What is a performance review?

Performance review definition

A performance review is a formal process used to assess an employee’s job performance, recognize achievements, and identify areas to improve. Also known as an appraisal or evaluation, this review is part of the employer’s broader performance management objectives. It is typically conducted by a manager or supervisor in a structured setting, involving discussions about job responsibilities, skills, teamwork, and more.

What do performances review cover?

Traditionally, employers have relied on annual performance reviews to determine whether employees are meeting their established (and usually agreed upon) performance goals. Based on this assessment, the manager decides whether the employee should be:

• Rewarded for meeting or exceeding their performance goals, such as in the form of a pay increase, bonus, and/or promotion
• Placed on a Performance Improvement Plan (PIP) for not meeting their performance goals

Performance reviews often cover both hard and soft skills, addressing aspects like:

The performance review should inform employees about:

• How their work fits into the company’s larger objectives
• Areas where they are performing well
• Things they need to improve on
• Guidance on how to proceed

In most cases, both employers and employees agree that having a system to evaluate job performance matters, but many are beginning to recognize that there’s some limitations with the traditional process.

Criticisms of traditional performance reviews

The common complaints include:

• Annual performance reviews being insufficient
• Feedback typically coming from a single source, often the manager, leading to a limited viewpoint
• Overemphasis on past performance rather than focusing on future performance and employee development
• Subjectivity in the evaluations, relying more on the manager’s perceptions than on the actual performance of the employee
• The process being too rigid for employees and too time-consuming for managers

Such observations have prompted some employers to revise their performance review processes. Before modifying the system, however, employers should have an understanding of the various types of performance reviews.

Four types of performance reviews

It’s important for employers to choose a performance review system that best fits their organization. Types to consider (potentially in combination) include:

• Management by objective: A top-down approach where organizational objectives established by company leaders are cascaded down, with each managerial level setting their own objectives for employees, aligned with the organizational plan.
• 360 review: Reviews of the employee’s performance come from multiple sources, such as managers, supervisors, colleagues, subordinates, customers, and vendors. The goal is to obtain a well-rounded view of the employee’s performance.
• Peer review: Employees evaluate each other’s performance. For example, team members assess each other’s performance on a project they worked on together. Employees’ feedback may vary from that of their manager or provide additional insights.
• Self-assessment: The employee provides their perspective (in writing) on their own performance, based on questions prepared by their manager or the HR department. For instance, they may identify their strengths, areas for improvement, most valuable contributions, favorite projects, and how well they met their responsibilities over the past year.

Best practices for performance reviews

To ensure your performance reviews go smoothly, consider the following best practices:

• Foster a collaborative process, with shared responsibility among all stakeholders, including managers, employees, and the HR team.
• Encourage open feedback and reciprocal exchange, rather than imposing a restrictive top-down approach with inflexible guidelines.
• Develop an equitable system for recognizing contributions and implementing performance improvement plans.
• Align each employee’s tasks with team and departmental objectives, which should be in line with the company’s overarching goals.
• Facilitate easy access for employees to seek clarification on performance review concerns and provide them with necessary resources.
• Be vigilant about addressing personal biases that may arise, such as favoritism and subjectivity, and take steps to mitigate them.
• Maintain a commitment to adopting and sustaining performance review processes that managers and employees can trust.
• Ensure that employees understand the consequences of not meeting the expectations outlined in their performance improvement plan.

In addition, implement clear steps in the performance review process to minimize miscommunication between management and employees. For example:

• Both the manager and the employee should review the job description for accuracy and update it if necessary.
• Prior to the actual review, the manager should conduct one-on-one meetings with the employee to align and adjust goals and expectations as needed.
• Have the employee complete a self-assessment, which can then be compared to feedback from the manager, colleagues, customers, and any other relevant sources.
• The manager should prepare a written annual performance review, formally documenting the employee’s performance.
• During the performance review conversation, address not only past performance but also set expectations for the future.
• Connect the employee’s performance to the company’s salary review process for performance evaluations.
• After the performance review, the manager should meet with the employee regularly to discuss and monitor goals and performance.