Performance appraisals in the modern workplace

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Performance reviews have a single, simple purpose: To help employees and organizations improve. 

The idea is that by systematically and periodically assessing an employee’s job performance against established expectations, managers can identify strengths, areas for improvement, and development opportunities. Performance reviews also contribute to compensation decisions, promotions and workforce planning.

And for a while – at least the last century – the system worked. 

But now, like so many post-Industrial revolution management methods, the formal performance review is becoming a relic of the past. Influential businesses and business leaders are moving away from traditional performance appraisals in favor of data-driven real-time feedback. 

In particular, we’re seeing a marked shift away from annual or semi-annual performance reviews. McKinsey was already writing about the rumblings of this shift back in 2017 when companies like Netflix, Microsoft and GE began “blowing up their annual systems for rating and evaluating employees”.

However, we believe 2024 is the tipping point year. The blowing-up is largely done. Now it’s time to build a future-ready structure to track employee performance using flexible, employee-friendly materials. 

Several interlinked factors are driving this shift, which we’ll dive into later. Before that, we need to understand the purpose of performance appraisals so we know what we’re aiming to rebuild from the ashes of the old model.

Are performance appraisals still relevant in 2024?

As businesses continue to evolve, the way we track employee performance must necessarily change. That doesn’t need to mean starting over from scratch. There is still a core purpose of performance appraisals that is arguably more important to success than ever.

Reviewing employee performance helps businesses improve and supports workforce development.

Even in the most disruptive modern businesses, performance appraisals serve several needs:

• Ensure that individual goals and expectations align with the organization’s broader objectives
• Pinpoint areas requiring professional development and training
• Encourage a two-way dialogue that enhances employee engagement and fosters a sense of purpose 
• Motivate employees by setting stretch targets, identifying performance benchmarks and recognizing exceptional effort

The trouble is one of form, not function. This is a result of the path that performance reviews took throughout history.

First appearing in the early 1800s in a Scottish textile mill, then gaining significant attention in WWI-era America, and eventually permeating the world of work after WWII, the modern performance review is designed for top-down, compliance-heavy, production-focused organizations. 

Unsurprisingly, this systematic approach has limitations in the knowledge economy.

Fun fact: Some historians credit third-century Wei Dynasty emperors with ‘inventing’ the formal appraisal when they created a nine-point scale to rank family members’ performance in everyday life.

Why the way we track employee performance must evolve

The current state of performance appraisals is one of change and evolution. 

What’s driving the shift to modernize employee performance appraisals?

Critics of traditional (annual or semi-annual) performance reviews say the model is fraught with problems today.

• Biased: In a survey fielded by Syndio in November 2023, 25% of employees felt their supervisor’s personal biases negatively affected the outcome. This figure jumped to 54% for Asian employees and 35% for LGBTQ+ employees. 
• Opaque: The same survey found that 43% of non-managers and 36% of managers believed their organization lacked transparency in promotion decisions.
• One-sided: Traditional performance reviews are often criticized for creating an uncomfortable and unbalanced dynamic between managers and employees, with limited feedback the other way.
• Infrequent: Almost one in two companies in the US (49%) still use annual or bi-annual performance reviews. Although the number has plummeted from 82% in 2016, the manufacturing and healthcare sectors are among those lagging behind.
• Time-consuming: Gallup estimates that organizations with over 10,000 employees could be losing $2.4m to $35m annually in head hours. It’s a wide range but significant even at the low end.
• Demotivating: Gallup also noted that only 14% of employees strongly agreed performance reviews motivated them to improve.

Worst of all, periodic performance reviews might do more harm than good. There is good data suggesting traditional review systems make performance worse one-third of the time. And in a 2022 survey of 800+ US companies, only one in four (26%) reported that their performance management systems were effective. 

Ultimately, the best that traditional performance reviews can hope to be is a windsock for employee performance; useful for gauging broad trends, but fundamentally inaccurate and inflexible.

Thankfully, many leaders – especially remote team leaders – have realized these limitations and have updated their organization’s performance appraisal methods to include:

• Self-assessments that allow employees to reflect on their performance and identify areas for improvement.
• 360° feedback, where feedback from multiple sources, such as supervisors, peers and customers, informs performance appraisals.
• Management by objectives (MBO), an approach encouraging employees and managers to set goals together.

These approaches create a more agile, inclusive and constructive process that can adapt to the continuous change in today’s work environments. But there are still two major factors missing.

Frequency and feedback loops.

How to update the performance appraisal process in 2024

Self-assessments, 360° feedback, and MBO methods all help level the playing field for performance appraisals. However, when bolted onto old structures, they still fall short – even though bias and opaqueness are kicked out in the process.

What is needed is to evolve employee performance monitoring from periodic and one-sided to frequent, actionable, and a little less formal. 

Although this sounds like a radical change, the reality is that redesigning your organization’s performance appraisals to be real-time and data-driven may not be as farfetched as it seems. 

