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The Ultimate Guide to Effective Performance Reviews

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“Give people meaningful information about their work.” - Daniel Pink, Drive

What’s Wrong With Performance Reviews?

Think back to the last time you participated in a performance review. Did you come out of the process having gained valuable insights? Do you know how other participants felt about it? What about your relationship with your employee or manager - did you feel like you were in it together? For most people, the answers to these questions aren’t exactly positive.

77% of HR executives believe performance reviews don’t accurately reflect employee contributions - SHRM, Is the Annual Performance Review Dead?

Reviews can be tense. They demand judgment from one side and openness to criticism on the other, and when used to justify pay-rises and bonuses they put enormous pressure on everyone involved. Without an intuitive to use 360° feedback tool, they also tend to be impractical. When annual performance reviews come around managers are expected to quickly squeeze a year’s worth of nuanced data into one evaluation. Add these together and you have the perfect recipe for stressed employees and managers.

Performance reviews are the second-most disliked work activity by managers after firing employees - Human Capital Institute

As if that weren’t enough, participants often feel that performance reviews paint an inaccurate picture of employees’ achievements and contributions. And that’s not just coming from reviewees: 77% of HR executives agree. These suspicions are backed up by CEB research, which states that: “individual performance ratings have absolutely zero correlation with actual business results.”

To understand the inefficiency of traditional performance reviews, let’s imagine Sabine, a marketing manager with five direct reports, sets out to write her team’s annual performance review.

Generally she remembers what people have worked on for the last three or four months - but she doesn’t recall the excellent report that Ben made ten months ago, or the way Ania helped Jonas on that tricky project three quarters back. Notes on people’s performance are scattered around different filing systems and departments, so she has to do lots of work to find and access them. Besides, she works much more closely with some team members than others, and she doesn’t want to rate certain people poorly because they’re always creating a good atmosphere at work.

As a result of these uncertainties (which we’ll take a look at in more detail further on), Sabine takes a middle-of-the-road approach and rates everyone 3 or 4 out of 5. Unsurprisingly this kind of review has little value to the company. Skewed by insufficient data, bias, and poor timing, it’s easy to see why reviews are often so flawed.

You’d expect companies to wake up and smell the coffee. Sure enough, with more people talking about these discrepancies, 70% of multinational companies are now angling for change.

Around 70% of multinational companies are moving toward a new more frequent performance review - HBR, The Performance Management Revolution

A Brief History of Performance Reviews

By now you might be wondering why managers have been investing up to five weeks a year into a performance management system that doesn’t work. To answer that question, let’s have a look at the history of performance reviews.

Back in the industrial days of the early 20th century, employees were often viewed as little more than cogs in a machine. Because there were plenty of people to place in unspecialised jobs in factories, for instance, workers were more or less subject to the whims of their employers. No one had even heard of human resources management.

Then in the late ‘20s and early ‘30s, an Australian researcher called George Elton Mayo conducted experiments in the workplace to find out what made workers more motivated. He found that productivity was positively impacted by unexpected factors like being noticed, or being part of a close social group, and these discoveries led to the birth of HR and performance management. At that time, the introduction of performance reviews were a positive step away from scientific management towards a more human way of evaluating people.  

Performance reviews have placed varying degrees of emphasis on accountability and development. - HBR, The Performance Management Revolution

In the century since, performance reviews have mutated with varying degrees of emphasis on accountability and development. For example, a social psychologist called Douglas McGregor urged companies to work with their employees on goals and assessments in the 1950s (development); but in the 1970s, legal policies and economic factors increasingly cast the performance review as a way to allocate merit-based pay (accountability).

Fast forward to the 2000s and much has changed. Modern companies have flatter hierarchies and a more limited pool of specialised employees who have greater expectations when it comes to purpose, progress and personal investment in the workplace. The need for development and retention is greater than ever. Having said that, accountability and assessment haven’t gone out the window: one 2010 study showed that participants just wanted to improve their review systems, not scrap them.

And yet flatter companies and fast-paced working environments haven’t made it any easier for the performance review to keep up - dissatisfaction with the process has come to reach a whopping 90% amongst managers. The question is, how do we improve a system that so many people have grown to dislike?

“If an organisation expects its employees to be committed to their development goals the organisation needs to demonstrate its commitment to assisting them.” - BB, Performance Appraisals are Key to Employee Development

Going Away From Traditional Performance Reviews

Some companies have already made the transition away from traditional performance reviews. These companies include prestigious multinationals like Google, Deloitte and Microsoft - but there’s no one-size-fits-all approach. Companies understand that new performance reviews systems should respond to the needs of their employees.

