Do performance reviews really benefit anyone?

The start of a new year often marks the time where businesses are setting goals for the year ahead and crucially, reviewing the previous one. For most businesses, this process will include annual performance review.

Annual performance reviews are a common practice in businesses of all sizes, offering a structured method for reviewing and evaluating employees’ performances throughout the previous year. According to a recent survey, over 70% of organisations still complete performance reviews annually

Often linked with KPIs and formalised progression plans, these reviews provide a chance for both employers and employees to provide each other with feedback and set goals for the new year.

However, are annual performance reviews beneficial to anyone? Like any organisational tool, annual performance reviews come with both advantages and disadvantages.

What are the advantages of annual performance reviews?

One of the primary benefits of performance reviews is the opportunity for constructive feedback. Employees gain insights into their strengths and areas for improvement. This feedback can guide them in enhancing their skills and addressing weaknesses, ultimately contributing to personal and professional growth.

Performance reviews often involve setting objectives and goals for the upcoming period. This process helps align individual objectives with organisational goals, fostering a sense of purpose and direction. Well-defined goals provide employees with clear expectations and a roadmap for success.

Positive performance is typically acknowledged during reviews, allowing employees to feel valued for their contributions. Recognising achievements can boost morale and motivation, leading to increased job satisfaction. Additionally, as many businesses typically make structural changes at the start of a new year, performance reviews can serve as a basis for determining promotions, salary increases, or other rewards.

Regular performance reviews facilitate open communication between employees and managers. This dialogue allows for the discussion of concerns, challenges, and aspirations, creating a transparent and trusting relationship. When communication is effective, misunderstandings can be minimised, and expectations can be aligned.

Furthermore, annual performance reviews help identify skill gaps and training needs among colleagues. Managers can use this information to design targeted training programs that enhance employee capabilities, contributing to overall organisational development.

What are the negatives of annual performance reviews?

One of the significant drawbacks of performance reviews is the potential for subjectivity and bias. Managers may unintentionally favour certain employees or be influenced by personal preferences, leading to unfair evaluations. This subjectivity can undermine the credibility and effectiveness of the entire performance review process.

Then there are the personal elements. The anticipation of a performance review can cause stress and anxiety for employees, often well in advance of the review itself. Fear of negative feedback or the unknown outcome of the review can create a tense and fearful work environment and in some cases, this stress may hinder productivity rather than encouraging improvement. This can also lead to productivity surges, where employees may work harder in the period immediately before the annual review but then tail off afterwards.

Many organisations conduct performance reviews annually, which may not be frequent enough to address issues in a timely manner. Waiting a year to provide feedback on performance can result in missed opportunities for improvement and hinder employee development.

Some performance review systems heavily rely on quantitative metrics, potentially overlooking qualitative aspects of an employee’s contributions. This emphasis on numbers may not capture the full scope of an individual’s abilities or the challenges they may have overcome.

If not handled properly, negative feedback during a performance review can also demotivate employees and lead to disengagement. A poorly executed review can damage morale and hinder teamwork, counteracting the intended purpose of fostering improvement and growth.

Is there a better way of monitoring workplace performance?

Workplace performance reviews play a crucial role in talent management, providing a structured framework for feedback, goal-setting, and development. In order to remain engaged, employees require regular feedback on their progress and crucially, their progression opportunities. Meaningful feedback fuels performance and helps iron out any issues an employee may be facing. After all, there’s little point in reviewing something 8 months later and looking for a solution that may have been apparent at the time.

A 2020 survey concluded that companies that implement continuous performance feedback are almost 40% more effective at attracting talent and 44% better at retaining talent than those that rely on an annual system. 

Therefore, rather than once a year, regular communication, ongoing feedback, and a focus on employee development can help mitigate the potential drawbacks associated with performance reviews.

The effectiveness of these reviews largely depends on the organisation’s approach, the quality of feedback provided, and the fairness of the evaluation process. Striking a balance between accountability and support is essential to ensure that performance reviews contribute positively to both individual and organizational success.