The Formal Performance Review is here to stay

By Natanya Rutstein

The “supposed” demise of the annual or bi-annual performance review began to gain momentum in 2012 with Adobe discarding their formal rating system and replacing it with a process of continuous feedback and improvement they called ”Check-ins”. By 2015 Deloitte, GE and Accenture had followed suit, each replacing their formal review and ranking process with their own version of frequent feedback and regular conversations.

Fast forward to 2019 and the annual performance review is far from dead!

A 2017 WorldatWork study found that 91% of American companies were still conducting annual performance reviews. This despite the fact that a Gallup survey found that only 14% of employees strongly agree their performance reviews inspire them to improve. Most organisations are therefore still planning changes to their performance management process to engage and motivate their employees to a greater extent.

However, getting rid of formal reviews and ratings may not be the panacea to performance improvement that many thought it might be. A 2018 performance management study by Gartner found that when ratings were removed, employee performance dropped. This was largely attributed to the fact that without the structure and comparative value of a formal rating system, managers struggled to make and communicate performance and pay decisions. This led to a decline in employee engagement and intent to stay.    

According to the study, the elimination of ratings led to four unintended outcomes:

  1. Managers found it difficult to substantiate their pay decisions and how they were related to an employee’s individual contribution.
  2. The quality of performance conversations declined as managers found it difficult to explain past performance and how to improve future performance.
  3. The time saved by eliminating formal performance conversations and ratings was not used to increase the time for informal performance conversations.
  4. Employee engagement dropped because managers could not set clear performance expectations and goals and review performance against these expectations.

Where to from here?

With the performance review here to stay, organisations should instead focus their efforts on improving their current process, understanding what is and what is not working for employees and then implementing these changes as part of a well communicated change management process. In my next blog I will share some best practice tips on how to do this.

Natanya is passionate about creating employee learning experiences which are asynchronous, bite sized and which can be delivered and integrated across multiple technology platforms and devices.
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