So What Kind of Performance Review Do You Want, Anyway?

Everybody hated the annual review. Now everybody hates the alternative. What’s left?
Photographer: Henrik Sorensen/Getty Images

The performance review has been under construction for the past few years. Many companies, from Adobe Systems Inc. to Goldman Sachs Group Inc., have ditched much-hated annual rankings in exchange for mushier, more constant feedback. Dozens of online performance review programs are helping companies "fix" the process. And when those don't suffice, such organizations as General Electric Co. create home-brewed systems. 

But this never-ending, ambiguous performance review is as messy and confusing as ever. And employees and managers alike hate it. 

"It's been kind of rough," said Jake Tully, the head of the creative team at TruckDrivingJobs.com, a Los Angeles-based job and resource board for the trucking industry. Last year his company started using ReviewSnap, one of the many online performance review systems, for its annual reviews. It works fine for the sales team, he said, but not for him and his co-workers, whose job performance is harder to quantify. When review time rolls around, Tully opts out of ReviewSnap.

"I find myself defaulting back to pen and paper," he said.

Fewer than half of 31,000 employees surveyed by Willis Towers Watson this year said that reviews help improve performance or that there's a logical link to reviews and pay. Just about half said their performance was accurately evaluated. Managers don't like the process any more than employees. They find it time-consuming and ineffective in boosting performance and say it doesn't correlate to business results, research from CEB has found.  

"A lot of it is futile," said Kyle Vaughan, a senior analyst at Mercer, a consulting firm. Mercer uses a more traditional, 1-to-5 ranking system for its performance reviews. Employees do self-evaluations online and then meet with managers. Vaughan likens the process to an annual pat on the back and says he doesn't get much advice on how to do better next year.

"People are hesitant to be honest," he said. "You might work with people you really like, and you're looking out for their best interest. You're afraid of them not getting a bonus or compensation increase." Indeed, rating inflation is occurring across organizations, and companies still give bonuses to employees rated as having "failed to meet expectations." 

Many companies have overhauled the review process by getting rid of numerical rankings like Mercer's because of these problems. Around 6 percent of Fortune 500 companies had ditched ratings as of 2015. Many more, such as Goldman Sachs, Morgan Stanley, and Kimberly-Clark, have since followed. The annual review has been replaced by more frequent check-ins, which can range from a twice-a-year ritual to everyday feedback. 

While employees appreciate more regular conversations with managers, companies that have forgone the rating aspect of reviews have seen declines in worker performance, according to research from CEB. 

"What we're seeing is a bit of buyer's remorse," said Ravin Jesuthasan, a managing director at Willis Towers Watson. "There are a lot of unintended consequences, such as companies struggling to make pay for performance work because they eliminated ratings." In some cases, even without official ratings, managers use "shadow rankings" to rank employees effectively and compensate them based on those informal conversations. Without transparency, there's a lot more room for bias in compensation and bonuses.

The old-school review systems may have been rigid, but their replacements are confusing, often asking too much of employees. In an attempt to differentiate, online performance review platforms have added so many bells and whistles that people don't want to use them. 

One of many companies, for example, offers a "custom-built platform that not only serves as a fun way for employees to recognize each other with badges throughout the year in a Facebook feed style, but it also keeps track of all the ways you've been recognized for your manager to see. It also allows for a 360 peer-to-peer review to be completed online in a quick and easy way at the end of the year." That is a lot. Performance reviews shouldn't take up more time and mental energy than one's actual job.

We Are Mammoth, a Chicago digital product design company, had trouble getting employees to use these platforms. The user interface was "abhorrent," said Craig Bryant, the chief executive officer, of one of two programs the company tried. The company eventually built its own system, Kin, which "doesn't load anyone down with too much and too many features," Bryant said. 

Most companies will never give up the performance review altogether. It's baked into compensation. And, as much as people dread the annual review, employees would struggle without any semi-regular indication of how they're doing. 

So what might work? Ratings.

"We actually think ratings play an important role. It's a transparent mechanism to link pay to performance," said Jesuthasan. He also suggests that employers look at what is and isn't working and make small tweaks. "Let's not blow the whole thing up," he said. 

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