Why Companies Still Use Annual Performance Reviews That Don’t Work
Is that a bear chasing you, or is it time for your annual performance review? Your body might not be able to tell the difference — both trigger a fight-or-flight response.
While not as immediately dangerous as an ursine attack, almost everyone lives in fear of their annual performance review. A recent Gallup survey found that only two out of 10 employees say their employer manages their performance in a way that actually motivates them to do good work. Even the people running the show know it’s a sham: 2% of Fortune 500 chief human resources officers believe their performance management systems inspire improvement.
So why, exactly, do we insist on the once-a-year rigmarole?
The underlying idea is sound. Feedback is important in the workplace. Nobody wants employees guessing willy-nilly how to do their jobs. But annual performance reviews are an imperfect vehicle. They dredge up events far in the rearview mirror or leave out key areas of growth. They produce anxiety for workers, and even a glowing write-up often leads to a minuscule raise, if any. They create busywork for middle managers. We know what works better — frequent, regular, human attention — but companies continue to rely on them because they’re the path of least resistance.
“Nobody’s held accountable for anything about their performance appraisals except just doing them,” says Peter Cappelli, a professor of management at The Wharton School.
We bundle judgment, coaching, compensation, promotion, and development into one dreaded ritual that doesn’t sufficiently accomplish any of those goals.
Performance reviews weren’t born in the working world — they originated in the military during World War I, where they were used to help determine promotions. The practice migrated into the corporate realm as major companies grew and people began to stay in one place for a lifetime. Various trends in annual reviews have come and gone — sometimes, they’ve been more punitive, other times, more development-focused. This fungibility helps explain why they’ve persisted for so long — and why no one’s in agreement about what they’re meant to accomplish.
People got sick of it, and they got sick of it because the companies didn’t really take it seriously.
In the 1980s, they took a harsher turn, and the idea of improvement faded as more ruthless business practices took hold. Jack Welch at General Electric famously used a “rank and yank” system, where those in the bottom 10% were shown the door. In the 2000s, reviews morphed into more of an incentive exercise, offering employees a promotion- or raise-shaped carrot at the end of the year. In the 2010s, some companies finally started to look around and wonder what the point of all of this was. Big-name firms such as Microsoft, Deloitte, and Adobe said goodbye to their harsher, more rigid schemes and hello to continuous feedback models. An estimated one-third of US companies abandoned traditional reviews by the middle of the decade.
“People got sick of it, and they got sick of it because the companies didn’t really take it seriously,” Cappelli says. “It was just a kind of kabuki exercise, right?”
The momentum, however, didn’t last. The pandemic caused such upheaval that many firms scrapped their kinder, gentler method of continual evaluation in favor of the old-school, once-a-year model. Microsoft, for example, has returned to a more cutthroat approach.
“We’re back to kabuki theater, I think, in most companies,” Cappelli says.
If this arrangement were highly effective, that would be one thing, but it’s not: Research shows that one-third of traditional feedback mechanisms worsen performance.
“If that were a drug, you would think that the FDA would put a warning label on it: ‘It may harm performance in one of three patients,'” says Anthony Belluccia, senior product scientist at the Predictive Index, a talent optimization platform. “So we prescribe it annually anyway.”
The issues are baked into the stringent format. Performance reviews tend to be backward-looking, about events and accomplishments months in the past that employees and managers may not even remember. Even when they are more future-facing, it’s pretty easy to lose focus on those goals from January to December, especially as corporate initiatives and objectives shift. Middle managers, who are supposed to be the ones tracking this progress and filling out the paperwork, are increasingly stretched, and dedicated time for employee training has declined. That means the people giving the feedback aren’t equipped or don’t have the time to do it, and the people who are supposed to receive the feedback aren’t getting support in doing their jobs.
People get better when you give them help.
Ashley Goodall, an advisor, author, and former HR executive who helped overhaul employee-development systems at Deloitte and Cisco, tells me that the problem with typical reviews is that they try to answer two questions in the same way: How are people doing? And how can we help people do better?
“Those of us who are in the trenches are very interested in, ‘How do I get better?’ And leaders don’t seem to have realized that people don’t get better when you give them a score,” he says. “People get better when you give them help.”
Goodall says a lot can be accomplished through regular check-ins where managers ask people what their priorities are and what they need to do better. “Until you trust people want to get better, it’s very hard to let go of this stuff,” he says. He suggests workers and supervisors huddle at a weekly cadence, though engagement improves every other week, too. Move it to monthly, and he says engagement often goes down.
“You’re taking away a sort of fairly static system of judgment and scoring and replacing it with a dynamic system of attention and support. And people really like that,” Goodall says. “And the more of it they get, the better they respond.”
