• Scrapping performance reviews causes ‘significant’ drops in productivity

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  • 9 Jun 2016
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But almost half of managers and employees believe process needs vast improvement, reveals CEB report

Only 4 per cent of HR leaders feel performance reviews are effective – but removing them can result in a considerable decline in productivity, a study by insight and technology firm CEB has found.  

Almost half of those asked (42 per cent) said 'significant changes' or a 'complete redesign or overhaul' was needed to improve their current performance review process, branded by managers and employees as "backward-looking, inconsistent and too complex".

The study of more than 9,000 managers and employees across 18 countries found businesses spend an average of 43 hours per year per staff member on formal and informal conversations around goal-setting and performance evaluation, and on preparing for reviews.

The cost and time involved with staff performance ratings has led some organisations to abolish them altogether. However, the CEB survey found that by eliminating performance reviews, overall results and productivity can drop significantly. It found that those who worked for organisations that had scrapped performance ratings scored the conversations they had with their managers 14 per cent lower.

The survey found that, while 51 per cent of HR leaders said they had no plans to remove performance ratings, 28 per cent would consider it, 15 per cent said they planned to do this in the near future and 6 per cent said they had already done so.

One HR vice president from the healthcare industry, quoted in the report, said: "Our performance and pay systems began to look like a black box. Without the visible symbol of a rating, employees didn't understand the process or the philosophies behind them."

CEB found engagement and performance dropped by up to 10 per cent without reviews, making people much more likely to leave the company. It also found 8 per cent fewer employees believe pay rises are fairly allocated, while less than 5 per cent of managers feel able to manage talent effectively without ratings.

"Organisations that have abandoned performance ratings have actually found the experience quite negative,” said Brian Kropp, HR practice leader at CEB. “Employees find it difficult to see the link between pay raises and performance. As a result they believe managers are more likely to give money to the person he or she likes. The research should cast a word of warning among companies that are thinking about jumping on this trend of abolishing reviews.”

A lack of performance rating was also found to have a greater negative impact on high performers, with 28 per cent fewer high performers feeling satisfied with conversations with their manager.

A senior HR director from the pharmaceutical industry said in the report: "High performers are the ones who like the ratings most. The rating is a form of recognition for the work they are doing, and we are afraid that whatever we replace that label with won't have the same effect."  

Another study from Right Management UK found that less than a third of employees feel confident enough to talk to their boss about their goals. Ian Symes, general manager at Right Management UK, said: "Nearly half of Britons don't talk to their managers about their careers. It can seem daunting to discuss your performance, development and goals with your boss – but it could boost your career."

He added that monthly catch ups, where clear goals are agreed with managers, can help employees feel more engaged, productive and happier.

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Comments (3)
  • This article doesn't discuss removing performance reviews but ALSO having monthly check-ins that essentially do the same thing, but are more forward looking than back-ward looking. So, if the reviews are scrapped but really replaced by monthly conversations, would that give similarly negative feedback?

  • Traditional pm is universally disliked by everyone in my experience except perhaps old fashioned hr functions. I believe regular effective two way conversations about delivery and development are opportunities for recognition showing the value of the individual personally and to the organisation and a check in on wellbeing are invaluable - if someone is a top performer or has got potential for the future we all want to know that

    An annual or bi annual dreaded 'process' if Measured in terms of improved motivation engagement and performance improvement would come up short if we were honest about how it really happens on the ground in most companies

  • In my organisation we have just reviewed our PDR process - thinking may be of scrapping it. But quickly moved away from this idea because I firmly believe it' helps link personal performance to team and corporate goals- the golden thread . I think it is matter of setting up a Simple framework for all colleages to work with in- it's the face to face meeting that is more important the paper work ! In fact we found the paper work involved was putting mangers and colleages of the process!