Is the annual performance review extinct?

The end of the annual performance review  

There are few words, even in the unpopular realm of business-speak, held in less regard than 'annual performance review'.  

There are numerous reasons as to why this particular grouping of words is shunned throughout the business world, but most of them stem from their ineffectiveness.  Bluntly put, as a tool, annual performance reviews are as blunt as this statement.

Annual performance review

Don't just take my word for it.  Great minds online and off have decried the use of performance reviews and the facts and figures have their back.

One of the clues to the ineffectiveness of the performance review can be found in the name.

Firstly, it's a performance in every sense.  The subject knows it's coming and if one were to be cynical they could spend 11 months winging it, only to pull up the stick at the last minute in a bid to show everyone how capable a pilot they are.

Secondly, it's a review.  If the idea is to improve one's performance then surely it's a good idea to watch that performance in action.  The words, horse-door-stable-bolted... do tend to come to mind.

In a study carried out by Adobe, the company discovered that its annual performance review always prompted a mass staff exodus.  In researching the procedure, the company found out that many of the staff described the annual reviews with terms like 'soul-crushing' and 'demotivating'.

Why are annual performance reviews so ineffective?

The core idea of the performance review is to judge everyone equally and that's perhaps the biggest flaw in the process.  We are not the same.  No two people, no matter how alike, are the same.  No two routes, regardless of how close in distance or geography are the same.  It is, therefore, unreasonable to treat everyone in the same manner.

Secondly, another core principle of a performance review is the scoring itself.  The original intention of the performance review was the idea that they should demonstrate our ability to improve. 

Equality versus equity

It is, after all, always possible to improve.  The problem here lies in the numbers.  On a score from one to five, 'could do better' almost always sits around two or three.  Subsequently, it is very hard to score four or higher. 

I recall a colleague of mine lamenting their performance review over a bottle of wine in the local.  The previous quarter they had seen their company through a turbulent takeover, improved staff retention by 25% and increased turnover by 10%.  Their performance review acknowledged this, but anxious not to set a precedent their boss also noted that there was room for improvement.

My friend left the room with threes across the board and a desire to find a position elsewhere, perhaps one where outstanding performance doesn't go unnoticed.

Thirdly, a danger of the performance review is that it can be weaponised.  Offices, workspaces, companies and our entire business lives can be stressful.  We can't and won't get on with everyone.  It is not uncommon then, to find yourself on the receiving end of a performance review stitch-up.  It shouldn't happen, but it does.  Too often, office conflict is made political via official channels.  If you're not careful, you could find yourself with some permanent red marks.

And finally, although I really could go on, an annual performance robs us of the opportunity to shine and conversely can cover our tracks in the event of a nosedive.  You can argue that an annual performance review may pick up on your stellar performance last October.  That time when you single-handedly saved the building and turned the organisation around, but you'd have to argue. 

In the same breath, there's a good chance you might escape criticism for June's woeful performance.  Either way, if these events feature at all, they will be blips at best.  Teeny peaks on an annual graph and instead you'll be judged on your performance overall.  This is a poor metric because anyone of us could land the plane, but to do so in the face of catastrophic adversity without the slimmest hope of recognition is unfair in the extreme, and don't get me started on plane crashes.

Much ado about nothing

As performance reviews are universally hated and don't appear to do any good, why have them?  What should we be doing instead?

Good questions and ones that thankfully come with some equally good answers.

First, let's discuss why old habits, even bad ones die hard with a vengeance.  The higher we go up the ladder, the less we know about the path ahead. There are fewer CEOs than there are boots on the ground and at the same time, there is less in terms of guidance. 

Annual performance review cartoon

Everyone's read, and presumably ignored, the staff handbook but when it comes to leadership usually there isn't even a manual to ignore.  In short, because of the lack of guidance for those in the higher positions, there tends to be a 'don't rock the boat attitude.'  This is, of course, the wrong way to look at leadership and it appears that this is one of the factors which separates the bold and innovative leaders from the rest of the field.  After all, you won't get to Mars or become the first company with a billion dollar turnover by doing what everyone else does.  More and more it appears, Fortune 500 favours the brave.

An alternative performance

After tearing up the rulebook, hymn sheet and staff handbook, what next?  What can we do to replace the worn tread of the performance review?


As mentioned above, one of the biggest issues with the dreaded review is the fact it deals with the past.  In a world as fast as ours, one in which an entire Hollywood blockbuster can be downloaded in under 30 seconds, you'd think we'd be able to handle issues in real-time.

Coaching is an eternally underrated strategy.  Over and over, successful companies and successful people use coaching to positively affect the day to day behaviours of themselves and those around them.  It’s coaching that gives employees the feedback loop they need in order to continuously improve.

