Better Alternatives to Performance Reviews

Traditional performance reviews often fall short of delivering the value they promise. Even worse: They can have disastrous effects on motivation, engagement, and performance of teams and individuals. I have explored the reasons for this in detail in my last newsletter. In today’s article, I would like to explore what we can do instead to satisfy the actual needs companies and individuals might have.

How to Stop Performance Reviews?

Performance reviews frequently fail to provide meaningful insights, frequently resulting in outdated, frustrating, and irritating feedback that doesn’t reflect current performance. By eliminating them, organizations can identify underlying tensions and address them through more effective channels. By focussing on the needs, we see in organizations, we might discover better alternatives, as different needs require different approaches. First, we need to acknowledge that performance reviews do more harm than good and therefore: Just stop them. See what your organization is really missing now and develop better alternatives collaboratively.

Needs, companies try to meet through performance reviews

I see the following needs that companies try to fulfill through performance reviews:

1. Providing feedback: To achieve outstanding results and continuously improve, feedback is crucial. However, feedback during annual or quarterly performance reviews is usually too late to be helpful. In the next section, we will see how to solve the need for feedback differently.
2. Making salary decisions: Companies need to have a good way of deciding about salaries. Traditionally, performance reviews inform salary discussions. As performance cannot and should not be accurately measured, performance reviews lead to salary decisions on incomplete and false data. In the section about salary decisions we will cover better, fairer ways of distributing money to employees.
3. Promoting: In traditional hierarchical companies, promotions, and career leaders play a crucial role. In these environments, performance reviews were used to make informed decisions about promotions. However, past job performance is no guarantee for future performance. Thus, there is no point in using performance reviews for such. Furthermore, promotions assume that people can only fill exactly one role. Questioning this assumption, we will discuss how people can find their path in the organization.
4. Giving direction: Employees need to know what they should achieve, what is important, and what is not. But: Performance reviews are an inefficient way of giving direction. When we involve teams with the companies vision and mission, we do not need quarterly or annual individual events for alignment. Let’s dive into each of these four needs and discuss how we can meet them in a better way.

1. Providing better feedback better

Feedback should be as direct and as timely as possible. Peers should give each other feedback and hold each other accountable. Regular (as in weekly/bi-weekly) 1-on-1s between team members provide a space where feedback can be requested and given or where team members can build their relationships. Having a great relationship with each other makes giving and receiving feedback easier and more effective. We can also encourage people to host 360-degree feedback sessions. For these sessions, they invite 4–5 colleagues they think can provide relevant feedback about their work. Those people prepare two positive pieces of feedback and one negative/constructive one. Taking turns, people share their feedback. The receiver may ask clarification questions, but not justify their behavior in this call. I really like this format. It is intimidating at first, but people will give overwhelmingly positive feedback and very supportive and constructive feedback in this session, and the feedback will be way more meaningful than feedback of a single manager alone. What matters most in team-based work such as software engineering is, that we as a team develop better ways of working and continuously help each other to become better. Therefore, having frequent and structured ways of requesting and providing feedback to peers is more important than feedback from managers. Companies should invest in the ability of their employees to give and receive feedback, and not limit the responsibilities to provide feedback to a few chosen managers.

2. Making salary decisions

When it comes to salary decisions, organizations should focus on aligning compensation with fair market rates. This forms the foundation for everything else. If you consider hiring someone new for more money than you pay your current employees, raise their salaries. They are likely doing the job better already. Second, think about profit sharing, company shares, and other means of getting people involved with the company success. Things are way easier when company goals and individual goals are aligned. (Be careful with bonuses, as bonuses usually only align with short-term goals, if at all. See “Bonuses are bad – change my mind”). Make finances transparent and engage people with salary decisions. Everybody wants a fair salary, and a lot of feeling of injustices comes from intransparent salaries (or from unfair salaries). Make them transparent. Make company finances transparent. Have discussions in your organization about what a fair salary is. Let people request more money if they believe they need it and if they believe it is fair. You could also experiment with letting people vote on salary decisions: Who of my peers shall earn more than I do? Who of my peers shall earn less than I do? Who shall earn the same? — If you put this data in relationship, you can derive a fair distribution of money from it.

3. Promoting people

Do we actually need promotions? What for? Is it just about prestige of having a different title? About having more power? About earning more money? Promotions are inherently flawed, but to cover this topic in detail deserves another article. We actually should stop promotions altogether as they need strictly hierarchical org structures which are conflicting with self-organization, being agile, and adapting fast to context changes. But let’s say, for whatever reason, you like your roles and titles and want to assign those to people based on some system. An annual performance review certainly is not a good system. Better let people gradually transition into a new role or position. By receiving continuous feedback from people who rely on the role somebody is transitioning into, they can learn and adapt and slowly grow into the role. Furthermore, people are capable of filling multiple roles and in an ideal world, people would be able to shape their roles so they fit their unique skills and interests as well as the organizational needs. This is possible in companies, but not if roles and positions are rigid and defined top-down. Lastly, we should detach money from promotions, as money is the wrong incentive for a promotion. Furthermore, we should go away from promotions as they lead to artificially bloating roles and titles so that we can always promote someone. Let’s be honest: Nobody needs the differentiation between Junior Engineer, Engineer, Senior Engineer, Staff Engineer, and Principal Engineer, VPs, Senior VPs, and CTOs. And even worse, in two companies, those titles might mean entirely different things, so they are often misleading, too.

4. Giving direction

Giving direction and individual performance reviews are two things that do not match well. Teams should have a clear purpose that is connected to the company vision, mission, and goals. This sets the direction for entire teams. The role of leadership is to communicate high-level direction to the team. Here it can help to develop a team charter with the team together: Why does this team exist? How does the company benefit from this team? What changes for customers because of this team? — This is best figured out with the team, not dictated. This ensures buy-in and engagement. Within the teams, peers should rely on peer-to-peer feedback and conversations to understand better how each individual can better support the team purpose.

Key Benefits of the Alternatives

Moving away from traditional performance reviews has many benefits. Here are just five that should convince you to start the journey:

1. Timely Feedback: Regular check-ins and peer feedback provide more immediate and relevant insights, allowing for quick adjustments.
2. Increased Engagement: Employees feel more invested in their roles when they receive ongoing feedback and can co-create their roles, leading to higher levels of engagement.
3. Alignment with Organizational Goals: Continuous feedback mechanisms help ensure that everyone is working towards common objectives.
4. Improved Communication: Open lines of communication enhance relationships between managers and employees, as well as among peers.
5. Reduced Administrative Burden: Compared to the cumbersome process of annual reviews, alternative methods are often more straightforward and less time-consuming.

Conclusion

The traditional performance review model is becoming increasingly antiquated. By exploring alternatives such as continuous feedback mechanisms, regular check-ins, and peer evaluations, companies can create a more dynamic, transparent, and collaborative workplace. It’s time to create a culture that values open communication, collective growth, and ongoing development. Treat people like humans, not like workers, and you will be surprised how capable and caring they are. How “exploring the alternatives” will look in detail differs from company to company, but focusing on open conversations, effective feedback mechanisms and financial transparency are a great start. Do you do performance reviews? How do they work for you and what would you like to change? Want to discuss how to move away from performance reviews in your team? Schedule a free call with me. Happy to help!