Google, Deloitte and Microsoft are just some of the companies injecting new life into their reviews.

Take Google, for example. Using employee surveys and experimentation, they worked out that employees needed more frequent reviews, and that those needed to be separated from discussions about pay. So they started holding performance reviews in April and October and salary talks in November.

Colorcon took a different approach: rather than handing out big annual bonuses, they decided to give small weekly bonuses to employees who’d done something good, which reduced the link between performance reviews and pay.

And in the case of Lear, annual reviews have been replaced with quarterly performance reviews focusing entirely on strengthening skills and addressing weaknesses; and the primary incentive for good performance is no longer money, but promotion.

Curious? Read our Google case study!

Introducing 360º Reviews

A popular alternative to traditional top-down manager-employee performance reviews is the 360º review. Rather than banking on just one person to evaluate employee performance, 360s draw on various sources to create a multi-perspectival evaluation.

We could liken this approach to conducting an experiment multiple times in order to improve its accuracy. By taking averages and outliers into account, it becomes much easier to get an idea of someone’s true nature from all kinds of angles. Think of it as seeing in 3D instead of at a piece of paper. And when it comes to numerical data - as with review questions that require answers on a scale of 1-10 - 360ºs create a map of data rather than a single definitive number.

Many companies have adopted the 360 review alongside their more traditional manager-employee reviews. It allows for more balance, not only in the information yielded but also in the process itself. It takes the pressure off managers to make an executive decision about an employee’s progress, and distributes the task of reviewing in a more manageable, spread out way.

“Real-time 360º reviews offer unparalleled insight for personal awareness and growth.” - Thomas Koulopoulos, Delphi Group Founder

Case Study: Ray Dalio

You might call Ray Dalio a purist when it comes to 360º reviews. Co-Chairman of Bridgewater Associates and author of Principles, Dalio realised early in his career that rather than just asserting and safeguarding his thoughts, it made more sense to lay them out on the table for other people to challenge.

With this in mind he became passionate about creating an “idea democracy,” in which it was not only possible for every single employee to speak truthfully about one another - but required. His employees are as free to comment on his poor performance as he is to comment on theirs, and direct, ongoing 360º reviews are ingrained in the fabric of the company.

Furthermore, by automating the 360º review process Dalio made it possible to understand not just what reviewers were saying, but how they were saying it. The company used tools to analyse the critical tendencies of each individual, and to assess the “believability” of their feedback. Although this approach isn’t for everyone, it pays testament to an emerging trend of using multiple candid perspectives to get highly accurate and effective data. Dalio credits the firm’s success to its 360º review culture, saying it allows him and his employees “to see things from a higher level.”

More than half of any performance rating is dependent on the person making the judgement, not on the employee being assessed. - Marcus Buckingham, The Idiosyncratic Rater Effect

We Need to Talk About Bias

As mentioned earlier, bias is a common issue in the review process. We’re not talking about biased people - everyone is biased in some way or another. It’s when managers pretend that they’re totally impartial that it becomes a problem, because it prevents bias from being addressed.

So the first step is to talk about bias - what is it, and how can we overcome it? Put simply, biases are a biological hangover from thousands of years ago, when instantaneous judgment calls were vital for human survival. For example, gravitating towards those similar to oneself (similarity bias) ensured that social groups would look after each others’ mutual interests. And it was more useful to remember seeing a mountain lion two days ago than two months ago (recency bias).

These biases look quite different in the workplace. A manager experiencing similarity bias might give a more sympathetic performance review to someone of the same age, gender or religion. And as in Sabine’s case, recency bias might make a manager focus on employees’ latest activities rather than what they achieved ten months ago.

57% of organisations don’t take any action to address bias in performance reviews. - HBR, Biases that Hijack Performance Reviews and How to Address Them

So what can we do to overcome these biases?

Using diversity training sessions, managers can be taught to become aware. Helping them to understand that biases are both common and defeatable is the first step to getting them to think about their own biases. They can also learn exercises that help to offset bias, and put these into practice just before a review session.

Secondly, assessing objective criteria ensures that performance reviews stay on track and don’t get bogged down by irrelevancies. In the case of more fluid questions that discuss soft skills, combat the potential for subjective bias by having reviewers explain their reasoning and provide specific examples. Adopting a practice of reviewing reviews, either by the reviewer’s peers or supervisors, will also keep the evaluation in check.

