Is Getting Rid of Performance Reviews Really a Good Thing?

The Huffington Post reports today on a new study about employee performance reviews by CEB, a consulting firm that offers talent management solutions to its clients.   In recent years, some firms have chosen to do away with the traditional annual performance review.   Some good reasons exist for eliminating these reviews, as the process often does not deliver desired results.  CEB finds, however, that eliminating such review systems may do more harm than good.  Here is an excerpt from the CEB report of their findings:

What’s more, the improvements in measures of employee performance that companies expect actually fall because managers struggle to make and communicate performance and pay decisions without ratings. In fact, less than 5% of managers are able to effectively manage employees without ratings. CEB analysis shows that eliminating ratings leads to four unintended outcomes.

• Manager conversation quality declines by 14% because managers struggle to explain to employees how they performed in the past and what steps to take to improve future performance.
• Managers have more time, but time spent on informal conversations decreases by 10 hours because managers do not shift that extra time toward ongoing, informal performance conversations.
• Top performers’ satisfaction with pay differentiation decreases by 8% because managers have trouble explaining how pay decisions are made and linked to individual contributions.
• Employee engagement drops by 6% because managers are unable to do the very things that are proven to engage employees, such as set expectations for their, hold clear performance and development conversations, and provide appropriate rewards and recognition.

In sum, the theory of removing the annual review process is that more frequent, informal feedback could be more effective than an annual "event" at which managers employ a formal ratings system to evaluate and rank employees.   In reality, it appears that many managers simply do not provide sufficient feedback when formal annual review systems are eliminated.  Perhaps we should not be surprised by these findings.   Many managers would rather jump in the water off the Maine coast in January than deliver feedback to their subordinates!