Managers have plenty of responsibilities and tasks daily. But one in particular can cause dread among even the most seasoned: employee performance reviews. These performance evaluations rate the core competencies and shortfalls of direct reports, but managers can flounder without a solid rubric or goal in mind.

If you’re thinking about how to improve your performance reviews, you’re one of the many managers with the same thought in mind.

An effective performance review mechanism encourages retention, positive feedback, and collective goals. It also gives boosts to your company culture and the employee experience and turning individual contributors into an efficient team.

Though it’s not a one-size-fits-all approach, learning how to improve employee performance reviews can reap benefits in the present — and the future.

Why You Need To Learn How To Improve Employee Performance Reviews

Christmas is a time for joy, gift-giving, and fun, but it’s also a time of great stress for managers and businesses. For many organizations, December is a careful balancing act involving how to run a performance review process without spoiling Christmas.

What should be a constructive opportunity to review employees’ progress and reward them in time for Christmas has become a process that almost everyone is unhappy with to some degree. When we spoke to managers, only 22% said they were happy with their performance review process. On the other hand, a Gallup survey found that only 14% of employees strongly agreed that their performance reviews inspired them to improve.

The criticisms vary depending on the process, but they’re usually some combination of complaints that employee performance evaluations are:

• Time-consuming
• Unfair
• Artificial
• Inaccurate
• Subjective
• Drawn-out
• Unpredictable
• Non-existent

It’s a shame because, at their best, performance appraisals are a brilliant tool for boosting performance and morale. No wonder that there are plenty of articles published around this time on how to do them.

But this isn’t one of those articles.

We’ve read many of these, and despite some excellent advice (this one by Lenny Ratchisky in particular), we’ve noticed that most seem to be missing one or more key points. So, if you want to know how to improve employee performance reviews, we have the guide to get you started.

Don’t Forget the Money

This seems obvious. We’ll elaborate.

Strictly speaking, a performance review isn’t (and shouldn’t be) about remuneration. It should be a development opportunity. It’s a space for the manager and their team members to reflect on the previous six or twelve months — what went well, what didn’t, and where the opportunities are for growth over the coming year.  

But…and there’s a big but. Many companies don’t separate performance reviews from pay decisions. They’re on the same cycle. In this scenario, the dynamics of the review can significantly shift, often through some combination of the following:

• Words are less valuable than numbers: Pay is important because, often, it’s the main way in which an organization concretely expresses its appreciation for what an employee does.  Warm words are fine, but money really talks. Good performance reviews often involve nuanced discussions where managers feel team members have excelled and astute advice on their future careers. However, if the review is linked to remuneration, these words will often pale in significance compared to whatever measure defines the paycheck (often a numerical rating). Rather than discussing an individual’s strengths and development opportunities, conversations will devolve into why someone is a ‘2’ or a ‘3’. This is completely understandable, given the stakes, but a huge missed opportunity.

• Discussing challenges comes with a cost: It’s often said we learn most from our mistakes, and from a developmental perspective, these should be discussed in depth during a performance review. However, if team members feel that emphasizing mistakes is going to negatively affect their ratings or remuneration, they’re naturally reluctant to discuss them. This is particularly true for processes that include a self-evaluation form, where team members are asked to submit an assessment of their own performance.

• The integrity of the process will be questioned: If you’re translating performance into paychecks rather than discussing employee development, there’s a good chance you’ll instead spend time going back and forth on this process. Again, this is an understandable debate to want to have, but it’s all distracting from the developmental aspect of the review.

Practical Tips

Assuming your company links remuneration to performance reviews, a few tips can ensure this doesn’t derail your reviews and help you improve employee performance reviews:

