As Published in Business 2 Business , April 2004

21 Reasons Why Performance Reviews Fail
By Ira S. Wolfe

Ask any manager what he hates most about his or her job and you'll likely hear “performance reviews”. For many reasons, these periodic employee evaluations have been done poorly if at all in the past. But there is a runaway train barreling down the track called global competition, coming right at you. The engine of this train is fueled by productivity; the cars that follow determine the profitability.

And simply put, too many organizations are not firing on all cylinders and they are now paying the price. No problem you think, “The economy is turning around and there a lot of people who are out of work. If anyone can't pull his or her own weight around here, we'll have plenty of replacements.”

Nice try but despite the number of unemployed workers available and the number of employed workers willing to jump ship, the quality of the labor pool isn't very good. Just ask anyone who has tried to hire a skilled or professional employee lately.

But this isn't entirely the fault of the worker. Work today requires more knowledge and skills than ever before. Organizations are more dependent on human capital to build value than ever before.

As recently as 1982, sixty-two percent of the value of an organization was measured by its tangible assets. By 2002, nearly eighty percent of its value shifted to intangible assets, Yes the human capital of any organization now accounts for eighty percent of its values.

As a result, smart organizations seem to be interested in optimizing the way these precious assets are managed. Establishing an effective performance management system is an organization's way of doing just that.

The key to motivating performance (tying performance to rewards) in organizations is to have accurate measuring systems of individual performance, To develop, individuals need feedback about their strength and weaknesses. For organizations to grow, they need performance information to correct performance problems and assess the effectiveness of their improvement efforts.

So how is this working? Just last week, we hosted front-line supervisors from four local businesses. Each of these businesses ”sent” several front-line supervisors to “learn to be better people managers”. This particular session focused on Appraising People and Performance.

Not surprisingly, no one in the group raised their hands when we asked,” how many people look forward to performance reviews?” When asked why, we heard that performance reviews could end up being confrontational or they had too many people to review and not enough time. Not a single participant had ever been trained how to evaluate an employee and they “didn't know what to say or do”.

With only two exceptions, these same supervisors who were being “trained” on how to evaluate performance, are not being evaluated themselves. We asked them how that made them feel. Here is what we heard:

“It gives us a false sense of security that we are doing okay.”

“I feel like my manager is just collecting everything I do wrong in a personal diary and is just waiting to unload on me one day.”

“I have no motivation to improve.”

One of the supervisors who was fortunate enough to be reviewed was told, “Last year we focused on what was right. This year we are going to focus on what you need to change.”

Another supervisor asked his manager about scheduling a review and was told, “Don't worry about the review. You're doing a good job and I'll put your raise through.”

While having an effective performance management system may never make evaluating employees a fun thing to do, organizations no longer have a choice whether to enforce it or not.

Performance management is not just about having a document in the employee's file just in case you ever choose to discipline or terminate him or her. Effective performance management is about linking individual performance to corporate strategy.

Organizations must begin to measure human performance just as they have done with process improvement and how they track and audit their financials. But according to Robert Kaplan and David Norton, developers of the Balance Scorecard, less than 10% of all strategic plans are effectively executed. Is it any wonder why?

With over eighty percent of their company value in people assets, most employees aren't being evaluated consistently if at all (See 21 Reasons Why Performance Reviews Fail) and even those who are, aren't receiving a fair appraisal.

In an 11-year study that included more than 200 companies from 22 industries, the financial and operational performance measure of companies who “lived” performance management and those organizations who did not were compared. The economic impact was enough to give any executive chills up and down their spine - or just want to throw up his/her hands and cry.

The revenue growth for organizations with performance enhancing culture was 682%; for those without, these organizations grew by 166%. While many organizations might be happy with 166% growth. You'll probably want to read more. When you take a look at the bottom line of these two groups, the net income growth (the bottom line) of the performance enhancing organizations grew by 756% while their counterparts grew by a measly 1%!

In a second study representing 2,800 firms, the top 10% verses the bottom 10% were compared. At the conclusion of the study, the top 10% sales per employee were $617,575 compared to $158,101 for the bottom ten. The turnover rate was 20.87% to 34.09% respectively. The combined results of these and other factors resulted in a 391% Return on Investment for the performance enhancing organization.

