In my last article, What’s Wrong with Performance Management and Annual Reviews? I highlighted the extent to which many performance management (PM) systems are surprisingly dysfunctional in today’s organizations. Now it’s time to go a bit deeper into what’s really happening with your PM system in order to figure out what you can do about it, with a special focus on the thorny issue of annual performance reviews.

Annual reviews have received a seriously bad rap in recent years, as indicated by such headlines as Time to Scrap Performance Appraisals? (Forbes), Is it Time to Give Up on Performance Appraisals? (HR Magazine), and It’s Time to Abolish the Employee Performance Review (Psychology Today). Typical problems with performance reviews are summarized below. How many of them feel all too familiar to you?

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• The Zombie Effect. If you’ve ever felt a kind of mind-numbing effect when it comes to performance reviews, you’re not alone. As one author put it, “A friend of mine was recently dinged in a performance appraisal for being ‘too enthusiastic.’ Translation: Be less alive, more like a zombie” (CBS Money Watch). Some neuroscientists are beginning to apply knowledge from their field to leadership, and when it comes to performance appraisals, the news isn’t very good. By focusing on what an employee did or didn’t do well during the year, the annual review creates a fear-state in the brain that then limits the ability to absorb any useful information (CEB).
• Endless Tinkering. Your company might actually be paying attention to its PM system, even making changes from year to year, but is it real change or just tinkering with an already broken system? If the tweaking of the system amounts to changing from a 3-point to a 5-point rating scale, or making slight adjustments to the rating criteria, your company is missing the more substantial issues at the root of performance management. This endless tinkering simply won’t result in significant improvements (Harvard Business Review).
• Rank-and-Yank. Then there’s the temptation to use performance appraisals in the kind of force-ranking system popularized by Jack Welch at GE, wherein managers are only allowed to hand out so many appraisals at each performance level, and those that are forced into the bottom ranks can expect to kiss their jobs goodbye. It’s still a surprisingly popular approach in spite of the fact that Microsoft is the latest company to scrap the system because it does more harm than good. Meanwhile, Yahoo! is actually ramping up its forced-rankings system (Forbes). When you set up a system in which failure is inevitable for some people, you’ll wind up with employees who will do whatever it takes to beat the system. That’s hardly the kind of positive atmosphere we want for our organizations.
• Too Little Too Late. The way most performance reviews are constructed lead to a baffling set of questions: If performance is so important, why in the world would we review it only once, or in some cases, a few times a year? Shouldn’t employees be receiving valuable feedback all the time? Can one single person really do an adequate job of analyzing an employee’s entire productivity over the course of 12 months in one sitting? Since when does any employee’s work involve primarily a 1-to-1 relationship with a single manager or supervisor? If someone really is a poor performer, wouldn’t you want to show them the door before an entire year has passed?

Why Changing Your PM System is Hard

Given the depressing statistics and outlook on annual performance appraisals, you’d think companies would be jumping at the chance to overhaul or even abolish such systems. Think again! There’s an incredible amount of inertia to making such changes. Besides the general resistance to big changes in modern organizations, there are many reasons why only about 3% have dropped annual reviews:

• Tradition. Your company has probably always done annual performance appraisals. But just because it’s a deeply embedded tradition doesn’t mean it should continue.
• Investment. It took a lot of time, effort and money to develop and implement whatever system is in place, which creates that much more resistance to changing the system.
• Lack of Alternatives. It’s one thing to realize your PM system is broken, but it’s another thing entirely to figure out how to overhaul it and/or replace it. After all, your company needs real data about employee performance, if for no other reason than to document and justify terminating poor performers. This is a lackluster rationalization for perpetuating bad PM systems.

And yet there are alternatives, and your PM system can be overhauled to provide the kind of real value and data that makes a difference to the entire organization. The next article in this series will focus on what some of those alternatives actually look like, and how you can implement them in your own company.

View related articles:

THE DIFFERENCE BETWEEN PERFORMANCE MANAGEMENT AND PERFORMANCE APPRAISAL

10 STATISTICS ABOUT PERFORMANCE MANAGEMENT THAT WILL BLOW YOUR MIND

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