• Explain the performance/remuneration link: Often, the link to remuneration is left as the elephant in the room, which undermines trust in the entire process. Be upfront about it with your team. Explain exactly how your organization translates performance into rewards, and answer any questions before the reviews take place. You’ll probably still have some ground to cover in the review meeting, but it will maximize the time for development discussions.  Your team may also appreciate your understanding of how important the remuneration aspect is.
• Deliver ratings before the meeting: Although your organization may closely link performance and pay, you can create a better space for discussion by communicating them separately. Sending team members any ratings and comments (depending on your process) ahead of the meeting is particularly efficient and welcomed. It enables them to prepare for a discussion rather than having to digest the number on the spot amid talks of constructive feedback, performance improvement, and career aspirations.
• Emphasize the developmental aspect: If the emphasis is on pay, some team members may struggle to perceive the developmental benefits of the review process. But sitting down with your team to explain that the review process is not just about sorting people on a pay distribution curve but genuinely exploring their performance over the past year to make plans for future progress.
• Create more opportunities for career discussions: Reviews that descend into discussions of pay often feel like a missed opportunity because substantive career discussions take place so infrequently in some organizations. But it doesn’t have to be this way. If you are discussing your team members’ long-term careers and professional development in monthly or even quarterly meetings, then it doesn’t matter as much if the annual review becomes focused on remuneration.  

Breaking Down the Problem

Many companies set up performance management processes with the best intentions. Often, some combination of:

1. We want to track progress, help our people improve their overall performance, and get better at their jobs.
2. We want to work out what we should pay people.
3. We want to fire people without being sued.

Ok, so maybe the third one isn’t that well-intentioned.  

However, the majority of employees' performance review experiences are motivated by their companies’ approaches to points 1 and 2. The processes they design to do this are usually some combination of assessments, ratings, and feedback.

Few would dispute that improving performance and compensating people are crucial to any business's success. We’re not suggesting that you should stop doing them.

The problem is that discussing them one-on-one with employees in parallel is an absolute disaster.

Having an unbiased conversation about performance/performance feedback is almost impossible if employees believe whatever they say will impact their paycheck. People will always be tempted to present what they think their manager wants to hear rather than a genuine reflection on their areas for improvement.

This comment from a manager using one of these processes is a classic of the genre:

“The person being appraised is not very genuine about their strengths and their weaknesses and their areas of development, and I think that’s mostly because of fear and not wanting to give managers information which could be used against them.”

Second, a lot of the information collected to assist development conversations (self-assessments, 360 feedback) isn’t taken into account with regard to compensation. If it’s unclear what information is being used for what, at best, this creates inefficiencies and, at worst, makes pay processes appear opaque or even unfair.

Third, combining the two creates a dysfunctional monster trying to pull in several different directions at once. Six months can elapse from asking employees to reflect on their performance to anyone actually getting paid more.

Although the initial aims are valid, by doing them together, both inevitably compromise each other.

How Did We End Up Here?

If this is such a bad idea, why does it happen in so many organizations? Why are companies so keen to succumb to an arrangement that means doing two crucial jobs so very badly?  

Here are a couple of theories that may resonate.

Pay for Performance

As organizations address question 1 - what they should pay people - someone, somewhere, will likely say:

‘I want to pay for performance’.

In theory, that sounds great. Higher pay for higher performance should incentivize staff to work on the areas with the greatest value and impact and compensate them fairly for it. Right?

In practice, particularly in knowledge work sectors, measuring impact and linking it to pay has been challenging.

“By all available evidence, formal attempts to rate employees don’t seem to meaningfully improve employee performance or give companies any sort of competitive advantage. Performance ratings have no relation to organizational performance whatsoever.” — Elaine Pulakos

But this hasn’t stopped companies from trying.  

Over the past several decades, companies have used all manner of data and processes to measure performance and slice employees into different pay grades, from simple manager assessments to ratings, surveys, stack rankings, and more.  

As discussed, the benefits of companies going ever deeper down this wormhole have been decidedly mixed. But they have been a boon for the performance review industrial complex, generating ever more time-consuming processes for teams to go through in valiant pursuit of whether someone should receive an additional $500 next year because they achieved 70% rather than 68% of their OKRs.

But that might not be the worst of it.

Career Development by Convenience

Devising a process for determining what to pay people involves collecting a lot of information about their work over the previous year.

Someone might say we should use all this information not just to consider pay but as a learning opportunity for staff so they can improve. Wouldn’t that be an efficient use of time?

Again, in theory, it sounds good.  But in practice, as discussed above, the combination of development conversations with pay discussions should be a non-starter.

We’ve arrived at a career development discussion by convenience rather than design - for perceived efficiency rather than genuine effectiveness.

