STUDY : Drift away from performance reviews backfires

Performance reviews are universally unpopular with employees and managers because they can be confronting, awkward and overly bureaucratic.

But new research and leading Australian academics suggest that ditching them entirely may be misguided.

Video : Are performance reviews useful?

Herbert Smith Freehills HR Manager Andrea Bell and Business Development Manager of Clients and Sectors, Chele Dore talk about the use of performance reviews.

Deloitte, Adobe and Accenture are among big companies who have dumped performance reviews.

A new study now suggests that in getting rid of performance appraisals, some companies may have also stopped having valuable conversations with their staff, who are becoming less engaged as a result.

Herbert Smith Freehills HR Manager Andrea Bell and colleague Chele Dore. Photo: Christopher Pearce

Aaron McEwan, from best practice company CEB, said its survey of 9500 employees and 300 heads of human resources managers found employees, particularly high performers, had become disengaged without performance reviews.

The study of staff and managers at global companies, including those operating in Australia, found the move away from performance ratings had resulted in a 28 per cent drop in the productivity of high performers. Recognition and feedback were found to be important in encouraging high performance.

While managers who no longer conducted performance reviews were under less pressure, they also found they were not as closely connected to their staff after abandoning the annual performance appraisal. 

The study found perceptions of the quality of conversations with managers fell by 14 per cent after reviews were abandoned. Employee performance was generally 10 per cent lower in organisations without performance reviews.

"The basis on which most organisations removed rankings was a belief that the rankings got in the way of quality conversations," Mr McEwan said. "There was an assumption that if you removed the ratings what would happen is that engagement would go up because you have removed something that employees don't particularly like.
"What we found statistically overall, was the organisations that removed their ratings ended up with 10 per cent lower performance. Your high performers were least satisfied at the end of the day."

Professor of Human Resource Management Carol Kulik, from the University of South Australia business school, said surveys had shown performance appraisals were universally unpopular.

"We know that performance appraisal out of all HR activities it's one of the ones that gets the worst evaluation from both employees and managers," she said.

"Surveys show that 95 per cent of managers think their performance management systems suck and 75 per cent of employees say they don't get good performance feedback.
"So nobody thinks it is done very well." 

John Shields, professor of Human Resource Management and Organisational Studies at the University of Sydney business school, said companies that had simply abandoned performance reviews instead of finding a way to improve them, had "thrown out the baby with the bathwater".

"No one has been able to offer what I regard as a viable or sustainable alternative," he said.
"Now that doesn't mean I am a supporter of the annual ritual of performance appraisals. I am not saying that we should insist on top-down, bureaucratic forensically-defined appraisal systems because they can be organisational death as well.
"It is a matter of degree."

Performance management measured against clearly described performance standards and expectations relevant to an individual role could be helpful and was also a requirement under Australian employment law.

Andrea Bell, human resources director for the law firm, Herbert Smith Freehills, said performance reviews were important, particularly for high performers. "For us the focus is on performance conversations," she said. "I think the conversations that we are focused on having ... are about helping people understand their strengths, look for development areas, get clear about what the coming year or future performance should look like."

Freehills removed school report card style ratings from performance reviews about 13 years ago because they got in the way of a productive conversation. "That improved engagement and improved performance," she said.  "If you are not going to have ratings you have to be really careful that you are having high quality conversations and that's where we put our effort."
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