The Problem with annual performance reviews

Most managers and employees would agree that traditional annual performance reviews are mostly ineffective and generally a waste of time. A legacy of the industrial revolution, its initial objective was to assess employees and instruct them about what they should be doing better to improve individual performance

However, in many situations, all it does is create unnecessary tension between managers and subordinates without having any positive impact on individual productivity. But why is this so? There are 3 main reasons:

  • Annual performance reviews are retrospective in nature. They are essentially based on “what happened”, the answer to which has little or no impact on future directions of the company, particularly in helping management achieve organisational goals.
  • They are also largely subjective. Usually conducted once a year, these reviews tries to assess employees’ performance base on vague criteria such as “…has demonstrated the knowledge, skills and abilities necessary to perform work satisfactorily” or “… performed work with efficiency, consistency and timeliness.” Most are not measurable to any extend other than that they were based on the memory or impression of the manager. This one-side-accountable, management administered, exercise inhibits performance improvement, honest employer-employee relationships, and team culture.
  • They are generally ineffective. The typical performance review uses the same rating scale for everyone across the organisation, regardless of role or function. Sales employees are assessed with the same criteria as admin and frontline service staff, though they each require different skills and temperaments to do their job well. What is eventually measured has little to do with actual performance and more with the assumption of what an ideal employee should be

A different approach

Instead of focusing on the annual appraisal, a more effective approach of influencing organizational performance is to define measurable goals for each employee right from the start, and align those goals to the organization’s overall strategy and objective. Then build a review programme to help ensure that employees are on track and on target. By focusing on achieving these goals, both manager and employee contribute directly towards moving the organization forward.

Periodical reviews can be conducted as frequent as is needed, and serve as checkpoints along the path towards achieving set goals. Instead of 1-way assessment, they become 2-way, problem-solving, dialogues between managers and employees. Ultimately, what is put in place is a performance management system designed to help organizations improve team productivity and achieve organizational objectives. Here are 3 distinct characteristics that make this approach highly effective:

Be prospective

This approach is about forward planning; the process begins with managers and employees setting measurable goals together. Both begin with a clear understanding of what they expected from each other and what will be measured within the specified timeframe. This encourages them to work together as a team to align their efforts towards meeting the company’s objectives. This joint ownership between manager and employee also helps strengthen the commitment towards each other and encourages teamwork, creating a roadmap toward mutual success and improved performance.

Be objective

Make each goal is clear and measurable. If a sales employee knows that he is assessed on the number of units sold (measurable goal) within a specified time frame, there is no argument about his performance other than the actual outcome of his sales results. This allows both sales employee and manager to focus on the outcome and work on what is needed to achieve the results. The consequence of the review is that it is not an opinion but a number or an indicator, making the process of managing performance objective.

Be effective

With the goals in place, periodical reviews are conducted to ensure that everyone is on track and on target. Instead of glossing over the appraisal exercise with opinions and criticisms, reviews become checkpoints and opportunities to ensure mutual success. Manager and employees can work out what they need to do or change to achieve the goals that they have set together.

If the team benefits, the company benefits

When you have a performance management system like Revuu™ that is designed with the reciprocally accountable manager-employee team in mind, improvement in organizational performance grow by leaps and bounds. This is because any real improvement in productivity and outcome can only come from optimizing the one-to-one relationship between a manager and each of his or her subordinates.

Managers can expect to regain control of results because a forward-looking performance management system gives them the ability to manage each employee’s contributions and achievements against a set of well defined goals. It is neither subjective nor retrospective, and allows them to contribute to the company’s success. It also creates opportunities for joint ownership and team play, encouraging managers to take on their true assignment as coach and tutor, providing oversight to council to help each subordinate succeed.

Employees also benefit by being in control of their work situation when managers clarify what is expected from them. It helps employees understand their roles in contributing to the company’s success, and holds them accountable to results that they can personally affect and influence. Employees know that to the extent that they have achieved their targets, they have performed well. This, in particular, helps improve relationships between employee and manager as they work towards shared goals.


To compete successfully in today’s business environment, companies need more than just conventional appraisal or productivity tool to get the best out of their employees; they need a system that helps them to align the purpose and effort of individual employees to the company’s long term objectives. In an environment where lowering business cost can no longer be a sustainable advantage, productivity, in terms of increased performance and output, is the key to success and growth.

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Tim McGrath
Tim has had over 20 years experience in the Automotive Industry, from automotive technician to workshop management and Management in After Sales Operations with three Vehicle Manufacturers. Tim managed his own consulting business for five years, specializing in Fixed Operations and Management Consulting. Upon joining Fusion Business Solutions, he has helped the company expand services and clients. His hands-on approach, backed by extensive experience in the field, facilitate strong participation and create the conduit for real change in the workplace.