Why do we still use formal employee reviews?

While a significant body of evidence has identified that formal performance reviews are used to serve organisational needs, there is also increasing evidence that they do relatively little to improve employee performance.

Let’s look at both issues independently.

Organisational needs

These organisational needs include documentation and risk management, compensation decisions, traditional and organisational habit, perceived fairness, and governance requirements.

While these organisational needs are valid, the evidence clearly demonstrates that the current processes used are not effective in addressing them.

• A review that discusses poor performance 6 months ago does not manage risk.  A timelier intervention is needed.

• When it comes to remuneration reviews, almost all businesses have stringent rules, criteria, and guidelines in place where individual performance only accounts for a minor part of the decision.  Smart companies are decoupling performance reviews from remuneration reviews.

• ‘We have always done it this way’ is no reason for continuing something, especially when that something no longer meets the business needs.

• The evidence is clear that most performance review processes are not perceived as delivering fair outcomes.  I have known managers who give employees 5/5 ‘to motivate them’ and managers that never give employees 5/5 ‘to motivate them’.  We cannot have it both ways, something must change.

• Governance requirements are essential. Organisations need visibility into employee performance and emerging risks when performance falls short. However, evidence strongly suggests that most employee review systems do not meet these needs.

  
  

Employee needs

Research over this period also confirms that human performance is heavily influenced by context, team dynamics, leadership quality and system factors while individual ratings are often affected by manager bias, recency effects, and subjective judgment.

Using longitudinal data, Kevin R Murphy’s research confirms very little change occurs in personal ratings over time.

As a result, employees frequently report that formal performance reviews create anxiety, focus excessively on past mistakes, and encourage rating debates rather than meaningful development conversations.

Put simply, such discussions fail to provide meaningful feedback to employees when it is needed.

Alternatives

Many contemporary performance-management thinkers, including myself, argue that the fundamental flaw is trying to combine development and judgement in the same conversation.

To help someone perform better, a manager needs to act as a coach. Yet to address capability concerns or undertake disciplinary action, a manager needs to be a problem solver. While to determine pay and promotion issues, a manager must act as a judge. 

I argue that these roles are independent and should be kept separate. You cannot review employees within a judgemental framework and then expect them to be willing to be vulnerable, admit mistakes, seek help, or experiment with new approaches.

With this history in mind, some examples of more contemporary approaches include Dr Tim Baker’s 5 Conversation’s model, Marcus Buckingham and Ashley Goodall’s idea of ‘regular check-ins’, Agile Performance Management borrowed from Agile software development approach, and my own ‘Personal Progress Reviews”. 

What these approaches have in common is that they separate improvement conversations from problem solving conversations and from any remuneration and reward decisions.

In short, the strongest criticism is not that formal reviews are unpleasant or inefficient. It is that they are built on a flawed assumption that the same conversation can simultaneously maximise learning and maximise evaluation. Sadly, while the above alternatives have been created, tested, and assessed, the mainstream approach remains fundamentally unchanged.

Like others, I argue fundamental change is needed.

Barrier to Change

If we have processes built on 100 years of history and a growing body of evidence indicating it is no longer fit for purpose, why have we not seen significant changes in performance management approaches as we have seen in many other aspects of work?

I propose three reasons:

1. Managers are not prepared to ‘let go’. There are valid reasons for this including how difficult decision are made, who coordinates work, how is the allocation of work and deliverables determined, and how is information and accountability shared.

2. Many employees prefer not to take on management responsibilities. In practice, they prefer clarity, stable priorities, and defined responsibilities.

3. Change is difficult and, in our modern fast paced workplaces, many organisations suffer from change fatigue.

The solution I advocate is for shifting managers from being controllers to becoming coordinators, coaches, and stewards.  Then HR can develop and provide systems and tools that are supporting of this management philosophy.

While I respect this approach will not be suitable for every organisation, in my view it will lead to better outcomes for most organisations, managers and employees.

Let me know if you agree with my argument and solutions.