Performance Reviews – SAGE Business Researcher

Are they still an effective management tool?

Executive Summary

The annual performance review, which has been part of the American workplace for almost a century, is evolving in the digital age. While some high-profile corporations such as Adobe, Deloitte and GE have garnered attention for announcing they will no longer use yearly reviews to evaluate employees, the practice remains intact at most mid- and large-sized companies. Performance reviews remain popular because they are widely considered an effective tool for determining promotions, salaries and bonuses – and also for encouraging underperforming workers to improve and shedding those who do not. Because these reviews can improve performance by requiring managers to communicate their expectations and goals, many companies now do evaluations more than once a year and have added elements such as informal conversations – sometimes called check-ins – to the process.

Key takeaways include:

Performance reviews entered the business world after they were already a standard practice in the U.S. military, but have changed with the times, reflecting popular cultural trends and the latest theories of human behavior.
In recent years, many companies, including GE and Microsoft, have stopped using forced rankings, a once-popular system in which managers have no choice but to give a pre-determined number of workers the lowest ratings.
Internet-based companies such as Facebook and Warby Parker have modernized the review process so that the reasons for pay raises are clearer, managers do not discriminate against women and the approach is less top-down.

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Resources for Further Study

Bibliography

Books

Culbert, Samuel A., “Get Rid of the Performance Review!” Business Plus, 2010. A business school professor argues that the traditional performance evaluation has outlived its usefulness and should be replaced with a system that focuses on coaching and improvement.

Hsieh, Tony, “Delivering Happiness: A Path to Profits, Passion, and Purpose,” Grand Central Publishing, 2010. In this best-selling book, the CEO of online shoe retailer Zappos makes the case that companies looking to succeed today must invest in workers’ happiness.

Kahneman, Daniel, “Thinking, Fast and Slow,” Farrar, Straus and Giroux, 2013. A winner of the Nobel Prize in economics discusses his research, including the study of rating systems, to explain how bias affects assessments and how to make better choices in and out of the workplace.

Michaels, Ed, Helen Handfield-Jones and Beth Axelrod, “The War for Talent,” Harvard Business Press, 2001. The authors of a headline-grabbing McKinsey study explain how companies must relentlessly pursue, retain and develop the most effective leaders to remain competitive.

Articles

Beard, Alison, and Dan McGinn, “Performance Reviews,” Harvard Business Review, June 29, 2018, https://tinyurl.com/y32nr45y. Adam Grant, an organizational psychologist at the University of Pennsylvania’s Wharton School, discusses the power of performance evaluations and how employees can make the most of them.

Dishman, Lydia, “The complicated and troubled history of the annual performance review,” Fast Company, Nov. 7, 2018, https://tinyurl.com/y4gnshqf. A journalist looks at the growth of performance reviews and why they are controversial.

Eichenwald, Kurt, “Microsoft’s Lost Decade,” Vanity Fair, August 2012, https://tinyurl.com/y9m42gdh. In an influential magazine piece, a journalist explores how Microsoft’s competitive troubles stemmed from its performance review process.

Welch, Jack, “‘Rank and Yank’? That’s not how it’s done,” The Wall Street Journal, Nov. 14, 2013, https://tinyurl.com/y3zlxvny. The former GE chief executive defends the use of numerical ratings as an ethical way to identify failing employees and improve a company’s overall success.

Reports and Studies

“The Real Impact of Eliminating Performance Ratings: Insights from Employees and Managers,” CEB, 2017, https://tinyurl.com/y3em5jgz. A study by the technology company CEB reveals that workers find performance appraisals with ratings more productive, and that managers are less likely to help employees improve when ratings are dropped.

Cappelli, Peter, and Martin Conyon, “What Do Performance Appraisals Do?” National Bureau of Economic Research, July 2016, https://tinyurl.com/y53pyu5s. A deep analysis of performance reviews by two University of Pennsylvania scholars finds that an employee’s annual appraisal scores vary over time and are influenced by a variety of factors, such as merit pay and promotions.

