The Ultimate Guide To Performance Reviews
Updated: Oct 27, 2022
In my work as an HR Consultant performance reviews is one of the topics I get asked about most. It is usually around the size of 50 to 100 employees that companies start to consider implementing them and as the company grows, having an intuitive understanding of how everyone is performing in their role becomes more difficult to do organically. Performance reviews can provide the structure and focus needed to bridge that gap. Here are some of the best practices I picked up along the way that tend to provide the best results.
Traditionally, performance reviews used to be held once a year at the end of the year to review how the past year had gone for the employee and to give them an indication of where they stand in terms of their performance and their potential to develop at the company and to form a basis for decisions on promotions and salary increases (Check out this Compensation blogpost for more details on how salary review cycles are best set up).
In more recent years, however, companies in fast-paced industries, such as the startup industry, have moved to biannual cycles to meet the high speed at which businesses operate. Whilst some companies have tried running performance reviews every quarter, this usually leads to too much of an overhead for everyone. People barely have enough time to implement the improvements they drafted in the past cycle before the next review cycle is about to start. Also, writing reviews on team members and peers can be pretty time-consuming. Leaving it to twice a year prevents people from feeling overwhelmed.
Another important thing to keep in mind when it comes to the timing of performance reviews is during what time in the year they take place. It is advisable to avoid crunch times for the business, such as the end of the year as well as the first month of the new year when teams are often the busiest. Most companies opt for the end of Q1 and the end of Q3 to run their performance reviews.
Typically, there are four different types of feedback that are gathered during performance reviews.
Self-Assessment - The team member writes a self-assessment on themselves.
Downward Feedback - Their manager provides them with ‘downward’ feedback.
Peer Feedback - 2 to 5 peers provide feedback on their colleague.
Upward Feedback - The team member provides ‘upward’ feedback to their manager.
Technically it would make sense to include all four types of feedback in each performance review cycle - the more feedback, the better. However, that usually takes up too much time - it is simply too much feedback to give to too many people at the same time. A manager might, for example, not only have to write their own self-assessment and feedback to all their direct reports, but also provide feedback to their own manager as well any peers who requested peer feedback from them. I worked with companies where some people were writing feedback from upwards of 15 people - definitely too much. The quality of the feedback is likely to also suffer.
To spread things out a bit, most companies include self-assessment and downward feedback in every review cycle, as those usually form the main foundation of development discussions, and include peer feedback only in one of the cycles and upward feedback in the other. It is also important that people always ask their peers before they nominate them to give feedback to make sure they have the time to provide feedback. They should reject the request if they are already swamped with other requests.
Focus On Development
Whilst performance reviews traditionally focus on employee performance, as the name implies, nowadays they tend to focus just as much and sometimes even more on employee development. Companies realise that in order to drive employee performance they need to invest in their development too.
Performance reviews therefore now typically consist of two parts: a performance review section that evaluates the employee’s performance looking backward to review past achievements and work-related targets, and a development section that focuses on how they can develop and grow moving forward. The development section focuses on understanding their unique skill profile, their strengths and weaknesses and forms the basis of their development goals until the next review.
Developmental goals are often tracked in a personal development plan (PDP) and can be as simple as a list of goals that the employee wants to achieve, the timeframe within which they would like to achieve them as well as individual steps and resources needed to get there. Some companies like to use the OKR (objectives and key results) format for that purpose. The development goals they are trying to achieve might be a certain kind of position they would like to grow into, or soft skills they would like to acquire, online courses they want to take to expand their knowledge, a talk they might be able to give at an industry conference, or even being a mentor to someone else in the company and/or receiving coaching themselves.
To help people achieve these goals many companies provide a Learning & Development budget that usually ranges from anywhere between 300€ to 2.000€ per employee per year. More often than not, however, people don’t make full use of the resources available to them as their day-to-day work takes over. That’s why it is important for managers to help keep their team members on track with their development goals so that they can meet their long-term goals. If they do, this usually helps the company keep attrition rates low because people have a good reason to stay when their employer is invested in their development.
When implementing performance reviews, companies usually start by using a more open format where they will ask open-ended questions like ‘What are your strengths and weaknesses?’, ‘What has your progress been in the past six months’ or ‘What development areas would you like to work on?’. Performance ratings will usually be a single overall rating without much detail, e.g. a rating of four out of five points. However, employees will usually desire more clarity on how exactly they are being evaluated and how the final performance ratings came together.
Because people's performances should be compared to what is expected of them in their role and at their specific job level, job descriptions are often used as a benchmark. On top of evaluating people based on how well they are fulfilling their job expectations, some companies also like to evaluate people against company competencies that embody the values and working principles of the company and the behaviours and ways of working that are expected and encouraged. These competencies are often similar across companies and includes examples such as Collaboration, Communication, Leadership, and Autonomy.
However, not all competencies will be relevant for every employee - it typically depends on the type of role they have in the company. Most companies will distinguish between competencies of individual contributors (ICs) and people managers (and sometimes even project managers or support roles). You can simply add a People Management competency to the list of competencies above to cover the People Management component or define a whole separate set of People Management competencies, e.g. Leadership, Influencing, Change Management, People Development. The exact definition of each competency will of course vary by job level.