Full disclosure: At Business Insider, we’re doing annual reviews at the moment, and I wrote this story on the day I had mine. (To be clear, I pitched this ahead of time, after a conversation with a source.) My review was fine. Still, I walked into it with my stomach in knots, and I generally get a lot more out of weekly meetings with my editor.
Some companies are getting creative with alternative strategies.
Helen Russell, who’s worked in HR at companies such as Yahoo, Atlassian, and Rivian, acknowledges that, to some extent, companies will never get it right when it comes to managing performance and giving feedback. “You’re trying to look for ways that can hit that sweet spot in the middle that tries to satisfy the masses, because you’re going to piss off the edges,” she says.
From her current perch as chief people officer at HubSpot, a customer platform, she and her team have traded annual judgment day for more frequent conversations. They’ve shifted to quarterly check-ins to better align with how quickly the company itself is evolving in the age of AI.
“We’ve been in a lot of test-and-learn mode, a lot of iteration,” she says.
Quarterly reviews help address the memory problem, and HubSpot is also using AI to make the process less tedious. It has an internal “employee impact explorer” that pulls together employees’ calls, Slack messages, documents, and calendars to provide a snapshot of their activities. Employees can edit it before submitting it to their managers, whose job it is to “react” to it, “not to write ‘War and Peace’ in response,” Russell says. “I don’t want to make this about the write-up. It’s about the conversation.”
e.l.f. Beauty has taken a more radical approach — they don’t do traditional performance reviews at all. Instead, they employ a “high-performance teamwork” framework with three key tenets, one of which is “healthy conflict.” Workers are encouraged and expected to challenge each other with real, pinpointed feedback in the moment, explains Scott Milsten, senior vice president, general counsel, and chief people officer at e.l.f., in the name of delivering “superior” business results.
Most people aren’t immediately at ease having these types of tough conversations regularly, so e.l.f. helps them acclimate. The cosmetics company facilitates teamwork sessions and provides coaches to train leaders and employees on the culture they’re trying to foster. “We’re just trying to build that muscle with teams and put them in settings where that is a comfortable thing to do with a good intent,” Milsten says.
Of course, decisions on promotions and compensation still have to be made, and e.l.f. management makes those calls twice a year. But that’s cordoned off from quotidian feedback-related interactions. “I think what we are averse to is the waiting for all that news,” Milsten says.
It may also be beneficial to separate feedback from money on the table, which tends to elicit a highly emotional response. It’s not just “Am I doing a good job and does my company value me?” It’s “Can I afford to put food on the table and keep up with inflation?”
“When people think that the consequence of this innocuous conversation could actually translate into something that affects my wallet, it has a far more significant element to it than just the conversation,” Russell says.
The irony is that as companies are coming around on the importance of human interaction, AI is making it easier than ever to take real, live people out of the equation.
Employees can dump whatever data into a chatbot to generate their self-review at the end of the year, managers can use a chatbot to put together their evaluations, and then the robots get together to confer about who said what to produce a final write-up without a person taking ownership of the process. While AI may shorten the process of producing reviews, it may make the reviews themselves longer, disincentivizing anyone from reading them.
“AI is creating a generation of copy-paste performance appraisers,” Belluccia says.
Feedback isn’t received with the ears, it’s received with the nervous system.
Goodall says that AI can be a decent coach in helping employees figure out how to do certain tasks, especially if they’ve got a grasp on the basics (though it’s known to cut corners and make stuff up). Still, it’s not a sufficient replacement for interpersonal support.
“We’re going to automate the wrong thing,” Goodall says.
Russell from HubSpot says they’ve implemented an AI agent named Pascal that shares feedback with employees after every meeting. It’s meant as a coaching tool, to tell people how they can do better and get them used to feedback as a “constant ubiquitous thing,” she says. One might wonder whether some employees find it grating to have a chatbot constantly telling them what they did wrong. At what point is the AI so impersonal that it’s pointless?
No one really knows how to handle the “how-am-I-doing-at-work” conversation perfectly. Most managers didn’t exactly sign up to be the arbiters of a corporate ranking system they had no hand in creating. The pool for raises often isn’t large enough to make excelling seem enticing to employees. Layoffs can be random or decided by factors beyond individual performance, so succeeding at work may ultimately mean failing anyway. Some level of unease around criticism and commentary on the job is inevitable.
“Feedback isn’t received with the ears, it’s received with the nervous system,” Belluccia says.
Annual reviews probably are not going anywhere anytime soon. It’s an old system that’s easy to administer. We know that consistent dialogue and support make life easier for everyone, and the more commonplace these types of interactions become, the less we have to feel like we’re having that annual encounter with that big, scary bear.
Emily Stewart is a senior correspondent at Business Insider, writing about business and the economy.
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