Executive Summary
- Traditional performance reviews trace back to a merit-based system the U.S. military used in World War I and were used by nearly 90% of U.S. companies by the 1960s, but by 2015 only 12% of U.S. companies were not considering reconfiguring their review systems.
- Performance reviews are most effective when centered on employee development rather than pure accountability, helping guide career growth, lateral movement, and internal promotion.
- Bias remains a significant issue in performance reviews: one study cited found women are negatively stereotyped at a rate seven times higher than men, and white and Asian employees are twice as likely to be positively stereotyped as "intelligent" compared to Black, Hispanic, and Latinx employees.
- According to Gallup, only about 14% of employees strongly agree that their performance reviews inspire them to improve, and per WTW, only 26% of organizations consider their performance reviews highly effective.
Ah, performance reviews. What once was a standard in almost every workplace has since been called into question over its efficacy and bias. The questions surrounding performance reviews seem endless: How do I perform an unbiased performance review? Do we need performance reviews? Without performance reviews, how can I hold employees accountable who aren’t performing up to our standards? What’s the alternative?
These are all excellent questions, and they’re ones that we here at Payday HCM have heard time and time again from businesses. They can be difficult questions to navigate, especially when your business’ performance and your employees’ satisfaction is on the line. It’s important that every angle be examined and that no stone be left unturned.
In this article, we’ll go through the pros and cons of performance reviews. We’ll start by looking at the origins of performance reviews and why they’ve been called into question in recent years. We’ll look at both sides of the coin regarding performance reviews so that you can make the most informed decision for your business.
- The Rise and Fall of Performance Reviews
- The Pros of Performance Reviews
- The Cons of Performance Reviews
The Rise and Fall of Performance Reviews
Before we can look at the advantages and disadvantages of performance reviews, we first need to understand where they came from and why they became so standard in the first place.
The Origin of Performance Reviews
The genesis of performance reviews can be traced all the way back to World War I, with the U.S. military implementing a merit-based performance system to track poor performers, according to the Harvard Business Review. This system would evolve during World War II, focusing more on tracking top performers with the potential to become officers.
After WWII, companies began adopting these early iterations of performance reviews, with nearly 90 percent of U.S. companies using some sort of merit system to track and award employee performance in the 1960s. These systems would continue to be utilized throughout the 70s, 80s, and 90s with a large focus on accountability rather than development.
The Decline of Performance Reviews
The early 2000s saw the first sign of change in regards to performance reviews. New data revealed both employers and employees felt dissatisfaction with performing and receiving reviews. A document called the “Agile Manifesto,” developed by a group of software engineers, would outline a new method for monitoring performance. This method focused more on regular reflection on job performance rather than more infrequent performance reviews.
The biggest blow would come in 2011 when it was revealed Adobe was shifting away from performance reviews to a model more focused on debriefing sessions immediately following certain projects. By 2015, only 12 percent of U.S. companies were not considering reconfiguring their performance review system.
The Pros of Performance Reviews
While performance reviews have declined in popularity over recent years, there is a reason that they became popular in the first place.
Performance Reviews and Employee Development
While the first inception of performance reviews focused more on accountability, performance reviews are most effective when centered around employee development. Performance reviews shouldn’t give the impression that you are policing your employees. Instead, performance reviews should simply let the employer and employee know where the employee is now and where they should be in the future.
Having a strong system for employee development can improve employee retention and help with things like lateral movement and promoting from within. Fostering talent within your organization is a great way to invest in your company’s future.
Performance Reviews are Instinctual
It can be difficult to admit, but ensuring an organization’s success means knowing who is performing well and who has some room for improvement. An article published in the journal “Industrial and Organizational Psychology” highlights that it’s almost impossible to avoid evaluating individual performance within an organization, given its role in ensuring an organization performs well.
That being said, there is a distinction to be made between performance evaluation and management. It’s important that performance reviews focus more on providing detailed and constructive feedback rather than arbitrary and potentially dangerous ratings. Ultimately, there is still a right and a wrong way to do performance reviews.
The Cons of Performance Reviews
Much like there was a reason for performance reviews becoming popular, there is also a reason for the steady decline in popularity of performance reviews.
Bias in Performance Reviews
Probably the biggest issue with performance reviews is bias. Factors like race, gender identity, and sexual orientation can lead to unfair and incorrect performance reviews.
According to Textio, women are negatively stereotyped at a rate that is seven times higher than men. White and Asian people are also twice as likely to be positively stereotyped as “intelligent” when compared to Black, Hispanic, and Latinx people. These types of biases can be extremely damaging and ultimately undermine the efficacy of performance reviews.
Effectiveness and Participation (or Lack There Of)
The second biggest problem with performance reviews is that generally speaking, everybody hates them—employers don’t like doing them, and employees don’t like receiving them. According to Gallup, only about 14 percent of employees strongly agree that their performance reviews inspire them to improve.
Not only that, but performance reviews have also proven to be largely ineffective. According to WTW, only 26 percent of organizations are able to find a way to make their performance reviews highly effective—compare that to the 41 percent that say their performance reviews provide low effectiveness.
The Future of Performance Reviews
Evaluating individual performance within your organization is a scary task. You want to be able to foster the right skills while weeding out the bad ones. You also don’t want anyone to feel like they are being unfairly treated or that the feedback they receive is ineffective. Performance reviews are one method for going about all this, but it’s important to decide whether it’s the best step forward for your organization.
Providing your employees with regular and constructive feedback can be a key player in ensuring your most talented employees stay at your company. Learn more about how you can retain your newly hired talent.
Frequently Asked Questions (FAQs)
Q: Do I still need to do formal performance reviews for my employees?
There's no single right answer — it depends on your goals. Performance reviews can help with employee development, promotion decisions, and holding people accountable, but research cited in the article shows only about 14% of employees feel reviews actually motivate them to improve, and many organizations report low effectiveness. Some companies (like Adobe) have shifted to more frequent, informal check-ins instead of annual reviews.
Q: How can I reduce bias in performance reviews?
Bias is one of the most cited problems with traditional reviews — for example, research shows women are stereotyped far more negatively than men in review language. Focusing reviews on specific, documented outcomes and behaviors (rather than subjective impressions), training managers on consistent criteria, and calibrating ratings across teams are practical ways to reduce this risk.
Q: What's a good alternative to annual performance reviews?
Many organizations are shifting toward more frequent, informal feedback — brief check-ins after projects or milestones rather than one formal review a year. This approach, popularized by the "Agile Manifesto" and adopted by companies like Adobe, tends to feel less like being "policed" and more like ongoing coaching.
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