This leads us to another way of mitigating bias: using multiple perspectives. Whether this takes the form of a 360º review or managers writing reviews in teams of two or three, data that comes from different sources is sure to create a more balanced overview of someone’s work, evening out any personal niggles. You can also ask for employees to share their experience of the review process to allow any concerns about bias to be voiced.

“Deloitte are asking team leaders what they would do with each team member rather than what they think of that individual.” - HBR, Reinventing Performance Management
👀 Curious? Read our step-by-step playbook on avoiding performance review biases.

How To Ace Your Performance Reviews

Now that we’ve looked at a few different sides of reviews, it’s time to get down to the practical stuff: how do you hold a review cycle that’s both meaningful and manageable?

First, work out your company’s current pain points: are you finding that compensation always presents difficulties to the HR team, or do you struggle more with efficiency? Something almost every company agrees on is that annual performance reviews are just too infrequent, so holding them every six months or quarterly could be a good place to start. On that note, try to schedule salary talks a few weeks after reviews: development should take centre-stage in the review talks period.

Next, you want to make sure the review cycles are transparent and structured. Make sure that employees know how the review cycle will work, and what the purpose of each stage will be. Ask them to prepare their own performance data before you meet with them! Of course, the same goes for you. Organise your performance data as you go with the help of a review tool so that everything ends up in one place. Review tools can also help you be more objective in your assessments.  

Make use of multi-directional reviews. Having peers, managers and employees review each other - and themselves! - has countless benefits, including more comprehensive data; higher employee engagement and a sense of fairness. Of course, you’ll still need to have managers reviewing their direct reports - but even in this case managers should have a colleague or supervisor evaluate their reviews before submission.

Then, when it comes round to holding performance review talks, look at them as a unique opportunity to get to know and develop your employees. You want to look at the past because that’s where you’re getting all your data from, but the data only becomes truly valuable when you decide how to go forward with it. Ask your employees about their thoughts, misgivings and aspirations: work together to create goals and OKRs that work for both them and the company vision. Equally, treat the review process with respect and sensitivity. It’s a good idea to give employees written reviews (or salary-related news) a few days prior to meeting so that they can process their initial reactions in private.

Finally, support your review cycles with a broader culture of continuous feedback and learning. To learn more about building a feedback culture at work, check out our feedback eBook!

Curious? Read our reviews how-to blog post!

Development Matters

One of the first things traditional performance reviews get wrong is their focus on judgment, not development. This approach only works if you’re trying to build a company culture that sniffs out weaknesses in order to punish or eliminate struggling performers. Does that sound like an ideal working environment to you?

Employees who feel secure enough in their work lives to make creative choices and express their ideas are more engaged and productive than employees who work in constant fear of being exposed. And you know what often makes employees feel exposed? That’s right - the annual performance review.

But you can remedy that fear and encourage growth by changing the dynamics of your performance review. When managers are trained to give development-focused reviews and employees understand that they’re being supported, that’s when you can expect to see real growth and collaboration in your workforce.

Ask employees how they want to grow; make a plan to realise those aspirations. By doing this you can motivate employees to reach their goals and take ownership of their development.

Curious? Read our development-focused blog post!

Growth Mindset vs. Fixed Mindset

“The fixed mindset makes you concerned with how you’ll be judged; the growth mindset makes you concerned with improving.” - Carol Dweck, Mindset

There’s more to development than just being kind to your employees (although that’s pretty important too!) A study by Stanford researcher Carol Dweck revealed that success and motivation are closely linked to what she terms ‘growth mindset.’ In a nutshell, growth mindset values new experiences, learning from mistakes and embracing challenge as expected part of personal growth. Rather than think “I can’t do it,” those with a growth mindset think “I can’t do it yet.

Growth mindset stands in opposition to ‘fixed mindset,’ which is the belief that people’s skills and qualities are innate and immutable: “I excelled in first grade so I’ll excel when I’m 42.” With a fixed mindset, challenges appear as threats rather than opportunities. And as the names imply, people with a growth mindset progress more than those with a fixed mindset - even if the fixed mindset people got a head start.

When you use performance reviews to ask employees about their development, you’re demonstrating a growth mindset. You’re showing them that you place more value on recognising weaknesses and overcoming adversity in innovative ways than on hiding away in a cubicle, hoping no one will notice the way they’ve been struggling with (x), (y) and (z).

