Does ditching performance reviews backfire on employers?

by L&D11 Jul 2016
Adobe, Accenture, Microsoft, Deloitte, Zappos, Expedia and Dell are just some of the companies around the world who are abandoning performance reviews.

Moreover, just 48% of Australian employees recently said they found their company’s performance review process and the feedback they received useful, according to Sunsuper’s 2016 Australian Employee Insights Report.

Another interesting survey this year by Hays has found that instead of performance reviews, 76% of employees want the opportunity to provide feedback on cultural and performance factors, which could involve reverse appraisals or employee surveys.

It all adds up to a powerful case for looking at a different approach to the traditional performance review. But what about the consequences of getting rid of them altogether?

A recent study by the best practice insight and technology company CEB claims that at most companies, employee performance drops by around 10% when ratings are removed because of breakdowns in managers' ability to manage and a fall in employee engagement.   

While the report acknowledged that companies have received some positive feedback from employees after getting rid of performance ratings, the CEB data indicates that initial positive reaction tends to fade after the first performance review cycle.

It also claims that the improvements in measures of employee performance that companies expect actually decline because managers struggle to make and communicate performance and pay decisions without ratings.

In fact, CEB found that less than 5% of managers are able to effectively manage employees without ratings.

In particular, CEB found that getting rid of performance reviews leads to four unintended outcomes:
  • Manager conversation quality drops by 14% because managers struggle to explain to employees how they performed in the past and what steps to take to improve performance.
  • Managers have more time, but time spent on informal conversations falls by 10 hours because managers do not shift that extra time toward ongoing, informal performance conversations.
  • Top performers’ satisfaction with pay differentiation decreases by 8% because managers have trouble explaining how pay decisions are made and linked to individual contributions.
  • Employee engagement drops by 6% because managers are unable to do the very things that are proven to engage employees, such as hold clear performance and development conversations, and provide appropriate rewards and recognition.
In conclusion, CEB recommends for companies to improve their performance management by providing ongoing (not episodic) performance feedback.

They also advise employers to make performance reviews about the future instead of the past. This provides managers and employees with a more accurate understanding of their abilities to meet future business needs.

Finally, they recommend to include peer feedback, in addition to manager feedback.

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