What’s Wrong with Performance Management and Annual Reviews?

Short answer: Plenty! Few things in life produce more moans and groans in the workplace than the mind-numbing, fear-inducing ritual of annual performance reviews. In recent years, there have been calls for companies to free themselves from this burdensome practice. See our video on performance management vs performance appraisal. If you don’t believe that the performance review or performance management (PM) in general is in dire straits, take a look at the following 10 statistics:

Performance appraisals? What could go wrong?

Performance appraisals? What could go wrong?

  1. 45% of HR leaders do not think annual performance reviews are an accurate appraisal for employee’s work (source).
  2. CFOs spend at least 40% of their time on business performance management, but they estimate that 30% of their company’s performance potential is lost due to ineffective performance management processes and behaviors (source).
  3. Only 23% of HR executives think that their PM process accurately reflects employee contributions (source).
  4. Only 8% of companies report that their performance management process drives high levels of value, while 58% said it is not an effective use of time (source).
  5. A poll with 2,677 respondents revealed that 98% find annual performance reviews unnecessary. Among the respondents were 645 HR managers, 232 CEOs, and 1,800 other employees (source).
  6. Only 14% of organizations are happy with their performance management system (source).
  7. Two-thirds of performance management systems misidentify high performers (source).
  8. In 2013, most organizations needed a 20% improvement in employee performance, but typical performance management can only improve performance by 5% (source).
  9. 58% of organizations rated their performance management systems as “C Grade or below” (source).
  10. 30% of performance reviews end up in decreased employee performance (source).

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Clearly, something is amiss when it comes to performance management and annual reviews. In fact, given the above statistics, it’s a relatively safe bet to say that performance management in your own company is lacking in some way or not delivering the kind of value you wish it could deliver. Maybe it’s time to give your company’s performance management system its own performance review.

Think about your PM system and give it a rating from 1 to 10 where 1 means your PM system is essentially worthless and 10 means it is giving you absolutely everything you ever dreamed a PM system could give you. If you give your PM system anything less than 8, then it is in need of some serious attention. “Fine,” you say, “My PM system is broken. How do I fix it?” Here are some ideas for where to start:

Getting Back to Basics

According to PM expert Edward Lawler, Director of the Center for Effective Organizations housed at the University of Southern California’s Marshall School of Business, you need to keep in mind the four primary objectives of PM:

  1. Define What Performance is Needed. You have to know what needs to be done and how it should be done, and there has to be agreement on this throughout the organization.
  2. Develop Employees. The point of PM has to be to help employees develop the skills and knowledge they need to contribute to the needed performance that has been defined.
  3. Motivate Employees. The third thing your PM system should do is motivate employees to perform as effectively as possible. You can have all the highest talent in the world, but if they aren’t motivated to perform, you’re not going to get very far.
  4. Provide Useful Data. Your PM system should be your go-to source of data on that can measure the skills and knowledge of your workforce, as well as whether or not employees are performing as well as you need them to perform.

Think through your PM system again in greater detail using these four basic PM objectives to help pinpoint areas where your system is clearly falling short. When it comes to effectively addressing organizational problems, getting a clear picture of the situation is more than half the battle. Stay tuned for future posts that will help you determine what steps you can take to fix, overhaul or even completely replace your ailing PM system.

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One response to “What’s Wrong with Performance Management and Annual Reviews?”

  1. […] shows that only 14% or organisations are happy with their performance management system, and if the organisation isn’t happy with it then there’s no chance the employees are. So how […]

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