Why Traditional Performance Reviews Often Backfire – and 6 Principles to Follow Instead

December 2023

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Years ago, I started working at an organization right as they were debating and refining their performance review process. In one of my first meetings, they asked the employees for feedback on the current end-of-year tradition. Many people shared strong feelings, almost all negative:

“Awkward.”

“A waste of everyone’s time.”

“Makes me physically ill to think about it.”

I didn’t know it at the time, but the generally negative sentiment holds true across roles and industries. Annual performance reviews are deeply unpopular. Employees perceive them as a waste of time – or worse, unfair.

How bad is it? The numbers, below, are truly staggering.

And what’s the problem with unpopular, biased systems for evaluating performance? That’s the first step in a process of deciding who to train, promote and pay. Improving performance review systems is not only the right thing to do on a personal level because it’s causing unnecessary emotional distress, it’s an essential business practice. Companies need better performance review systems that emphasize transparency, fairness, and two-way communication.

The good news is that many companies have shown the way, and we’ll look at one particularly fascinating case study: Deloitte. While culture shifts take time, the research shows modifying performance management drives more positive outcomes for employees, managers, and the organization as a whole.

First, let’s look at the current data on performance reviews.

1. Traditional performance reviews are unpopular, unhelpful and expensive

Not a fan of performance reviews? You’re not alone.

According to a survey of Fortune 1,000 companies done by the Corporate Executive Board (CEB), 66% of the employees were strongly dissatisfied with the performance evaluations they received in their organizations. And it’s even worse among managers. CEB research found that 95% of managers are dissatisfied with their company’s process.

Even smaller percentages find annual performance reviews to be truly helpful. According to a survey of 48,000 employees by Leadership iQ, only 13% of employees and managers think their organization’s performance management system is useful – and only 6% of CEOs.

Even though everyone is in agreement that performance reviews aren’t working, they mostly keep doing them anyway. More than 90% of companies provide performance evaluations at least once a year, and CEB estimates the average U.S organization spends $3,000 per year per employee, which is… a lot of wasted money.

2. Three fundamental issues with annual performance reviews

What’s wrong with traditional performance reviews?

“In principle, performance reviews make sense,” says Joshua Freedman, CEO of Six Seconds, the world’s largest emotional intelligence nonprofit. “But in practice, it can become performative & transactional. Too often the emotional experience ranges from neutral to really negative… and as a result, you undermine performance and damage your culture.”

There are 3 big issues with traditional, end-of-year performance reviews: they’re too infrequent, too subjective, and reinforce existing power structures in unhealthy ways.

Too infrequent

To be effective, feedback can’t be a once-a-year process. Imagine getting annual feedback from a sports coach or music teacher. It’s a comically inefficient way to learn and improve. “Conversations about year-end ratings are generally less valuable than conversations conducted in the moment about actual performance,” write Marcus Buckingham and Ashley Goodall, who redesigned Deloitte’s performance management system, in Harvard Business Review.

Too subjective

The biggest problem with annual performance reviews is a lack of objectivity – even among well meaning managers. A strong body of research shows that all forms of unconscious bias can creep in, and that when people assess other people’s skills, they tend to do so inconsistently. In one large study of almost 5,000 managers, 62% of the variance in the ratings could be accounted for by the individual raters’ tendencies. The ratee’s actual performance accounted for only 21% of the variance. Put in other words, the review is 3x more reflective of the boss than the employee. “We have to be careful [because] sometimes we get reviews, and [they’re] just the projection of our leaders,” author and psychotherapist Farah Harris told CNBC’s Make It. “They’ll claim it’s feedback when it’s really just them projecting on you.”

Too hierarchical

Traditional performance reviews tend to reinforce existing power structures. The manager talks, the employee listens. Liz Ryan, Founder and CEO of Human Workplace, says this dynamic “completely disrupts the healthy relationship between a manager and a team member who otherwise work as a team.”

In light of these flaws, forward-thinking companies are now embracing various techniques to make reviews more frequent, fair, and productive. Let’s take a look at how you can make your performance process more effective and appealing, fueling significant improvements in employee engagement, performance ratings, and retention.

3. Deloitte transformation shows path forward: 6 principles to improve performance reviews

When Deloitte revamped its performance management system, it calculated that they spent almost 2 million hours a year on its old process – with little to show for it. After years of research and pilots, they decided to ditch the singular, retrospective review (annual 360 with ratings) and replace it with a future-focused process: a series of regular, informal conversations about performance and development between managers and employees. A growing body of research shows this to be a method that allows a culture of emotional intelligence to thrive.

Here are 6 principles of a modern, continuous management system, based on the Deloitte case study and other research:

1. Check in more often. Frequent check-ins allow for more valuable, immediate feedback. Plus, they remove the high stakes and anxiety of annual reviews, and replace them with an opportunity for managers and employees to connect more frequently and informally. Deloitte found the ideal frequency of check-in’s to be weekly. “These brief conversations allow leaders to set expectations for the upcoming week, review priorities, comment on recent work, and provide course correction, coaching, or important new information,” write Deloitte’s Buckingham and Goodall in Harvard Business Review. “The conversations provide clarity regarding what is expected of each team member and why, what great work looks like, and how each can do his or her best work in the upcoming days—in other words, exactly the trinity of purpose, expectations, and strengths that characterizes our best teams.”

2. Teach your managers coaching skills. The value of 1:1 meetings will ultimately depend on the managers’ ability to support the employee to grow and develop. Though managers often default to giving directives, it is increasingly crucial that they develop EQ coaching skills, such as empathetic listening and asking good questions. Research shows that a coaching style focused on open-ended inquiry draws out richer dialogue and reflection from employees. This not only builds awareness and self-confidence, but also strengthens the relationship, a key driver of employee engagement.

3. Make it a 2-way conversation. I’ll never forget the first time a manager asked me in a 1:1, “What can I do better as your manager?” It sets an entirely different tone for the conversation, when we’re helping each other grow. That builds loyalty and trust.

4. Measure what measures.Emotional intelligence has been found to be strongly correlated with an employee’s engagement – and for managers with their supervisee’s engagement. Intentionally growing and developing these skills makes continuous performance reviews more effective.

5. Compare to your past self, not your coworkers.Research has found that employees who are compared to their own past performance in performance reviews perceive those reviews to be more accurate and fair than those who are compared to coworkers. And the finding heldindependent of the favorability of the evaluations: even when the evaluations were positive, employees perceived the process of their performance evaluations to be fairer when they received temporal comparison evaluations (“You did better than before”) rather than social comparison evaluations (“You did better than other people”).

6. Leave space for genuine dialogue. The ratings and rankings of traditional performance review systems do not leave space for the messiness of real human experience. While data is essential for performance review, so is open text response. Buckingham and Goodall said that’s the biggest change they made at Deloitte: “First and foremost, this system is analog. It’s about conversations. That may have been the biggest leap we took in reinventing our performance management system. We’ve learned that words can be as powerful as numbers; that data only tells part of the story. We need to let our people, their managers, and their counselors tell the rest.”

While the system or process of continuous performance review over annual review has many benefits, the success will still depend on the manager’s and employee’s emotional skills. If you want to measure and improve those skills, let me know!