Listen carefully to your employees’ personal ambitions, as it will inform the way you assess their work.” - HBR, Delivering an Effective Performance Review

Asking the Right Questions

As with 1:1 meetings, a good review talk sees managers actively listening to their employees, not just offloading a barrage of information. Both in person and on paper, asking intelligent questions is the key to gaining valuable insight.

Don’t just ask ‘yes’ or ‘no’ questions - if you do you’ll just get a pile of ‘yes’s and ‘no’s accumulating on your desk. Instead, start your questions with ‘what.’ These types of questions prompt more detailed and descriptive answers from participants, and often lead to more reflection before answering.

In addition to these, you could get more quantitative data by asking participants to place their answer on a scale from 1-5. This can be a really good way to get tangible insights on soft skills that might otherwise be difficult to compare. For example, if innovation is one of your company’s core values you might ask: ‘how far does this person drive innovation?’ Or if a particular department relies heavily on written communication, you could ask: ‘how effective is this person’s written communication?’ By asking these kinds of questions you also encourage the evaluation of behaviours, not numerical results.

The things which really motivate people to perform well are feelings like autonomy, mastery, and purpose. - McKinsey, Ahead of the curve: The future of performance management

What About Compensation?

Earlier on we spoke about the importance of placing development over compensation, as it makes the performance review more about progress than reward. But while some companies have decided to ditch salary talks completely, others might prefer to keep them.

Discussing pay is an important part of the relationship between employee and company: it can be an opportunity to show employees that you value their work, but it can just as easily go sour if you’re not tactful and prepared.

So start by setting up a timeline for salary talks. Can you separate them from your performance reviews? How do they correspond with your company’s budget talks? It’s also a good idea to have a salary discussion at the beginning of the year so you can clarify expectations with employees and normalise the subject.

When the time comes to make salary decisions, do this in groups of two and three to reach informed, unbiased conclusions. You should be able to disclose your decision-making methodology with employees so they get a sense of fairness: be as transparent as your company permits!

“Stop looking at reviews as a burden and time suck. They're an opportunity to align and lead your team more powerfully.” - Aaron Levy, Founder & CEO of Raise The Bar

Before holding a salary talk with your employee, plan what you want to say and how you’re going to say it. These are potentially loaded conversations, so it’s useful to imagine what types of emotional response you might face. For example, if you already know you can’t budge on the decision you’re presenting, make sure you have a gentle way of explaining that before the employee jumps into a counter-argument.

Having started the year with a discussion of salary expectations, it shouldn’t be too difficult to maintain a cooperative tone in the end of year salary talk. If the decision is open to negotiation, strive to find a compromise that works - but don’t make any promises you can’t keep. As much as you want things to be fair, you should also try and be realistic.

A final note on salary talks: they’re not always needed! Many CEOs and managers think that money is number one on their employees’ list of priorities, but this is an oversimplification of what drives people to work hard. Employees are often just as motivated by personal growth, training opportunities and promotions. In some cases, reserving pay discussions exclusively for those who have done exceptionally well (or are really falling behind) can make them more meaningful in the long-run.

Curious? Read our salary talks blog post!

The Future of Performance Reviews

Not everyone’s future performance review will look the same. Some companies have found that their employees cherish the emphasis reviews place on accountability and achievement; others might lean towards review cycles that only exist to give long-term structure to frequent, ongoing feedback.

Praise and feedback are much less corrosive than cash and trophies” - Daniel Pink, Drive

However you do it, make sure you consider the basic aspects covered in this eBook. See where your pain points are; what needs to be changed? If you’re unsure, consider sending out a survey to ask employees how they feel about your current review system. Work together to find something that works for everyone; then make sure both managers and employees understand the ‘how’s and the ‘why’s of the new system.

Recognition is the number one thing employees say their manager could give them to inspire them to produce great work - Forbes, 10 Shocking Workplace Stats You Need To Know

Performance reviews have been demonised in the past - the good news is, we can both understand the reasons for that and rectify them. Do your research, make a plan and get your hands on a performance review tool which will help you organise and automate the process. Most importantly, forget the gripes you may have had with your old system. When done properly and innovatively, performance reviews empower you to learn, act and improve the way your company achieves its goals.

Curious? Read our 2-minute performance review cheat sheet to get started.