Why Annual Reviews Don’t Work in 2024

Annual performance reviews used to be the gold standard in the workplace, but the times are changing. More companies are realizing that annual performance reviews don’t work.

Companies with thousands of employees, like Apple and Google, have scrapped standalone annual performance reviews in favor of more frequent performance reviews. Other leading organizations are seeing how successful these high frequency performance reviews can be, and they’re giving up on the standalone annual review.

But why don’t annual reviews work, and how can you adjust the review cadence at your company?

Here are a few reasons why annual performance reviews don’t work, as well as a few ideas you can try instead.

Annual Reviews Don’t Account for Changes in Employee Preferences 

Not too long ago, employees with decent pay and health benefits were happy to have a job. It was common for workers to stay with the same company for decades.

That’s not the case anymore. Employees expect more from their jobs than a steady paycheck. Young workers expect more frequent pay increases, actively seek positions that offer learning and growth opportunities, and demand appreciation and recognition.  

Annual performance reviews don’t align with these new employee demands. Over 60% of workers in one survey said they craved more "in the moment" feedback, with 82% saying they feel more valued when someone takes the time to provide feedback.

Nearly 90% of employers assume employees leave the company to make more money, The truth is that only 12% of employees earn more when they leave, proving that employees are looking for more than just money.

Annual Reviews Don’t Help Reduce Turnover

Another reason why annual performance reviews don't work is that they can exacerbate turnover. Giving employees one day a year to bring up concerns, talk about pay increases, and ask for feedback just isn’t enough. 

Employees want to know how they’re doing. Going 12 months between reviews leaves employees with a lot of time to wonder if they’re meeting management’s expectations. It can be especially frustrating during an annual review for employees to hear about something that could have been brought up months ago during a performance review.

When employees are left wondering about their performance, and with so many months between their chances to share their thoughts at a review, they start looking for work elsewhere.

Annual Reviews Cause Headaches for HR Departments

It might sound like HR departments have less work when they only have to worry about reviews once a year, but the opposite is true.

Amassing an entire year’s worth of performance data on each employee is time-consuming, and important points are likely to get lost in the shuffle. Annual reviews are often dependent on work anniversaries, a process that requires a lot of coordination from HR. 

Review forms have to be passed out and collected. HR has to make sure that managers sign off on them in the process. Then, HR and management teams have to make decisions based on the outcome of all of those reviews, which can feel overwhelming. 

The best way to fix this problem is to start using HR software that runs the performance review process automatically. Tools like PerformYard have reminders, automated forms and simple workflows that take the burden off of HR.

Annual Reviews Can Lead to Outdated Compensation

You don’t want to wait to give your best employees raises or promotions, yet that’s what annual reviews force you to do. Employees go six, eight, or more months waiting for a raise. If they don’t get the raise they feel they deserve after all that time, they’ll start daydreaming of working somewhere else.

Some workers don’t feel appreciated. Some don’t feel like they are getting paid what they’re worth, and feel like the promotion they want is out of reach. Those employees will often start applying for other jobs. 

Your company also has to contend with a fast-changing labor market. It’s easier than ever for employees to find a higher paying job in between their annual reviews. 

Annual Reviews Don’t Account for Changing Goals 

It’s not just the labor market that’s changing nowadays. The other things that are changing are what customers want, what employees want, and the organizations themselves.

If you’re only setting goals once a year, those goals are going to end up being outdated by the time you conduct an annual review. It will be pointless to figure out if those goals were met because the goals will no longer align with the current goals of the company or employees.

When this happens, employees become frustrated because annual reviews feel like a waste of time. Not to mention, the review makes the employee feel like management doesn’t understand their goals or what they are contributing to the organization.

So what's the solution? Performance management software like PerformYard can keep every employee on the same page when it comes to goals. PerformYard's goal management dashboard allows you to update goals and tie them to frequent reviews.

