The Top 5 Problems With Annual Reviews (and How to Fix Them)

the top five problems with annual reviews and how to fix them

It is said that a company’s people are its greatest asset. Developing and nurturing a motivated workforce is one of the single most important things any organization can do to secure and maintain competitive advantage, but by and large most organizations do a very poor job at it. So poor, in fact, that Gallup found that nearly nine out of ten employees aren’t engaged at work. There are many reasons contributing to this, but a primary offender is the outdated performance management processes and technologies enterprises still rely on to manage and develop their workforce.

At Betterworks we recently surveyed nearly 800 professionals in enterprises with 500+ employees from both HR and people management roles to find out what is (and isn’t) working with their performance management programs. And the struggle remains, as a majority are still depending on annual (or less frequent) review cycles that do more harm than good when it comes to actually improving performance.

What’s Wrong with Annual Performance Reviews

The HR professionals surveyed identified the top 5 problems with annual reviews:

1. They Cause Stress and Anxiety for Managers and Employees

If crucial conversations between managers and employees are happening only annually, they are a source of stress for both parties rather than positively impacting performance and development.

2. They’re Too Subjective  

HR teams are aware of the many biases — recency, halo-effect and leniency and others — which negatively impact the quality of the assessment and any feedback provided. And when employees perceive this bias within the feedback, they are more likely to not find it useful.

3. They’re Too Infrequent

HR professionals agreed that providing feedback just once a year did not allow employees the opportunity to course correct and actually improve performance when it would make the most difference.

4. They’re Failing to Improve Employee Performance

One primary goal of performance management practices is to improve performance to help employees meet today’s goals and develop their skills to be ready for tomorrow’s challenges, but annual reviews aren’t effective for this. In fact, Gallup data says that just  26% of employees strongly agree that the feedback they receive truly helps them improve at work.

5. They’re Failing to Provide Quality Feedback

Related to #3 and #4 above, if the feedback isn’t timely or if it isn’t actionable for the employee, it’s not going to help improve performance. Managers providing timely, actionable feedback is a critical part of an effective performance management system.

In a nutshell, everyone – HR and managers alike –  is aware annual reviews are a fundamentally broken process that is irrelevant to and ineffective for the modern workforce. It is because the entire premise of annual reviews is based on holding people accountable for past behavior, at the expense of improving current performance and grooming talent for the future. Despite this, many businesses still cling to them, because they are struggling with how implement a better performance management process.

The Solution? Make Performance Management Continuous.

Identifying, developing, engaging and retaining talent are business-critical objectives for every organization’s long-term survival. In today’s fast-paced business environment, setting goals and talking about employee performance once a year just isn’t enough to ensure that your workforce is agile, aligned and motivated. Motivation is not a once a year event; it must be fed continuously through regular and ongoing conversations between managers and employees that focus on goal alignment, coaching and feedback around performance, development of skills, and recognition of accomplishments.

Our survey found that when performance-related conversations occur more often than annually,  HR pros reported fewer challenges with:

  • Reviews being too subjective — reduced by 34%
  • Reviews failing to improve performance — reduced by 32%
  • Managers not providing quality feedback — reduced by 39%
  • Review process doesn’t help retain top talent — reduced by 27%

When it comes to making your first move toward a Continuous Performance Management process, a great place to start is by requiring conversations around goal setting and management on at least a quarterly basis. Too often, goals tend to be an exercise in “set and forget.” Organizational priorities and objectives change, and ensuring your managers are having alignment conversations at least quarterly helps your organization stay agile and keeps employees focused on what matters most.

Secondly, it’s important to recognize that employee motivation is tied to a future outlook. It’s critical to coach managers to focus performance-related conversations on future growth and development, rather than looking backwards at quotas and deadlines. For many employees and managers, the entire concept of both giving and receiving feedback remains a fundamentally uncomfortable one. But when HR is able to help managers shift the focus of performance conversations to development, both managers and employees approach these conversations with less tension and anxiety and are far more open to the feedback. Employees become motivated, when they recognize that their employers are invested in their growth, not just what they can get out of them.

Finally, it’s important to consider adopting tools and technology to facilitate this process, as Continuous Performance Management is inherently complex. Our survey showed that just 41% are using technology to help with performance management today so it wasn’t a surprise to see that 90% of HR respondents identified their biggest challenge with the current process was “running after everyone” to ensure completion.

Operationalizing a continuous processes requires the support of technology, not only to ensure the right conversations are happening but also to capture the critical workforce insights businesses need for strategic planning. Among other things, these insights can shine a light on progress toward top corporate priorities, help identify and reward outstanding talent, build a leadership pipeline, and inform cross-functional team creation and development.

Transitioning away from annual reviews won’t happen overnight. Every company is unique, and updating the processes and technology organizations use to manage and measure performance must be done in a way that meets businesses where they are. The good news is that the effort to make the shift pays off big for businesses — according to McKinsey organizations that have an effective performance management system in place are three times as likely to outperform the competition.

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Deborah Holstein

Deborah Holstein is the Chief Marketing Officer at Betterworks, and brings with her more than 15 years experience in marketing leadership roles at companies including Yahoo and Cisco. Deborah holds an M.B.A from New York University in Marketing and Statistics and a B.S. in business from Georgetown University.


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