Five tips to build a successful performance appraisal process

1. Regular communication

Gallup found that employees who receive weekly feedback (compared to annual) experience wide-ranging benefits:

• 5.2x more likely to strongly agree that they receive meaningful feedback
• 3.2x more likely to strongly agree they are motivated to do outstanding work
• 2.7x more likely to be engaged at work

Regular check-ins foster open communication and ongoing feedback. 

Transitioning from long, formal reviews once or twice a year to short, informal feedback sessions provides greater opportunities for open dialogue and continuous improvement. With the right tools, managers can even bake feedback into daily and weekly project updates.

Crucially, communication must be two-way. Encouraging employees to raise concerns or questions, and demonstrating positive action based on that feedback, creates a mutually beneficial cycle. 

3. Document achievements

Documenting and quantifying accomplishments provides tangible proof of performance. This trail of breadcrumbs makes it easier to discuss progress in greater detail than annual check-ins and measure efforts to improve performance more accurately.

This could include:

• Creating individual or team portfolios of completed work
• Employees keeping a journal of feedback from colleagues and clients
• Tracking key metrics related to employee goals

Good data leads to good decisions. Combined with reliable workforce analytics data, documentation supports open, unbiased dialogue between employees and managers.

3. Set SMART goals

Specific, Measurable, Achievable, Relevant, and Time-bound (SMART) goals provide a clear direction for employee development and contribution.

Work collaboratively with employees to set SMART goals that align with both the individual’s career aspirations and the company’s strategic objectives. Regularly review and adjust these goals to reflect any changes in role, responsibility or business direction.

Measure progress toward the goals in real-time wherever possible to maintain the link between daily tasks and big-picture business goals.

4. Data-driven narrative

What isn’t measured isn’t managed. Framing contributions with reliable data demonstrates impact and value, lending credibility to the appraisal process and minimizing subjective bias.

Workplace analytics tools like Time Doctor provide a plethora of data that employees and managers can use to inform feedback, including:

• Employee productivity trends and historical data
• Time spent on specific tasks, projects and clients
• Individual and team productivity benchmarks
• Work-life balance metrics to ensure employees aren’t burning out
• Daily, weekly and monthly reports
• Distracting website and app usage
• Self-management tools to empower employees

Integrating Time Doctor into your team’s workflow provides even deeper insights, such as tracing the link between productivity and customer satisfaction scores or project success targets.

This holistic data-driven approach strengthens the impact of feedback and emphasizes an employee’s tangible contributions.

5. Create a positive environment

Writing for Gallup, performance management experts Robert Sutton and Ben Wigert emphasize the importance of a positive, collaborative culture around employee development.

“When employees are rewarded for putting themselves ahead of colleagues and customers, it fuels greed and dysfunctional competition,” the article reads. 

Sutton and Wigert caution against swinging too far the other way by enabling superficiality or buck-passing. However, embedding team and customer goals into performance reviews, such as NPS scores and intra-departmental projects, reiterates the connection to organizational purpose and fosters valuable collaboration. 

The Dorsey decision and what it means for employee performance

Twitter co-founder and Block CEO Jack Dorsey announced last November that his company would scrap annual reviews and improvement plans in favor of ongoing, real-time feedback. 

Block, the parent company of Square, Afterpay and Tidal to name a few, is by no means the first. What’s different about “The Dorsey Decision”, as FastCompany called it, is the priority given to employee feedback.

Elevating employee feedback is the next, and potentially final, evolution of employee performance appraisals. 

Why managers should track employee performance – and be proud of it

You might notice that we stopped short of providing a playbook for performance appraisals. That’s because there is no universally applicable method. However, there are universally applicable guidelines that we believe are the fundamental building blocks of successful employee performance appraisals.

• Frequency: Managers should be checking in at least weekly
• Honesty: Radical candor is the gold standard, but seeking constructive and positive feedback is a start
• Transparency: Demonstrate how employee feedback influences decision-making; managers need to be open books to gain employees’ trust in the system
• Information: Conversations that are based on, or informed by, good data are more productive and the outcomes more measurable 
• Flexibility: Performance management systems should naturally morph based on individual progress and preferences
• Holistic: Managers won’t have all the information, so they must collate a 360° view of employee performance from colleagues, workforce analytics, customers and project data

Finally, an effective performance appraisal system is collaborative. The focus has shifted from top-down performance reviews towards constructive, engaging, and development-focused dialogue between employees and managers.

When underpinned by data-driven insights and structured to support the organization’s goals, this continuous feedback cycle benefits employees, teams, managers and the business simultaneously.

So, rather than shying away from workforce analytics, managers and employees should lean in. Organizations that track employee performance are better prepared for constructive, cyclical and continuously beneficial performance appraisals.

See how Time Doctor empowers modern teams with real-time workforce analytics and data-driven productivity insights. Book your free demo with Time Doctor today.