By Nils Reisen on 02.03.2023 | 7 minutes reading time
What if yearly reviews caused less frustration? What if employees and managers even enjoyed them?
Performance reviews and performance management in general are extremely important for organisations, employees and managers. But it seems that there is a fundamental issue in how they are done today. The good news: it’s not that difficult to fix.
Find out more about the problems of yearly reviews, the lack of feedback in organisations and possible solutions for value-creating performance management.
On a December day in 2014, I set off for my yearly review in a good mood and feeling optimistic. I enjoyed my work and had a good relationship with my manager. The interview was pleasant, as expected, and I went home satisfied that day.
My performance in the past year seemed good and I had not heard anything to the contrary in the interview. After a few days, I received a notification from the performance management tool we were using at the time that my evaluations were now complete and the review process was finished. In hindsight, we should have used this tool during the interview. But it was cumbersome to use and set a rigid process, so my boss told us in advance: “First we’ll talk, then we’ll put the tool to use.” And that’s what happened. The in-person yearly review took one hour.
Back to the tool. "Completed" was good, but the ratings I found were less so. My performance was rated merely average: a 3 on a scale of 5. This was in stark contrast to my self-assessment and also to how I had experienced the interview: lots of praise, hardly any critical feedback.
I approached my manager about it. He was surprised. He felt he had clearly communicated this to me in the interview and believed that the assessment was justified, also in comparison with my colleagues on the team.
What went wrong?
How could it be that my self-assessment was so inaccurate? On the other hand: Had I misjudged myself at all? In retrospect, the following factors seemed to play a role:
No continuous feedback: I received little to no feedback outside the yearly review. And when I did, it was often positive. The discrepancy between the self-assessment and external assessment was therefore invisible to me.
Lack of feedback skills: My manager either didn't deliver the feedback well in the review or I didn’t understand it. It was likely a combination of both. Giving and receiving feedback well is not easy and we probably both failed at it.
Rating on a scale: In addition to the interview and verbal feedback, the process required a rating. This is not a no-go for me per se. However, I found it problematic that the evaluation had to be carried out in comparison with the other team members and that a certain distribution had to result. In reality – particularly with small teams – performance and competencies are not distributed normally. For this and several other reasons, I find this practice questionable.
It was true that there was room for improvement on my part. In certain areas I had underestimated the complexity of the tasks or simply had too little experience. But I had also done a lot of things well, which was reflected in feedback from colleagues in other teams.
It was important for me to do a good job and to continuously improve. More frequent constructive feedback would have put me on the right track earlier. It would also have spared me a lot of frustration.
Yearly reviews are often frustratingMy experience is no exception. For example, a 2016 study by the Education Mirror found that for a full 58% of employees surveyed, traditional performance appraisals are a "negative experience". And only 39% of managers believe that performance reviews, as they are currently conducted, help improve business results.
For this reason, companies such as General Electric and Adobe have eliminated yearly reviews, evaluations and rankings and replaced them with continuous and forward-looking feedback (Ewenstein et al., 2016).
Is this a good solution? Should yearly reviews simply be abolished? Maybe. But not necessarily.
Why is that?
They happen too infrequently
A frequently mentioned point is that yearly reviews take place too infrequently. The world today is spinning faster and has become more complex. A Questback study (2015) found that the majority of companies surveyed only conduct annual performance reviews (48%) or feedback rounds (42%) only every two years. If feedback is given primarily during annual reviews, this timing is problematic.
They are carried out by people who cannot properly assess the employee being reviewed
Another common reason is the fact that line managers sometimes have too little direct contact with the employee being reviewed and are therefore unable to assess them properly. In these cases, the discussions are often perceived as unfair (Personio). This was one of the reasons why we made fundamental changes to performance management at Creaholic.
To make matters worse, giving constructive feedback is a skill that needs to be learned. According to a study by RainmakerThinking (Tulgan, 2019), 90% of all leaders do not have sufficient opportunity to develop the basics of leadership.
They are too automated
Performance reviews are often standardised and conducted using software tools. This is justified because it can ensure that the employee experience is similar across all managers, that the right things are assessed and that the ratings are comparable.
However, these tools create artificial situations and put more focus on the process rather than the impulse for valuable conversations. It is especially problematic when quantitative comparisons have to be made (see above) or – even worse but fortunately less and less common – a ranking (known as forced ranking, among other things) of employees is generated.
Overly rigid procedures also disregard personality differences. People are too different for such important conversations to be conducted in a standardised way.
Should annual reviews be abolished after all?
Maybe. But not necessarily.
Yearly reviews have many important advantages and functions:
- They are a good format for individual and company-wide agreement on goals and contributions
- They enable the giving and experiencing of positive feedback and appreciation
- They provide space for reflection on performance and development as well as an exchange on needs, wishes and aspirations – at a different flight level than in daily work
- They help organisations to deploy and develop employees and managers in a targeted way and to promote talent
- They enable standardisation in the way discussions are conducting and assessments are given
If yearly reviews are abandoned, their functions must be guaranteed by other measures. How to best implement this varies from organisation to organisation.
But at its core, the goal should always be to support people in their continuous development and to take responsibility for shaping their work and their future.
With or without yearly reviews: It is important to institutionalise goals and feedback
In my view, the central components for competent, committed and satisfied employees and managers are clearly defined, binding goals and continuous feedback.
With goals we determine the direction of the journey
Goals define what you want to achieve and how you will contribute to the success of your team, department or organisation. At Creaholic, we distinguish between two types of goals: WHAT and HOW.
WHAT goals describe the impact we want to make on the organisation with our work. These are activities like increasing sales, developing a new product or promoting professional development within the organisation.
With HOW goals, we define the skills we want to develop, such as increasing our sales skills or deepening our expertise in the field.
At Creaholic, we set our goals using the Objectives and Key Results (OKR) method and review them on a quarterly basis. This has been extremely helpful in setting and maintaining focus and aligning us within teams.
Feedback gives us energy and a compass for the journey
Positive feedback is like the electricity for our electric car. Critical feedback is the navigation system that helps us identify deviations from the course and take corrective action.
Yearly reviews have a place in this approach, but they are not a requirement. Each organisation has to find its own system that is compatible with its culture, structures and goals.
At Creaholic, we still have yearly reviews, but a few years ago, in addition to OKRs, we also introduced the function of peers, who give continuous feedback and accompany us throughout the year.
Thanks to these interventions, my yearly reviews are fun again and help me move forward. There never are any surprises thanks to our constructive and intensively lived feedback culture.
Bildungsspiegel (2016). Studie: Leistungsbewertung noch zeitgemäss?
Ewenstein, B., Hancock, B. & Komm, A. (2016). Ahead of the curve: The future of performance management. McKinsey Quarterly, 2, 64-73.
Personio. Leistungsbeurteilung: Was Mitarbeiter demotiviert.