Performance Reviews – Really?

I’m shocked by how often I hear friends and colleagues express frustration about annual performance reviews. Given the amount of complaints I’ve heard, it seems that organizations are still investing an inordinate amount of time in an often-unhelpful process. What follows are two ways that organizations get annual meetings wrong, along with some ideas on how to improve the process so you can stop wasting time on these types of reviews.

Problem One – The Laundry List

Some managers use the annual meeting as an opportunity to run through a list of all the things a person has done wrong in the past year. When you think about this from a personal perspective, it’s not difficult to see why this is a problem. Imagine someone sitting down with you and saying something like, “Remember that meeting nine months ago where we were discussing budget? I didn’t like your tone.” Not only will you remember the meeting differently, you will almost certainly feel defensive. As the manager goes through their list of concerns, it will be harder and harder to take it all in, even if the manager attempts to balance the negatives with some praise.

Process improvement

Performance reviews should be continual, not annual. We all need feedback in order to become better at what we do. We require positive feedback that focuses on our strengths, and we also need to know when we have done something that doesn’t work well. However, for any of this feedback to be effective, it should be given as soon as possible so that we can make an immediate correction or reinforcement of the positive behaviour. Timely feedback is effective because it is more likely to be given in a context that we understand and remember.

Problem Two – Linking Performance Reviews to Money

Although many organizations have the best of intentions to be fair, the results of linking raises or bonuses to performance are often damaging. For example, each manager will understand the performance review mechanism differently based on their own perspective. They will also have a unique relationship with each employee, which will affect the way they conduct the evaluation. This human variability makes it nearly impossible for the evaluation results to be consistent among managers and departments. Predictably, those who do not receive a bonus or pay raise will struggle to see the system as fair.

When team members understand that there is a finite pool of money to be awarded, they will almost certainly compete for that limited resource. In an age of increasing complexity, organizations that thrive need collaborative teamwork, not competition among their members.

Process improvements

Link pay to the market and organizational performance. As leaders, let’s acknowledge that pay is linked to market forces with transparency. When we hire someone, we set their pay based on what we see the market dictating for that type of work. Instead of hiring someone and then linking pay raises to their performance, pay them a fair salary to begin with. If the individual becomes more valuable to the company over time, pay them more. However, make sure you base the pay raise on their value to the company rather than the often arbitrary process of ranking their performance against other team members.

We should also reward the group for their collaborative efforts. If you’re giving bonuses, let everyone know that bonuses will be linked to organizational performance – that everyone’s efforts matter in creating a collaborative environment that leads to great results. Then when there is money for raises or bonuses, award it to everyone.

In my own organization, we set aside a time each year to review salaries and our organization’s financial performance. It is during this time that we consider adjustments to pay based on the value of an employee’s skill set to our company, what we can pay, and whether we can afford bonuses. We award bonuses each year that we meet our financial targets. They are based on a percentage of the employee’s salary and their years of service with the organization.

We do have an annual meeting with each employee that we call a Goal Setting Meeting. It’s held several months after the conversation about money, and it follows a pre-set agenda about how their work is going and what their goals are for the coming year (I’ll write more about that in my next blog). We have found de-linking performance and pay to be critical in maintaining the health of our organizational culture, and I encourage you to do the same.

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Eric Stutzman

Chief Executive Officer

Eric is co-author of ACHIEVE’s book, The Culture Question: How to Create a Workplace Where People Like to Work. This book is available on our website.

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