will have the chance to climb up the ladder wherever they work.

In other words, if their performance reviews don’t help them to get a sense of how they can make positive changes, they may eventually seek employment somewhere else. This results in a costly high turnover rate.

However, employees are not the only ones who dislike annual reviews. Surveys also indicate up to 95 percent of managers don’t believe they yield valuable insights.


Reason #2: They’re Expensive

Annual performance reviews can also be relatively costly. Major companies have reported spending millions of hours and dollars each year on the process.

That time and money could be better spent elsewhere. As an HR professional, sometimes your job may involve finding ways the company is wasting resources. You’re involved in streamlining the hiring, onboarding, and training processes already. Helping the organization to reduce costs by looking for new ways to review employee performance is simply another duty you may be responsible for now. Even if no one has brought the topic up, you could make a good impression on your superiors by letting them know you think there is a smarter way to go about evaluating employees’ strengths and weaknesses.

Reason #3: They Create Tension

Neuroscience research gives HR professionals even more reasons to consider ditching the annual performance review. Quite simply, when a review is formalized, occurring once a year, it creates an uncomfortable dynamic between the employee and the manager. Employees naturally become defensive during reviews. As a result, even those who are performing well may begin to do poorly.

This isn’t something you want. It’s still important to provide employees with feedback. In fact, surveys indicate the majority of employees wish they were receiving more feedback from their supervisors—but they want to receive feedback in a way that doesn’t feel as though they’re being judged once a year. Managers are more likely to help them to grow if they stay in touch regularly throughout the year. This not only helps them to set goals and make adjustments when necessary, but it yields the kind of relationship where both parties have mutual respect. 


Reason #4: They’re Not Accurate

Research has also shown that the grades employees receive during annual performance reviews often fail to correspond with any genuine business outcomes. An employee may receive a somewhat poor grade, but in reality, the contributions they make to the business may be far more valuable than the grade would suggest. 

This isn’t fair to anyone. Employees who have massive potential might be skipped over for promotions if they receive poor grades. They might also become disengaged if a review doesn’t go well, feeling they can’t possibly improve.

These scores, meanwhile, give managers an inaccurate depiction of an employee’s value. Managers who rely solely on an annual performance review grade to determine what an employee contributes to the organization can easily overlook potential strengths.

These are all reasons to think about whether sticking with the traditional approach to performance reviews is right for your organization. Discuss this topic with decision-makers at your company. As an HR professional, you need to ensure the organization is doing what it can to maintain employee engagement. Switching to a new review process may help.

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