Chris Russell

3 min read

Human Resources

annual reviews

Annual Reviews Aren’t Worth the Effort

The season of good cheer and annual reviews is fast approaching. And that may be the last time you see those two phrases in the same sentence. 

No one ever looked forward to the annual review ritual. Not managers – 95% of them are dissatisfied with the way they are conducted; 58% say they serve no purpose. Not HR professionals – 90% believe them inaccurate. Nor employees — 87% find them ineffective; 55% say they have no effect on performance.

Even CEOs agree. Only 6% think performance appraisals are useful.

Since so few believe the annual review process is effective or serves a valuable purpose, why do so many companies still conduct them?

The short answer is because they always have.

Annual Reviews Need a Reboot

Formal performance reviews began with the military for promotion purposes. Business adopted the concept, tying raises to worker performance. Since annual raises most often took effect in January, performance reviews became an end-of-year ritual.

Once nearly ubiquitous, in the last decade companies have been rapidly abandoning the annual review.  In 2016,  Work Human found 82% of employers conducted annual reviews. By 2019, that percent was barely a majority at 54%.

Over the last 20 years, and especially since Adobe became the first large company to give up on the annual review, corporate leaders have come to accept they aren’t just ineffective in improving performance, they too often have the opposite effect. Studies show even supposedly positive rankings can have a demoralizing effect.

Among the myriad of reasons why the annual review is falling out of favor, the most obvious is that they deal with past performance, surprising employees who learn for the first time in November or December the work they’ve done all year long is not as good as they thought. 

 Megan Krause, director of content at the performance marketing firm Investis Digital, told the Society of Human Resource Management, “I’ve found annual reviews to be, by nature, one-sided and nerve-wracking for the employee. Their pattern is typically, ‘Here, let me review everything about you and your work performance for the last 12 months. We have one hour.’”

Annual Reviews are Prone to Bias

Because most of us have trouble remembering what we did last week let alone 10 months ago, the ratings and evaluations in annual reviews rarely reflect an entire year’s efforts. This recency bias causes managers to give undue emphasis to performance in the last few months, which may undervalue or overvalue an employee’s actual contribution.

An article in the Harvard Business Review puts it this way: “With their heavy emphasis on financial rewards and punishments and their end-of-year structure, [annual reviews] hold people accountable for past behavior at the expense of improving current performance and grooming talent for the future, both of which are critical for organizations’ long-term survival.”

Annual reviews are also prone to another type of bias. Management consultant Marcus Buckingham says the “Idiosyncratic Rater Effect” influences the annual review ratings to such a large extent that the process effectively is more about the manager than the employee.

Writing in the Wall Street Journal, leadership expert Samuel A. Culbert said that despite the appearance a numerical rating scale is objective, “In almost every instance what’s being ‘measured’ has less to do with what an individual was focusing on in attempting to perform competently and more to do with a checklist expert’s assumptions about what competent people do.”

Despite their shortcomings, few propose eliminating performance reviews completely. Instead, most HR leaders and management experts now embrace more frequent “check-in” meetings between managers and workers. Adobe replaced the annual review in 2012 with quarterly check-ins that allow both manager and employee to give feedback, discuss expectations and plan future development. Deloitte, Accenture, Microsoft, GE and dozens of other companies followed suit, substituting formal monthly or quarterly meetings as well as more frequent check-ins; Deloitte insists on weekly check-ins.

The results of what is sometimes called “continuous feedback” are generally positive. WorkHuman found that at companies where check-ins and feedback meetings are held at least monthly, three-quarters of workers are engaged. With weekly check-ins, 47% are highly engaged.

The transition, as Gallup notes, isn’t necessarily easy or without problems. Managers need to be trained in how to conduct effective one-on-one meetings. It’s also not enough to provide feedback. Managers must be able to mentor and coach their team, helping each member achieve the goals they set in these check-ins. 

“It can be challenging for some managers to transition to this new style of management, and moreover the continuous style of performance review requires more time and energy from managers long-term,” says the HR technology company Cornerstone.

Though “No evaluation system can create great managers and engage employees on its own,” says Gallup. But, better than the annual review, “They lay the foundation for a great conversation.”

Written by John Zappe

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