Coaching takes place in the here and now where decisions actually matter and where we can make a difference.  In our super-fast world there's no place for the smugness of hindsight.  Coaching offers employer and employee the opportunity to look at, and deal with, issues in real-time as they arise.  After all, the best way to 'do it better next time', is to see the hurdle coming and take steps to jump it.

Real-time reviews

By removing the tired annual element of the review, we can take away it's rotten fangs and instead upgrade the whole maw with a set of razor-sharp gnashers.  By allowing our performance to be monitored in real-time, we are not only removing the danger of foul play, but also the chance that our good deeds will go unnoticed. 

As I said above such blips and beeps are usually just that, long forgotten ripples in our performance stream.  With a real-time review there's no way to escape the highest peaks and yet there is a chance to avoid the deepest troughs. 

Thanks to the nature of time, a real-time review alerts those in danger to the pitfalls ahead thus affording them the opportunity to seek help when they need it.  Even if the worst does happen, everyone can not only take a share of the blame, but the incident can be turned into a learning experience while it's still fresh in everyone's mind.  Looking back at an incident which occurred ten months ago, by contrast, is like reopening a cold case.

Google it

You don't have to build a jet pack if your tyres are worn.  Google, arguably one of the most innovative companies on the planet, recognised that its performance reviews weren't working, but it knew it didn't need to reinvent the wheel.  Instead, the company took a good look at its performance review system and tried to work out what it could do to fix it.

Google came up with a number of new ideas, acronyms and ways of operating, but looking at the solutions it came up with presents an interesting suggestion as to where it saw the key issues.

Google Performance Reviews

The first key fix Google enacted was to change who provides the reviews.  Instead of, as is usual practice in business, allowing the subject's immediate senior to conduct the review, Google opted to make performance reviews a communal affair. 

In addition, this committee always includes someone junior to the subject.  Further, after the review is completed the report is then looked over by a second committee of unrelated managers.  We can only assume, but it does look a lot like Google was trying to de-weaponise at least part of the performance review, and Google employees do report that they feel more valued and less bullied than most.

The second key difference, and it's worth mentioning that there a good number of different and unique elements to Google's performance review policy, is that there are two distinct reviews.  The first is a personal review.  This is an opportunity for Google employees to measure their accomplishments versus the benchmarks and goals they themselves set.  The next review, which takes place much later, is a pay review.  It's at this stage the employees can make a case for that coveted raise.

This 'separation of powers', achieves two things.  Firstly, it allows the individual to be assessed on more than monetary terms and secondly, it allows anyone who may be struggling to do something about it before their inaction hits them in the pocket.  Google is known for understanding its workforce’s mentality and what motivates each individual within it. You can be sure then that the changes they have made to their performance reviews reflect those criteria.

Getting radical

Should we remove them altogether by rethinking the entire company structure?

As Pete Postlethwaite so eloquently puts it in the movie, The Usual Suspects. “One cannot be betrayed if one has no people.”

In the fibre optic quick world we live in, the real innovators don't think in annual terms.  There is no place for an annual goal when you need to be ready to respond to what's happening that afternoon or next week.  With that in mind, many of the newer shakers on the scene have shelved performance reviews completely by shelving a traditional workforce. 

Fast paced companies operating in volatile and disruptive markets now look to the gig economy instead of the HR department to source their talent.  Since neither owes the other any loyalty there's no need, nor time, for such traditions as the annual performance review. 

It's not for everyone, but if staffing your organisation solely with freelancers is an option, then you don't need to worry about performance reviews at all.  With temporary staff, there are no surprises.  Hire who you need, when you need them and for as long as you need them.  Since you owe them nothing beyond their casual commitment, there's no need to get sentimental and no need to sit down one on one to see how things are progressing. 

The gig economy is one great game of musical chairs and you get to decide when it's time to dance.   It might seem like a big leap, but more and more companies are opting out of the 9to5 and taking their place in the wilderness.  With a freelance workforce, you need only concern yourselves about the project ahead.  There's no illusionary ladder to the board room and if in a month, two or ten, you want to move on to the next project, then that's a new conversation.  If not, you need only put the needle on the record again or get out of your seat.

In conclusion

We know performance reviews don't help anyone.  They are maypoles in the time of Zumba.  Whichever model, mode or radical step you or your company find yourselves taking is your choice, but it's a choice I urge you to make.  

Soon, annual reviews will have finally become extinct as companies actively choose to invest their energies into developing more meaningful relationships with employees.  Leaders will focus more on motivating their teams to work together, not compete with one another, so they can collaborate to get things done.  It may take a while before the performance review is consigned to history, but changing the way we provide feedback to each other - through open real-time communication - is something we shouldn't allow our companies to put off until another day.  

The business graveyard is vast and littered with the graves of organisations who stuck to their ways, their methods and their traditions.

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About the Author

ALAN is CEO of CD as well as a qualified executive coach and a seasoned business mentor. He challenges progressive business people to step-up & realise their vision.

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