Research conducted by Gallup, a management consulting company, indicates that only 14% of employees strongly agree that their performance reviews inspire them to improve.

“Performance management programs are destined for failure when they offer little beyond a single goal-setting event at the beginning of the year, followed by an annual review at the end of the year. “They do not reliably improve performance, and often they actually demotivate people, even question their careers with an employer,” mentions Ben Wigert, Director of Research and Strategy at Gallup’s workplace management practice. 

Similarly, 54% of respondents in a McKinsey & Company survey also shared that performance management has not positively impacted their performance. 

Organizations perceive annual performance reviews as a tool for adjusting pay grades, determining promotions for the year, and tracking yearly progress. However, from the employee’s perspective, receiving a large amount of feedback at once can be overwhelming and may even lead to a decline in performance.

Noona Nafousi, CEO, Founder, and Lead Coach at Neo Noor, says, “Nothing discussed in an annual review should catch an employee off guard. Regular, weekly feedback ensures that the annual review becomes a celebration of achievements and a constructive platform for setting new objectives.”

Carla*, a 28-year-old employee, says, “I believe they serve no purpose. If my organization gave me proper feedback on where to improve, there would be a greater outcome. It’s not just dependent on my performance. They rely on many other factors.”

Monica Hernandez Alarcon, Human Resources Director for Africa and the Middle East at General Motors, argues that the dynamic nature of today’s business environment cannot be sustained with the traditional approach of annual reviews. She states, “While they served a purpose in the past, the nature of our work requires continuous adaptation, quick decision-making, and regular performance adjustments.”

This is due to the fact that there is no objective universal metric for performance that can be used across roles, Wigert explains, also resulting in undefined evaluation. “At worst, it can feel like the metric being used to evaluate employees doesn’t describe their daily job and is outside of their control.”

Jesper Petersen, Chief Human Resources Officer of PepsiCo Africa, Middle East, and South Asia (AMESA), emphasizes the importance of clarity, flexibility, and impartiality in driving positive impact through annual reviews. He warns that in volatile environments with unrealistic objectives and biased review processes, there is a risk of hindering employee growth, eroding the perception of fairness, and ultimately undermining performance.

FEEDBACK FUEL

April Kearns, Director of People and Culture at TishTash Communications, highlights that the impact of performance reviews lies in how the employer delivers the information. This delivery can lead the employee to “spiral or rise to the occasion.”

Concerns over connections of annual reviews to salary cuts or raises place the employee in a trance and make the feedback seem ingenuine.

“Empathy matters in the review process. We are all human, and whoever is conducting the reviews needs to do so, human to human,” adds Kearns. 

Wigert similarly explains that the performance management process focuses more on the forms and tools to put the conversations on record rather than engaging in meaningful talks that actually improve a person’s performance. 

“Performance evaluations tend to be a focused critique of peoples’ weaknesses. Even when there is a balance between recognition and critique, people typically weigh the negative things they hear more. This makes it very difficult for annual performance feedback to inspire better future performance when there isn’t an ongoing cadence of coaching conversations that help people proactively achieve their goals,” he adds.

“In some cases, you could be stuck in the same position for years if your annual review goes bad,” worries Carla. 

Nafousi argues that annual reviews can be limiting and potentially demotivating if conducted in isolation. Companies should integrate them into a broader employee engagement and feedback system to make them effective. She further suggests that a balanced approach, combining continuous feedback with annual reviews, is more suitable for today’s fast-paced work environment.

On a similar note, Peterson states, “Ultimately, the performance review process needs to be tailored to enable the implementation of the business strategy, align to the company culture, and fit the operating environment.”

Peterson further emphasizes that employees at PepsiCo are encouraged to document tangible evidence of their achievements through self-assessments. Simultaneously, managers are expected to evaluate performance fairly and unbiasedly.

ALTERNATIVE ROUTE

Even as organizations reconsider annual performance reviews, there is a consensus that they play a crucial role in catalyzing company growth. This implies the need for a balanced approach to assessing and providing employee feedback.

There still remains room for year-end performance reviews to exist, but they could be simpler after having progress reviews throughout the year. While Wigert suggests that pay and promotion conversations happen after performance reviews rather than during, talent decisions —such as spot bonuses, promotions, and development opportunities—can actually be made throughout the year when they are most applicable.

Kearns emphasizes that “companies fostering a culture of continuous feedback and normalizing day-to-day, real-time feedback are more likely to run highly effective and efficient teams.”

Carla echoes this statement, calling for more detailed feedback that allows her to understand where the employer’s comments stem from. 

“The subjective loops need to be more closed. I would rather have continuous feedback throughout the year. More transparency on real-time analytics and my projects could also help. Either change how we view our work or provide more incentives,” she says. 

Alarcon says that for more effective results, the GM has replaced static annual performance reviews with regular checkpoints, which has proven more effective.

“We operate based on three core tenets: Trust, Empathy, and Flexibility, enabling our employees to bring their best selves to work, contributing to a culture of continuous improvement. Adopting a more frequent and responsive feedback mechanism has resulted in positive returns, evidenced by strong results and heightened productivity,” she adds.

Peterson shares a similar sentiment. “It is important that the employee and manager have ongoing conversations instead of relying on an annual process. Regular communication and progress check-ins are critical, and so is self-assessment.”

Nafousi also recommends integrating continuous feedback into management training, involving regular, informal check-ins with teams. These check-ins “go beyond monitoring performance to understanding challenges and aspirations and providing immediate guidance.”

A method Wigert recommends is called a “Performance Development Program (PDP),” a year-round approach focusing on a regular cadence of coaching and goal progress discussions. The program integrates employee engagement and strengths-based development into the conversations. 

“Our Performance Development programs start with an ‘agile goal setting’ process whereby employees are actively involved in setting goals, and then goals are reviewed on a quarterly basis. During these progress reviews, achievements are recognized, goals are adjusted as needed, and priorities are set along with the support needed to achieve them,” Wigert outlines.

Acknowledging the barrier posed by busy schedules and inefficient training for managers in delivering constructive feedback, Kearns suggests a solution. She recommends using performance technology tools that integrate people science into the process, facilitating fast and regular feedback. This approach empowers employees to take ownership of crafting their goals and objectives.

Alarcon mentions that GM has incorporated regular surveys addressing essential topics such as WoC, Pulse, and People Leader 180 Feedback. These surveys are designed to track team sentiment and foster open dialogue.

“Annual reviews are crucial to sustaining high performance and employee engagement, but the models need to continuously evolve in line with the strategy, culture, and operating environment,” states Peterson.

*Names are changed on the employee’s request.