Can performance reviews add value to a business? Mark Shaw, CEO of NEOS HR, and David Rock, CEO of Neuroleadership Institute, discuss.

Mark Shaw: Yes

When I am asked if I think traditional performance reviews add value to an organisation, my answer is an emphatic “no.” They are generally overly complicated, bureaucratic and subjective. Most managers tell me they are significant time wasters that add no value.

However, we should keep the baby, not the bath water. With some adjustments, performance reviews can provide valuable feedback to individuals and capture important corporate data for training plans and remuneration decisions.

Everyone knows that, generally, 80 per cent of employees do a pretty good job and don’t cause problems, so we shouldn’t put them into a normal distribution curve (bell curve). Why not just insist that performance reviews focus on discussing how to make a positive difference in your job? I find people have great ideas.

Rating and rankings can’t convey the full meaning of a person’s performance. ‘My sales performance is traditionally reported as 2/5 (because I only sold 10 units in the period).’ It’s so much more meaningful to say, ‘I was 20 per cent less than budget’, as I can now discuss ways to improve. This logic can apply to all performance measures and issues.

Finally, people hate filling out forms. Replace them with a quick and easy process, and people will readily see the benefits.

Systems designed using these contemporary principles lead to measurable improvement in productivity and reduced costs. So ask employees and managers if the current system works, and if they say ‘no’, redesign it. Performance reviews can add value, but it’s up to us.

David Rock: No

Performance management systems with fixed ratings are still a popular way of managing employee performance and compensation despite their terrible reputation. Compare a system with five numbers to the messiness of managers having to talk to their employees and the numbers will always win, hands down.

While there are many downsides to these rating systems, these downsides are abstract and mostly invisible.

Let’s shed some light on these downsides. First, let’s start with the maths. With a one to five rating system, over 40 per cent of your employees have to be rated a ‘B’ or a ‘C’, including top talent who’ve always gotten an ‘A’ throughout life. These people’s reactions range from mildly annoyed to furious.

During ratings season, these conversations with dedicated employees are hard. Dealing with the emotional fallout can cost your HR team a quarter of productivity. Mistrust increases across the board. Many top people leave, exhausted by inauthentic conversations with people they are trying to develop. If this isn’t bad enough, fixed ratings increase competition among employees, reducing collaboration and therefore organisational agility.

Is all this really worth a system that feels simple to manage? In the US, 43 large companies have done away with ratings altogether, and they find life on the other side a whole lot better. They are building tools for managers to have quality conversations with employees about how to improve performance. This might be a little more complex than a set of numbers, but so are human beings.

This article is an edited version. The full article was first published in the July 2015 issue of HRMonthly magazine as ‘For or against?’. AHRI members receive HRMonthly 11 times per year as part of their membership. Find out more about AHRI membership here.