Annual Reviews Tend to Look Backwards Instead of Forwards

Another reason why annual performance reviews don’t work is that they tend to focus on the past. Companies spend a lot of time collecting performance data and talking about what could have been done differently. It’s almost as if future performance is an afterthought.

That can make employees feel judged without equipping them with the information they need to move forward in their position with confidence. Not to mention, it sets a tone that encourages employees to ruminate over past mistakes instead of looking forward to the future.

Annual Reviews Don’t Provide Actionable Data

What kind of data are you getting from an annual performance review? You might catch the big things, but with a year’s worth of work to comb through, you’re going to miss plenty of small things that are equally important.

That can be frustrating for workers, but it also means you’re amassing incomplete data. Without a complete set of data, any information you derive from that data will be inaccurate, which can result in negative consequences for your business.

The solution is to gather all the performance data in one place. Companies are ditching paper reviews in favor of dedicated software with reporting and analytics capabilities. PerformYard helps HR people manage data in ways they've never been able to before.

Annual Reviews Don’t Work for Today’s Workforce

By 2027, the majority of the workforce will be made up of Millennials. Gen Z isn't far behind. They are projected to make up about 30% of the workforce by 2030 as Baby Boomers and Gen X retire. That’s important because today’s younger workforce doesn’t feel that annual reviews are as effective as older generations do.

Millennials are more stressed out by reviews that take place infrequently, and 67% of Gen Z want to receive feedback in a timely, constructive manner.

In a world where employees are resigning from their jobs more than ever before, it’s no longer a scary proposition to look for another job. Millennials and Gen Z have no qualms about hunting for a new job that will provide them with the work experience they are looking for.

What Should You Use Instead of Annual Reviews?

So, are annual reviews necessary? The answer is a resounding, "No!"

There’s no reason to stick with annual reviews when there are so many different types of performance reviews for you to choose from.

But, before you dive headfirst into a new performance appraisal system, it’s important to first ask these three questions about your organization:

• Do your performance reviews improve performance?
• Are your current performance reviews worth the time and energy?
• What are the problems with your annual review process?

Do your performance reviews improve performance?

Have you thought about what you want to get out of your performance reviews? Or are you just marking them off of your to-do list because you think they are something you’re supposed to do?

The point of performance management isn’t to review past performance—it’s to impact future performance. That might mean seeing how an employee’s previous performance can inform their performance moving forward, but the goal is to improve performance among your employees.

How do you know if employee performance is improving? You have to know what to measure and how to measure it. If you aren’t collecting and analyzing data, there’s no point in doing performance reviews at all.

Are your current performance reviews worth the time and energy?

Is the data you’re getting from your performance appraisal process worth the time and energy? If you’re spending countless hours preparing for and having performance reviews with very little to show for it, you should consider a different review process.

You also have to think about whether management is getting what they need from the process, and whether they feel frustrated by how time-consuming it is.

Consider your employees too. Maybe management feels like they’re getting the information they need, but do your employees feel like they’re getting the information they need? It’s important to make sure your current performance reviews are worth the time, energy, and effort for everyone.

What are the problems with your annual review process?

Hopefully in answering the previous questions you have uncovered some problems that can be resolved. Take a deeper dive into your current process and see what other problems you can come up with. Then, you can find a performance review strategy that works for your business.

For example, are team goals changing throughout the year? That might be a sign that you need to try performance check-ins. If you find that your reviews focus on the past instead of the future, you could try a competency assessment to uncover gaps in knowledge that can be addressed with additional training.

Fixing Your Performance Review Process with PerformYard

There are a lot of problems with annual reviews, but that doesn’t mean other types of performance reviews are always better. It doesn’t always mean you have to scrap an annual review either! Performance reviews are important, but the kind of performance reviews you use depends on the unique needs of your organization.

That’s great news because it means you can customize a review process just for your business.

We have your back if the idea of overhauling your performance review process makes you feel confused and stressed. At PerformYard, we offer a flexible platform that enables you to build the right review process for your business and your employees, with the ability to pivot your strategy quickly and easily.