Why Fortune 500 Companies are Redesigning Their Performance Reviews

By PeopleFirst on December 10, 2019

...And 3 Key Factors That Make All The Difference

Performance reviews seem straightforward enough. Traditionally an annual affair, sometimes made more frequent on a half-year or quarterly basis, managers assess which employees deserve a promotion and which employees are not contributing. By rewarding the top percentile and firing the low performers, managers believe the process would motivate the rest in the middle. But does it work?

Not according to companies like Microsoft, IBM, Dell, Accenture and Adobe. They have been leading the charge to abolish or overhaul their own performance review systems. On top of that, 70% of multinational companies have taken the hint and are reconsidering how they track and review the performances of their employees.


What is Wrong With Performance Reviews?

Most performance reviews adopts a stack ranking system, in the footsteps of GE’s system in the 1980s. It splits a company based on the top percentile of high performing employees (20%), the masses in the middle (70%) and the ‘non-producers’ at the lower end (10%). The top performers are rewarded with bonuses and promotions while the low performers are demoted or fired. But what if more than 20% of employees are doing a good job? Also, does it mean there will always be ‘losers’ at the end of every exercise?

The stack ranking system has been described by organizational behaviour expert David A. Thomas as companies “playing their version of ‘Survivor’’. While it creates a competitive environment, the competition might not be a healthy one for the workplace. This system has been criticised for dampening morale leading to unmotivated and disengaged employees.

And employees are not the only ones negatively affected. Research revealed that annual performance reviews required 80,000 hours of time from 2000 managers, which equals the full-time work of 40 employees! Managers often see performance reviews more as a chore rather than an enabler. The amount of time taken to review the team’s performance can disrupt the momentum of their day-to-day work leading to managers who do not take the exercise seriously. They often find the simplest way to get the task out of the way leading to unhelpful and inaccurate reports.

Beyond demoralized employees and frustrated managers, the worst news of all is that at the end of the day, the entire process might not even be effective one. In fact, a study by Adobe found that 59% of employees feel that performance reviews did not impact how they do their job. So perhaps it's not so surprising to see many companies review the performance review systems they have, many of which developed in the 80s and 90s.

But if you too are thinking of designing or redesigning the performance review process at your company, where do you start?


3 Factors to a Performance Reviews That Work

1. Have a Shared Purpose

What are the goals of your performance review? Is it to monitor the general career progression of employees? To identify candidates for leadership development? To track a team’s progress on a specific project? Whether you are asking the right questions depends at the end of the day on what you are trying to find out.

One way to identify the goal of performance reviews would be to start with the employees themselves. Be it through a goal-setting exercise or a survey, if employees are involved in shaping the performance review, they would engage with it more actively.

If you are redesigning your company’s performance review instead of building one from scratch, the good news is that there is already a lot you can learn from the employees. Some questions to ask in a survey that would shed light on the current system would be:

  • How accurate do you find your performance review results?
  • Does your current results help you do your work better?
  • What do you want to see in a performance review report?

2. Shorten Durations

The average manager spends up to 210 hours per year completing performance reviews. This is especially so for reports on an annual basis as it is often too time-consuming to sum up an employee’s performance for an entire year.

An alternative to the annual review is to have regular check-ins instead. This could happen every fortnight or even on a weekly basis. With a higher frequency of check-ins, conversations could be kept brief and specific. In this way tough conversations can be had whenever an issue first arises, instead of allowing it to snowball into a much larger problem by the time the annual performance review rolls around.

Taking this concept one step further, is the idea of ‘real-time’ check-ins where online platforms or services allow employees to request for feedback or managers to provide feedback at any point necessary, creating a more fluid and continuous process.


3. A Variety of Interactions

With a 360 performance review system, it is easier than ever for managers to sit behind a screen and monitor how the company is doing through statistics and graphs. While big data brings a lot to the table, one should not neglect the power of 1-1 face time as well.

When scheduling for meeting in a 1-1 setting, it creates an opportunity for feedback to be two-way so that the employee will be able to share their thoughts on how the management can improve. This builds rapport and recognition amongst employees and allows the manager to gather insights that cannot be otherwise gathered through management tools. 

A mix of both will give the manager a healthy overall picture of how each employee is doing. Performance management platforms can provide the real-time statistically driven side of the picture while individual meetings can take place on a scheduled interval to create rapport and draw insights on a more human level. 


Key Takeaways

Ultimately, many companies are moving away from the annual performance review as it creates unhealthy competition, drains time and resources from managers and employees and after all that effort, still might not even be effective or accurate.

Instead, performance review should be a more continuous process as everyone is a work in progress. Tie the process to a goal that matters for both employees and managers, and include a mix of both digital and human touch to create a flexible and meaningful system that provides clarity for the company.


Build a proper feedback culture with our guide to performance management.

Tags: Performance Management