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5 Reason Annual Performance Reviews Don’t Work

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Do you know that One-third of U.S. Companies is abandoning the traditional appraisal process? (Harvard Business Review, 2016)

Annual Performance reviews are becoming history and organizations are letting go of the annual process and adopting a continuous performance process. This has increased employee engagement and retention.

Human Resource professionals are evolving and creating new processes and methods to adapt to the dynamic workforce. As the workforce has changed and changing constantly it is becoming more challenging to keep the process suitable for all and there is no one size fits all solution. Few studies reveal that almost all (97%) of Gen Z is open to receiving feedback, and 67% want it in a timely constructive manner throughout the year.

Why did the system fail and stopped working?

The very reason the system failed is that it was conducted annually. People were not able to recall what they did throughout the year. Even the best performers were unable to substantiate what they did. This created an effect called the “Halo” effect. The halo effect is called as a type of cognitive bias by which our overall impression of a person influences how we feel and think about their character.

This in turn negatively impacted the employee. When a top performer is unable to project or share data on what they achieved it caused anxiety and there was stress around this process. Managers were even more at ill-ease as their team hated the process which was reflected in the performance. Also, Two-thirds of performance management systems fail to recognize high performers.

Lack of conversations

72% of respondents thought their performance would improve if their managers would provide corrective feedback. (, 2014)

The main reason for the failure of the annual performance reviews is mostly because there is no conversation between the manager and the team member. It is extremely important to ensure that the conversations are around the performance across the year now just a week or a day. The conversations and feedback that are bi-directional create trust and motivate the teams. If there is a constant feedback mechanism in place, then it becomes easy to create a collaborative approach and the team becomes accountable.


Inaccurate Data

Since the process is done annually there is not enough data to evaluate the performance. Individuals are unable to keep track of their performance constantly and that became a great disadvantage. There was no data to decide upon and most of the time ended up in subjectivity

Prone to Bias

When there is a lack of data or insufficient data it did not facilitate data-driven decision-making. And hence there was extreme bias in the decisions made that eventually created an unhappy or not engaged workforce. Once the workforce is not engaged then there is a greater risk of productivity coming down. Organizations that practice continuous performance management outperformed the other organizations and increased productivity (66%),


What can bring a profound change to the entire process?

Making the process a continuous one is the primary requirement. While creating such a process we must