Performance reviews used to be the primary way managers communicated performance feedback to their employees. Once a year the manager would call the employee into his office and go over what the employee had done well throughout the year – or more likely, what the employee had done wrong. The problem is that the employee would leave the manager’s office and go back to working exactly like they did before. Nothing changed! Which is why it’s time to replace the performance review. Need more reasons?
1. Performance Reviews Aren’t Effective
Performance reviews rarely lead to change in behavior, either on the part of the manager or the employee. Year after year, most managers give employees the same feedback. And most employees don’t do anything in response. In fact, one study reported as little as one-third of employees showed any kind of improvement after their annual review. That’s likely due to the fact that performance reviews rarely offer actionable steps for employees to take when they are struggling. But that’s simply one of the problems with performance reviews.
2. Performance Reviews Aren’t Reliable
Seventy-seven percent of HR executives believe performance reviews don’t accurately reflect employee contributions, according to CEB research. And CEB’s HR practice leader Rose Mueller-Hanson agrees with those executives. She states, “Our research shows that individual performance ratings have absolutely zero correlation with actual business results.” That means that an excellent employee might get a terrible performance review while a struggling employee might get a good review. At the end of the day, performance reviews can’t be counted on.
3. Performance Reviews Are Time Consuming
A recent CEB survey found that managers spend an average of 210 hours a year in performance management activities. Managers said their employees, in turn, each spend 40 hours a year. Deloitte reported that its approximately 244,000 employees spent more than 2 million hours a year on performance reviews. That’s a lot of time spent on something that is proven to be unreliable and ineffective.
4. Performance Reviews Are Costly
In addition to the time it takes to perform annual reviews, there’s the actual cost. According to information from the CEB, a company with approximately 10,000 employees spends about $35 million on annual reviews each year. Just imagine how much a company like Deloitte must have spent annually. It’s no wonder they – and companies like Adobe, Microsoft, and Expedia – have decided to stop relying on performance reviews.
Given the time and cost of performance reviews, it’s surprising more companies haven’t given them up yet. But if those aren’t enough reasons for you, the new research on just how ineffective and misleading they are should be! It’s time for a better way to evaluate performance. That’s why companies are beginning to turn to new technology that tracks employees’ performance, more frequent meetings, and better overall internal communication methods