There are few processes more hated in the workplace than annual performance reviews. Criticised for being biased, outdated, stressful and misaligned with how people actually work best, they have been an established feature of structured workplace feedback since at least the mid‑20th century, yet for many they are no longer fit for purpose.

Designed for a world of rigid job descriptions and top-down control – not the agile, knowledge‑driven workplaces of today – HR guru Liz Ryan from Human Workplace argues traditional performance reviews stem from the ‘Godzilla’ model of labour from the Industrial Revolution: “a management tool intended to control workers ‘too stupid to understand what they were doing’”.

But while they can be severely lacking in some aspects, performance reviews are a useful tool if they are tailored to meet the needs of both managers and employees.

They are also good for business, McKinsey research shows companies that focus on their people’s performance are 4.2 times more likely to outperform their peers, which equates to 30% higher revenue growth, on average.

So, what is the best approach to monitor and manage employee performance?

“Ideally, performance reviews should offer insights and opportunity for future growth.”

Getting the process right

People crave feedback and clarity so getting the review process right is really important, says Jaime Gallocher, founder of The People Project, a New Zealand-based HR consultancy. It creates structured opportunities for two-way feedback, clarifies expectations aligned with organisational strategy, surfaces development needs, and supports fair, data‑informed decisions about growth and rewards, she says.

“An annual performance review helps staff feel that they have an opportunity to understand how well they’re doing and whether they feel valued and, from an employer’s perspective, it’s also an opportunity to ensure that there are really clear expectations around performance,” says Gallocher.

“But if you rely solely on performance reviews, people may be blindsided by the feedback they receive because they haven’t had any conversations during the year to alert them to potential issues.”

This contributes to the perception that reviews are just a compliance requirement, rather than an opportunity for meaningful development, says leadership and performance coach Stacey Ashley. Problems can also arise if the annual review is tied to remuneration or promotion, she adds.

“Of course, performance should have some impact on how much someone is paid. If an employee is a high performer and contributing at a significantly higher level than others in the same role, then it makes sense that they could be compensated at a higher level,” she says.

“However, it is terribly unfair if decisions about salaries or career advancement are based solely on a single annual performance review, without ongoing conversations throughout the year.”

Instead, Ashley suggests allowing time for thorough preparation in setting goals, defining measures of progress and success, and gathering supporting evidence.

“By dedicating the necessary time and thoughtful planning, the review transforms into a valuable opportunity, rather than a routine formality,” she says.

“Ideally, performance reviews should offer insight and opportunity for future growth, provide feedback and assess performance against agreed goals. Unfortunately, not enough organisations use them with that kind of positive intention and they become more of a box‑ticking exercise, where managers see them as just another task.”

Employees may also have very different expectations of reviews and feedback, says Leanne Bloomfield, director of people and culture Australasia at HLB Mann Judd.

“With four generations now active in the workplace, there are different expectations regarding performance reviews,” she says. “Baby boomers [aged between 61 and 79], for example, have been through so many performance appraisals and goal-setting processes. As a result, they tend to be more comfortable navigating their development but they still benefit from clear guidance and check-ins, particularly when transitioning into a new role or organisation.

“Younger generations, on the other hand, want feedback and they expect it in real time. They value immediacy, relevance and a more collaborative approach to performance conversations,” she says.

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Daily stress

What percentage of workers globally are experiencing high levels of stress during their workday?

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Ditching the ratings system

Performance ratings are a polarising topic within performance measurement and are often a standard feature in larger or corporate organisations, notes Gallocher.

“Many corporates practise ‘forcing the bell curve’, which means ensuring approximately 60% of the business falls into the ‘successful’ category, 5% into ‘non-performance’ and 5% into ‘top performance’, with the remaining percentages filling the rest of the curve,” she says.

SMEs on the other hand, tend to focus more on assessing performance against both the technical requirements of the role and the values or desirable behaviours within the organisation.

“This approach promotes evaluating not only an individual’s technical capability but also whether they are living company values and if they are good team players. Incorporating values into performance reviews helps manage behavioural issues, which can often be at the root of performance issues,” she says.

A blended approach

Many HR professionals now recommend moving towards a dynamic and ongoing approach to performance management, says Bloomfield.

“There is no single method of performance review that’s perfect and for that reason many businesses are landing on a combination of approaches,” she says. “The most effective strategy is a blended model: one that retains a structure of formal appraisals or reviews but is supported by regular, human-centred touch points.

“When seen as an administrative formality, the opportunity for growth and connection can be lost, regardless of the method used,” Bloomfield adds.

A blended approach can include continuous feedback. If feedback is covered and noted along the way, managers are less likely to focus only on recent mistakes or achievements, says Ashley.

“Just like in a sports game, you wouldn’t wait until the end to give feedback that could change the play. Similarly, at work, waiting 12 months for feedback doesn’t help anyone,” she says.

Collaborative goal setting, coaching conversations and career development planning are other tools managers can use to help create a more engaging and supportive environment, says Bloomfield.

Quarterly check-ins

Moving from annual to half-yearly or quarterly reviews is a critical move for any business that wants to take constructive steps in turning performance management from a bureaucratic chore into a strategic asset, says Kerryn Strong, co-founder and people and culture specialist at Freerange in New Zealand.

“I advise managers wherever possible to do reviews on a quarterly basis. Annual reviews are only useful if you’ve developed a mature feedback culture because then it’s just really a wrap-up, rather than a tool to look at how someone is going in the role,” she says.

Quarterly reviews also help you catch people who are off track sooner, which leads to improved productivity and business outcomes. The more clarity you provide people, the better their performance will be, she notes.

Peer and 360-degree reviews

Another way to approach performance is using 360-degree feedback, especially if it’s integrated into a broader, more dynamic approach, says Strong.

It involves gathering feedback from various sources beyond just the direct manager, which can include peer feedback and upward feedback (from staff to managers). Good HR platforms can be used to facilitate this process, allowing for the collection of confidential feedback.

“360-degree feedback is definitely needed when a manager does not have day-to-day involvement with their direct reports,” she says.

For example, in an accounting firm, direct reports might be working on different client projects with other partners or supervisors, meaning their direct manager may not regularly observe their work. In such cases, 360-degree feedback helps gather insights from those who do have daily interactions.

“More broadly, any opportunity to get peer feedback, whether that is upward feedback or subordinate feedback, is seen as strengthening the overall feedback process,” says Strong.

Adds Bloomfield: “The most important thing is to understand that there are no shortcuts to good performance management. You can’t just pick one method and set and forget. You have to consider the individual, their career stage and the kind of support that helps them thrive.”