With so many unprecedented competitive pressures, should an organization really take its limited time and resources to invest in creating a performance-based culture? Why not just get employees to go out and work harder? I'll let the numbers cited above to speak for themselves.

What follows is a list of 21 reasons why performance reviews fail. These reasons were provided by clients and seminar participants.

1. The reviewer and employee have a personal friendship outside of work and both individuals can't differentiate their manager-employee role from their friend-friend relationship.

2.  The reviewer and the employee see themselves as part of a team. Team members are supposed to encourage one another, be supportive in good and bad times. But when the manager has to provide negative feedback or discipline the employee, these actions are viewed as divisive.

3.  When not provided regularly, annual (or even less periodic) reviews can be based on most recent performance, not performance over the course of the year. The results go both ways. Employees who put on their best behavior around review time get favorable ratings and the employee who has a bad couple of weeks gets punished.

4.  Performance reviews are only scheduled when an employee is not performing up to expectations or a company needs to terminate/lay-off the employee.

5.  “You know nobody's perfect and there is always room for improvement.” The manager doesn't believe in rewarding an employee with a “10” (out of 10) even when he/she deserves it. Some employers actually use a rating scale of 1 to 9 because no employee deserves a 10 in their minds.

6.  Annual reviews are really justification for salary freezes or smaller than expected salary increases. The manager might downgrade an employee's performance feeling that with a high rating comes a demand for more money. Likewise, with a high rating, the employee might feel justified in requesting more salary or benefits.

7.  Inconsistency in reviews and multiple standards. One manager might rate an employee a “7” because he/she doesn't believe anyone deserves a “10” while another manager rates an employee higher than he/she deserves hoping this might boost the employee's confidence and subsequently his/her performance. (If performance ratings are directly tied to salary, this many times creates tension, conflict and low morale.)

8.   A manager doesn't distinguish between personality and competence or effort verses results. The manager rewards the employee who is easier to manage even if he/she misses performance expectations and/or can't do the job.

9.  A manager doesn't provide the rating an under-performer deserves because if the employee quits, this will make more work for the manager (that is, more interviewing and training….and who knows if the next employee might even be worse!).

10.  “Hey, when you have a minute, I'd like to talk to you.” Performance reviews are “sprung” on the employee.

11.  “I really hate doing reviews but HR says I have to – so let's just get it over with. “ Performance reviews are scheduled because you've been told you have to do them.

12.  The criterion for performance is not prioritized. Attendance and positive attitude gets the same weight as the quality and quantity of work and safety. So the employee who shows up everyday on time with a smile on his/her face gets an equal or higher rating than the individual who is occasionally late and is more introverted but exceeds all productivity goals.

13.  Performance reviews are only scheduled when the manager has “had enough” or complaints are received from co-workers or customers.

14.  Supervisors and managers have never been trained to evaluate an employee's performance.

15.  Supervisors and managers never wanted to be in the job of supervising and managing other employees and it shows. It was just that it was the only way for them to stay with the company or get more money.

16.  Employees were promoted to be a supervisor or manager because they really like helping people or were well liked but find it excruciatingly painful to hold people accountable. They really want to be your friend, not your boss.

17.  Performance reviews are required to be completed annually but this policy is not enforced. Some employees are reviewed and others are not. The employees who are reviewed might feel singled out and the non-reviewed employees feel ignored.

18.  Performance reviews are required for documentation just in case the organization ever needs to terminate or layoff the employee.

19.  Performance reviews are the safety valve for a poor selection process.

20.  The manager and employee differ on how goals are set – one manager/employee feels that stretch goals are set to motivate employees to work harder while another manager/employee sees goals as just unrealistic expectations that you try hard to achieve but no one really believes you will reach them.

21.  Performance reviews are all about protecting the company from litigation and complying with employment laws and not about evaluating performance for improvements in individual productivity and growing the company's collective talent pool.

For more information on making performance reviews easier and more effective, click here.

Ira S. Wolfe is the founder of Success Performance Solutions, and author of the new book Understanding Business Values and Motivators . Success Performance Solutions are experts in CriteriaOne®: Job Benchmarking and Competency Modeling and employee assessment. For more information about these programs and services or to order his new book,, contact Ira at 717.656.4632 or iwolfe@super-solutions.com or visit www.super-solutions.com.