Culbertson, Satoris S., Jaime B. Henning and Stephanie C. Payne, “Performance appraisal satisfaction: the role of feedback and goal orientation,” Journal of Personnel Psychology, January 2013, https://tinyurl.com/yyr5epoy. Research by three professors shows that employees have bad reactions to negative feedback – even those who say they want to hear how they can improve.

Fishbach, Ayelet, Tal Eyal and Stacey R. Finkelstein, “How Positive and Negative Feedback Motivate Goal Pursuit,” Social and Personality Psychology Compass, 2010, https://tinyurl.com/pt5ftod. According to an analysis of workers’ response to criticism, new hires want only praise from supervisors, but employees who have been at a company longer expect some negative feedback.

The Next Step

Companies

Burkus, David, “How Adobe Structures Feedback Conversations,” Harvard Business Review, July 20, 2017, https://tinyurl.com/yyoesly8. Computer software company Adobe uses informal check-ins to discuss an employee’s objectives, offer coaching on how to meet the goals and plan for future development.

Rissell, Matt, “Performance Reviews Suck, Here’s What We Do Instead,” Forbes, May 26, 2017, https://tinyurl.com/y5hc2rmc. The CEO of a mobile time-tracking company eliminated annual performance reviews in favor of frequent one-on-ones with employees.

Staley, Oliver, “A kinder, gentler Microsoft is replacing feedback with ‘perspectives,’” Quartz, Sept. 10, 2018, https://tinyurl.com/y494xjr2. Tech giant Microsoft’s new feedback system aims to encourage more supportive conversations with managers and be less intimidating to employees.

Innovation

BasuMallick, Chiradeep, “4 Steps to Modernizing Performance Management, the People-first Way,” HR Technologist, March 28, 2018, https://tinyurl.com/y5sxgb5w. Managers can improve performance management by shifting from formal annual reviews to more frequent chats with employees, among other tactics, says a marketing writer.

McGregor, Jena, “Everything you know about giving feedback at work could be wrong,” The Washington Post, Feb. 20, 2019, https://tinyurl.com/y67knvqg. Managers need to stop giving personal feedback or advice to employees and instead focus on relaying the facts about and reactions to an employee’s performance, says a management expert and author.

Rascoff, Spencer, “How to Upgrade Your Company’s Performance Reviews,” Inc., Feb. 19, 2019, https://tinyurl.com/y6l36fdy. Online real estate database Zillow evaluates employees’ adherence to the company’s core values in tandem with job performance to encourage personal growth and teamwork, says the CEO.

Organizations

Association for Talent Development
1640 King St., Alexandria, VA 22314
1-800-628-2783
www.td.org
A membership organization that supports professionals who seek to improve worker performance, skills and knowledge.

Bureau of Labor Statistics
2 Massachusetts Ave., N.E., Washington, DC 20212-0001
1-202-691-6573
www.bls.gov
An arm of the U.S. Department of Labor that collects, analyzes and distributes comprehensive information on workers, the workplace and the economy, including the monthly jobs report.

National Association of Personnel Services
78 Dawson Village Way, Suite 410-201, Dawsonville, GA 30534
1-844-627-7360
www.naps360.org
A lobbying group for staffing professionals that provides education and standards of practice for members.

National Bureau of Economic Research
1050 Massachusetts Ave., Cambridge, MA 02138
1-617-868-3900
www.nber.org
A private, nonprofit organization that publishes studies, reports and data for businesses, lawmakers, universities and the media.

Office of Personnel Management
1900 E St., N.W., Washington, DC 20415
1-202-606-1800
www.opm.gov
The U.S. government agency responsible for helping federal departments hire, supervise and retain public employees. It provides guidance on administering performance management programs and complying with labor regulations.

Society for Human Resource Management
1800 Duke St., Alexandria, VA 22314
1-800-283-7476
www.shrm.org
The largest organization of human resource professionals, providing research and training for about 300,000 members and lobbying lawmakers.

Society for Industrial Organizational Psychology
440 E. Poe Road, Suite 101, Bowling Green, OH 43402
1-419-353-0032
www.siop.org
A group working to advance the field of industrial and organization psychology and improve worker performance and satisfaction through conferences and research.

DOI: 10.1177/237455680508.n1