Are performance reviews worthwhile?

As a business owner that employs workers, it’s important to understand the ever evolving world of human resource standards and observe how your business matches up. Currently, it has been noted that Australian businesses are using outdated performance management systems which chew up time without improving productivity.

performance review article - image 1HR consultant’s claim that out of the various businesses they have worked with there would only be a handful that actually state that their current system was working "quite well". Every business pretty much does the same thing when it comes to performance reviews, but everyone's business is evidently different. Overall, the results have shown that these reviews don't improve performance. It's just a bureaucratic system that every business owner and employee think they have to go through. It doesn't correlate to increased engagement and productivity. Lots of traditional systems are really run and managed for the benefit of the person who administers the system in the middle, where it is easier to have a standard scale, standard time frame so they can tick the box and say they've done it.

The more research that has been undertaken in relation to business practices, the more evident it is that the current system does not work.performance review article - image 2

Furthermore, since the new bullying laws came into effect in January 2014, if management does not have clear communication lines with employees over performance it can be perceived as bullying and harassment.

Further research shows that 84 percent of surveyed companies are planning to transform how they handle human resource functions, with cost savings being the motivation. Businesses are now moving away from the forced ranking model, known as "rank and yank" and towards a coaching performance review system which targets employee strengths and weaknesses against the position and not each other.

The current practice is to hold yearly performance reviews, set key performance indicators and meet again midyear to discuss any issues or goals. According to further research, of 1611 human resources and management employees surveyed, more than 34 per cent believed performance management processes were highly ineffective and only 3 per cent saw them as effective. Only 76 per cent of those surveyed said performance appraisals were "valuable and essential". Only 8 per cent agreed pay increases should be linked to and form part of the performance appraisals system each year.

Clearly, punitive performance management systems can have an overall negative effect. Therefore, businesses are seen to be moving towards quarterly goal setting, especially in the professional sector. However, performance review systems can't disappear altogether as it leads to a lawless system and employees will think they can do what they like. What business owners really need to concentrate on is realising that performance management systems are no longer simply a product or form that one buys of the shelf or adapts from a website. They have to delve deeper into the business and look at the type of employees and the skills required rather than simply looking at what you want from those employees and what they’re doing wrong.

The major down fall of performance systems is that very rarely do organisations show enough commitment to seriously ensure that the system is used to its fullest. Many companies are holding on to systems that never worked well in the first place. In some cases employees have to nag managers to remind them that their appraisal is due.

As a business owner, it’s important to regularly monitor the systems and processes used in your business and update and modify them accordingly. For further information on how to improve your business or for any further general business advice, please contact our expert business advisors on 02 9299 7044.

1 Response

  1. Sarah

    Really interesting article! It got me thinking about my own performance review.