Dear Manager, performance reviews do not work

By Line Bloch, 10. January 2016

In most cases useless – but in most downright demotivating!

You are doing it with the very best intentions, and I guess that you are doing them right now, if you didn’t finalise them just before Christmas. Performance reviews.

You probably do it to provide feedback, to appreciate and acknowledge the employees and their contribution, and to make employees improve their performance. You use it as a fair tool to distribute compensations, to evaluate and keep track of talents, and less positive: you may also do it to collect a paper trail in case you need to fire someone.

The secret – which your HR organisation very likely have discussed internally for some time – is this: It does not work (perhaps except for the paper trail-thing). In best case it is useless, but in most cases it downright demotivates your employees.

This is part 1 of 2, where I point out the problem. In part 2, I suggest a solution.

The problems about performance reviews

As I see it, there are three main problems with performance reviews:

  1. The ratings
  2. The timing
  3. The managers

Lest go through them, one by one.

1. The ratings are demotivating

Most companies uses a 1-5 scale to evaluate the employees once a year. Since the distribution of ratings tend to skew against the higher performance and hence devalues the rates (and we don’t trust the middle managers to be objective), some companies uses forced or ‘guided’ bell shaped distributions, like the one to the right.

In this example, 2% of the employees get the 1-score. We don’t want low performers, and if you get a 1-score, you are already on your way out. Sorry. Bye.

20% gets a 2 – usually called “approaches expectations”. This is of course not good enough, so these employees typically gets a performance improvement plan. We haven’t given up on them, but if they don’t improve, they could expect to get a 1-score next year. Are these employees demotivated beforehand, or will they be, when they realize that what they did, is not good enough? What is the egg and what is the hen?

Luckily,53% is doing fine and gets a 3. Management calls it: ‘meeting expectations’, and gives a little speak on how high the expectations are in this company, and how great it is to be able to meet them. But it is a 3 out of 5. It is average. Average sucks. Nobody wants to be average.

The last 25% quintile of the people is where you would want to be – getting ‘exceeding expectations’ (4) and ‘outstanding’ (5), but if you sum it up: you demotivate 75% of our employees by giving them ratings from 1-3. 75%. Can you run your company with only 25% of the employees being motivated?

One central problem is that since someone decided to force (or guide) the distribution into a bell curve, majority will get the average 3-score, and the manager have to take the difficult decision on who to give their 4’s and 5’s to and who not – even if they truly believe that most of the team is doing really good. Sorry, not your turn this year, even if you did a good job. Motivation killed instantly. Why try, if it is not formally recognized?

Instead read more on how to actually motivate your employees >>

Quite many analysis and studies around the world actually document that the performance drops after the annual performance reviews. Even with those employees that you rated high. Not really what was intended, right?