Lee Hecht Harrison

Are annual performance reviews necessary?

June 27, 2012: 10:54 AM ET

Ninety-eight percent of human resources executives say yearly evaluations aren't useful, according to a recent survey. So why are companies still doing them?

FORTUNE -- If you've ever been frustrated, annoyed, or otherwise perturbed by annual performance reviews -- whether giving them, getting them, or both -- here's something that may surprise you: Not even the HR people in charge of overseeing yearly appraisals really think they're worth doing.

At least, that is one finding from a recent poll of 2,677 people (made up of 1,800 employees, 645 human resources managers, and 232 CEOs) by San Francisco-based rewards-and-recognition consulting firm Achievers, which numbers Microsoft (MSFT), 3M (MMM), CVS (CVS), and Levi Strauss among its clients.

Although virtually all the companies surveyed use some form of annual evaluation as their chief means of giving performance feedback to employees, only 2% of HR people think these reviews accomplish anything useful.

What's more, the study found a big disconnect between what CEOs think is going on below them and what employees say actually happens. (What? That doesn't shock you?) Consider: 57% of CEOs believe their people are "regularly recognized" for their hard work and contributions. Employees who agree: 9%.

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While 61% of employees say they would welcome immediate, on-the spot feedback from bosses and peers about how they're doing, only 24% say they get it. Meanwhile, 54% of CEOs believe they do.

"That gap may be because CEOs are projecting, based on their own behavior," notes Achievers chairman Razor Suleman. "Chief executives usually give their own direct reports frequent feedback about their job performance, so they think everyone is doing that all down through the ranks."

If not even the HR department sees any real value in annual reviews, why are they still so ubiquitous? Part of the answer is that, for legal reasons, companies need a formal, standardized method of creating a "paper trail" that documents discussions about performance problems, in case a terminated employee later decides to sue. Still, with the technology currently available, there's no logical reason why managers couldn't track and report the same information in real-time instead of once every 12 months.

"The annual review is a relic of the pre-electronic past," observes Suleman. "It persists mostly out of inertia. If you ask, 'Why are you doing this?' the response you usually get is, 'Because we've always done it this way.'" A far more productive way of giving feedback, he adds, is "having coaching conversations every day, instead of once a year." More

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