It’s unsurprising when it falls flat.  It was never designed to be the best solution, just one that seemed worth doing at the time. What’s most frustrating is that in many companies, these conversations then become the set piece of career development chat. Regular feedback and coaching are left by the wayside or ‘saved up’ for mid-year and end-of-year reviews.  

In the name of efficiency, your ongoing development conversations have ground to a halt — ironic if utterly tragic.

Tinkering Rather Than Tearing Down

Once companies are in a certain rhythm of performance reviews, it can be hard to break out of it.

Structural change looks and is challenging. Plus, those tasked with looking at this issue are often understaffed and under-resourced People/Ops teams. In the past years, more than any others, they’ve had plenty of other priorities to deal with.  

Also, while everyone complains about performance processes, they often look like they “kind of work.” Judging the hours lost through inefficiency or the opportunity cost in employee development and morale isn’t as simple as it sounds. This adds up to a reluctance to tackle this underlying structural issue. Instead, companies typically look to short-term fixes.

How Can You Improve Employee Performance Reviews?

Let’s discuss some practical steps you can take to either improve or prevent this from happening in the first place, particularly if you’re a startup or SME without a well-resourced People function.

Many of the sins of bad performance processes seem to result from a lack of attention to the core jobs these processes were originally intended to do. Of course, a lack of attention to this area is forgivable. Companies certainly have more interesting ways to spend their time, from problem-solving to organizational goals to analyzing metrics.

However, this is exactly what allows performance management processes to drift and become that dysfunctional mess that everyone has to tolerate once or twice a year.

Let’s revisit those two initial aims and consider what it would take to implement the best solution.

1. How best can we help our people improve performance and get better at their jobs?
2. How best can we work out what we should pay our people?

Once you’ve acknowledged that trying to answer these together is self-defeating, asking them separately becomes pretty liberating.  

You get to come up with a development framework that is focused on improvement, not when your financial year falls. You also get to think about a clear compensation framework that isn’t muddied by the minutiae of who did what last year.  

Most of all, you get to think about what would be best for your people, not try to shoehorn someone else’s performance management template into your culture and operations.

You’ll almost certainly make your company more efficient while doing it. It’s well-documented that the sheer number of hours spent on it (2 million and 80,000 hours, respectively) pushed large companies like Deloitte and Adobe into reforming their practices.  

Think what your people could do with all that time.

For People Teams/Decision-Makers

If you’re reading this piece and feel your performance management processes could be improved, and you have the power to change them, hopefully, it’s given you some food for thought.

As a practical first step, we’d suggest setting up a working group to consider the questions we just posed:

1. How best can we help our people improve performance and get better at their jobs?
2. How best can we work out what we should pay our people?

We’ll guarantee the answer isn’t in random review periods.

Instead, you’ll probably start developing some great ideas for how you can better support your employees now that you don’t have to try to do these two things simultaneously.

We don’t want to preempt your discussion, but if you need some inspiration, setting better expectations through career progression frameworks, supporting progress through regular feedback, check-ins, and goal-setting, and helping managers have career conversations with their teams might be some options to consider for question 1. For part 2, options like role-based pay, changing bonus/salary/equity structures, and salary transparency might all lead to fruitful debates.

For Frontline Managers

If you’re a manager reading this and don’t have any power to change your existing processes, there’s still plenty of scope to help your team. First, you can forward this article to whoever you think needs to hear it. Second, let’s discuss question 1 (we accept that you might have limited influence over compensation processes).

Just because your company does a lousy job of thinking about employee development between review cycles, doesn’t mean you have to.  Start thinking about how to make your existing reviews a feature of your ongoing support to your team, not the focus.

Ask yourself the question:

How best can I help my team improve performance and get better at their jobs?

That may give you a few ideas. Even better, ask your team:

How best can I help you improve and get better at your job?

Just these two questions can play a vital role in learning how to improve employee performance reviews.

Take the Next Step Toward Better Performance Reviews

If you need help devising ways to improve your review process, increase employee engagement, or encourage frequent feedback, Unicorn Labs has the tools you need. With our in-person coaching, leadership retreats, and endless online resources, you can build high-performing teams and better annual performance reviews. It’s the missing puzzle piece that can bolster your management skills and your team’s horizons.