Research shows annual performance reviews often fail to give useful feedback

In short: Many companies still use annual performance reviews, but research suggests the once-a-year format often produces poor feedback and wastes time.

What's going on

Annual reviews try to cover 12 months of work in one meeting. That is like trying to grade an entire school year based on a single conversation. A lot of the detail gets lost, and the discussion can feel high pressure and awkward.

Managers also face basic human memory limits. Over time, memories fade, which researchers call memory decay. There is also recency bias, meaning recent events can weigh too heavily, even if they are not the best example of someone’s overall performance.

The process is widely used, but many leaders say it does not work well. The Financial Times report notes that over 90% of businesses do performance reviews, yet nearly nine in ten managers are not satisfied with their annual process. Other surveys cited say 45% of HR leaders do not think annual reviews accurately judge work, and only 6% of CEOs find appraisal systems useful.

Time is another problem. In a 100-person company, the review process can take about 5,500 hours a year, which is close to the workload of three full-time employees. One estimate says managers spend an average of 210 hours preparing reviews for their teams.

What to watch

More companies are looking at regular check-ins instead of relying on one yearly meeting. Research cited suggests 77% of employees who get ongoing feedback say they feel motivated, compared with traditional review systems. A common “best of both” approach is one formal annual review, plus monthly or quarterly conversations, so goals can be adjusted and fewer surprises build up.

Source: Financial Times