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For Better Performance Management, Ditch the Annual Reviews

Companies have been looking at performance management the wrong way—and it’s costing them.

Nearly all employees and managers dread annual performance reviews, yet they are still one of the most common performance management tools used in organizations. Too often, organizations try to manage performance with an annual review process that does little to motivate employees. And only 14% of employees strongly agree that their performance reviews inspire them to improve. 

An annual performance review without goal setting and development opportunities isn’t effective, and it costs companies dearly. It’s estimated that in organizations of 10,000 people, anywhere from $2.4 million to $35 million a year is lost to working hours spent on performance evaluations that aren’t creating results. Feedback without development opportunities cannot lead to growth.

If you fail to engage employees throughout the year and only discuss performance during an annual review, you’re missing a huge opportunity to develop and empower them. A better alternative is to set personal and overall organizational goals and give people the tools they need to reach—and exceed—them.

In this blog post about effective performance management, we’ll explore: 
  • How annual reviews are failing employees
  • Why a continual feedback cycle is more effective—for everyone
  • How to fix performance management in your company

How Annual Reviews Are Failing Employees

Annual performance reviews have been an accepted tool for performance management for many years. Every year, an employee sits down with a manager or HR rep to hear how they performed last year. And every year, most employees face these meetings with apprehension.

Why do employees hate annual reviews? For one, they often don’t know how they’ve been performing throughout the rest of the year, which is anxiety-provoking. On top of that, the information offered in these reviews highlights how they’ve performed in the past without providing any insight or tools to develop the skills necessary to improve. The process leaves little room for human connection, causing more anxiety and dehumanizing an opportunity that could otherwise lead to growth–82% of employees say it is important their organizations view them as a person. 

Sitting down with employees to discuss their performance once a year weaponizes these reviews and turns them into a negative experience for your staff. And when one in five employees is looking for a new job, keeping people happy is a priority. Letting them work for months without feedback, support, or redirection doesn’t allow them to improve their performance in real time and does a disservice to your employees and your organization

Worse, there’s often nothing built into the process that offers a clear path for any future with the company, much less a successful one. Career pathing shows people the opportunities for growth within the company and is critical to engage and retain talent. If you aren’t having planning discussions with your employees about how they can develop within your company, it’s unlikely they’ll plan to stay. A lack of communication on this front signals to employees that they’re not seen or valued in the company, which sharply decreases their motivation to do well. 

Considering how often companies use annual reviews to create paper trails for constructive dismissal or letting people go, it becomes easy to see why performance reviews can do more harm than good for employee motivation.

Why a Continual Feedback Cycle Is More Effective—For Everyone

There’s a better way to approach performance management in your company, and it helps improve results for both employees and organizations. 

The key is to move from an annual review process to an ongoing feedback cycle in which learning, coaching, and checking in with employees become a routine part of their workday.


How ongoing feedback benefits employees

Creating a positive experience for your staff is vital to higher job satisfaction—and better retention. An ongoing feedback process allows employees to take an active role in goal-setting. 

Research from Gallup has shown when managers provide feedback to employees weekly instead of annually, employees are five times more likely to agree the feedback is meaningful. They’re also more than three times as likely to say they are motivated to do outstanding work and more than twice as likely to be engaged at work.

How continuous feedback delivers results for organizations

There’s a strong business case for shifting to a continuous feedback process in your organization. Adopting forward-looking reviews over standard annual performance reviews can increase employee performance by 13%, which can drive positive results for the company’s performance. 

Creating a stronger link between organizational and individual goal-setting can help you identify opportunities and challenges in your capacity to meet future needs for skills and capabilities. With 40% of employees’ core skills expected to change by 2025, half of all employees will require reskilling in that period. Companies must plan and proactively train their workforce to prepare for these realities.

It’s imperative for organizations to adapt and respond to changes more quickly than the annual review process can provide. Continual feedback can help you prepare for “the rapid pace and changing nature of work” so you stay ready to navigate whatever the future holds.

How to Fix Performance Management in Your Company

Identifying a problem doesn’t help change what’s happening in your workplace, but changing your review process can bring significant benefits. That’s right—It’s time to ditch the annual review and implement continuous feedback. 

Here are four changes you can make to shift your company’s performance management approach to an ongoing, continuous feedback approach.


1. Give ongoing feedback

Connecting with employees during their workday as they learn a new skill or tackle new challenges can help drive better results because the information is timely and on topic. These conversations can then roll into an annual review that will be much more productive and enjoyable for all parties. 

2. Keep reviews forward-looking with goal-setting

While a review of past performance may still be required, it shouldn’t be the focus. Instead, spend more time discussing what the employee would like to accomplish moving forward so you can come up with future goals together. A proactive approach to goal setting also allows you to set larger goals for building skills and capabilities with the company.

3. Provide 360 feedback

Evaluations that help employees understand how others perceive them can be a helpful developmental tool. While traditional performance reviews include feedback from management or HR, comprehensive 360 feedback includes input from all those who work around the employee, including peers, direct reports, and sometimes even customers.

4. Give people the tools they need

Once goals are set, and expectations are laid out, performance management becomes an ongoing function. Providing ongoing development resources that allow your employees to meet their goals and exceed your expectations is how you make the process more meaningful—and help employees succeed.

Single point-in-time performance management isn’t the answer. Instead, focus on delivering continuous feedback that supports your employees’ development. Learn more about our approach to goal setting and performance management.