There are different ways to assess someone's performance in performance reviews. An effective alternative to giving free text answers (e.g. ‘What are some of your main strengths?’), which can be quite lengthy and difficult to analyze across employees, is using rating scales. Rating scales are usually reserved for the self-assessment and downward manager feedback portions of the performance review because people tend to find it uncomfortable to rate their managers and peers on a scale. And whilst rating scales can be highly effective in getting as much feedback from people with as little effort as possible, it is also advisable to add an (optional) comment section to each question to collect more information on the context of the ratings.
Rating scales can be quantitative or qualitative, meaning you can rate someone along a numeric scale, for example from 1 to 5, or a word scale for example from ‘poor performance’ to ‘exceeds expectations’. Whilst many companies still use quantitative rating scales, the trend is moving towards qualitative scales. The idea is to move away from what can sometimes feel like a school grading system, and toward something that feels more intuitive. However every company has its own preferences, so many stick to numerical ratings.
In terms of how many points the rating scale should have, best practice is to go for a three- to five-point rating scale to keep things as simple as possible but still leave enough room for differentiation. You might also want to use a scale with an even number of points, for example four or six, to avoid people picking the middle value and to ‘force’ them to make a choice either side of the scale.
You can also design the scale to be balanced or unbalanced. A balanced scale has an equal number of positive and negative ratings on either side of the midpoint. An unbalanced rating scale, on the other hand, might only have a few negative rating points and more positive ones. For example, on a five-point scale this could be 'underperforming - performing - over-performing - outstanding', where 'underperforming' is the only negative rating. These types of unbalanced scales are often used to highlight the expectation that people are unlikely to underperform in their roles and to provide more ways to distinguish between levels of good performance. However, sometimes this approach can make people feel like the focus lies too heavily on the degrees of greatness that they are expected to perform at, which can create additional pressure.
What tends to happen in performance reviews is that, unless there is a control mechanism, some teams will receive higher or lower ratings compared to other teams even though their performance might be similar. This is often because some managers are more lenient or stricter than other managers in the company and will therefore rate their teams differently. To avoid this kind of unconscious bias in how people are rated, people managers attend calibration sessions before submitting their final assessments.
During the calibration sessions, managers, ideally from similar departments, discuss the performance of their team members and challenge each other on the rationale behind their performance assessments. The idea is not to gather more feedback on the team member that is being discussed but rather to challenge their manager on how they reached their assessment of them. The purpose of the meeting is to make performance reviews as fair as possible across the company by having managers align their methodologies of assessment with each other before any final decisions are made.
Calibration sessions are also a great forum to get managers thinking and talking about the development of their individual team members and support each other in coming up with suitable development paths for them. Those might be promotions, lateral moves to a different department, taking on a mentorship or people management positions, being assigned a ‘stretch’ project and much more.
Once the written feedback from all parties has been submitted, it gets released to the employee and their manager for review. They should take the time to absorb the feedback and reflect on it individually before meeting up to discuss the feedback together.
The joint discussion between the employee and their manager is an opportunity for both to provide more context to the feedback they provided themselves, discuss the feedback shared by peers, compare them with each other, and derive a development plan that meets the employee's needs and interests. It can help to highlight any discrepancies and make sure that by the end of the discussion both parties are clear on what the general verdict was and any next steps that should be taken to help the employee progress on their development path.
It is also a good idea for peers to reach out to their colleagues to whom they provided feedback to offer a brief follow-up chat over a coffee, for example. In most cases, people won’t necessarily have questions about the feedback they received but it helps to establish common ground and offer a space for questions to avoid unnecessary tension between colleagues in case of misunderstandings.
Using A Tool
Ideally, if you have the budget, you should get a tool to run your performance reviews. Running performance reviews manually tends to be time-consuming and prone to errors. Also, more often than not, the salary you spend on people handling the processes manually usually outweighs the cost of a decent tool.
Most solid performance review tools will automate the whole cycle for you by automatically granting the right people access to the tool and feedback cycle, sending out automated notifications and reminders, effectively collating and sharing the feedback shared by different parties and providing basic analytics and reports on the results. It should also integrate with your other HR tools to avoid manual up- and downloads and be highly customisable so that you can design the process exactly according to your company's needs. Especially as your company grows and changes, these attributes will become increasingly important.
Last But Not Least
More often than not, companies forget about the next steps that follow a performance review. After weeks of pouring feedback out to all corners of the organisation and being subject to the feedback of many of their colleagues , people want to know what all this output is being used for so make sure to communicate it to them.
Performance reviews often form the basis for further decisions such as who is getting promoted and who is receiving a salary increase or not and if so, how much. It is important that managers communicate the link between the outcome of the performance reviews and any change in their job level or compensation to their team members and make sure that the rationale behind the decision-making is clear. You also want to give people the opportunity to voice their feedback on that although, ideally you will have talked to them about their expectations beforehand and taken that into account, so nothing should come as a surprise.
Beyond promotions and salary increases, performance reviews provide a great opportunity for managers and their direct reports to discuss their development, future career aspirations and how they can work together to make an achievable plan to get them there. The role of the manager is to provide guidance and for the employee to communicate and show the commitment to work towards their unique goals and aspirations.
When designing your own performance review process, try to keep in mind some of the best practices I outlined here and make the process your own by aligning it to your individual needs and company culture since no one size fits all. Also, be aware that as time goes on your company will change so keep reviewing and updating the process to make sure it continues to meet the ever-changing needs of your workforce.