Why abolishing performance appraisals is a bad idea

In recent years, newspapers were regularly filled with texts such as, "Abolish the performance review." In this blog, we'll explain why that's a bad idea.

The performance or appraisal interview is often part of a traditional HR interview cycle. The origins of this cycle date back to 1920, so we at Learned thought it was time to take a critical look at the traditional appraisal interview within the performance management cycle. Let's start with the most commonly heard objections from the employee side:

The performance/assessment interview is seen as a "must".
The appraisal interview is all about financial reward.
The appraisal interview is perceived as unfair. Research by Kilian Wawoe (VU, 2017) shows that employees feel that the way appraisals are arrived at is not fair and can only be traced to a small extent to actual performance.
The appraisal interview does not give attention to the employee's talents. An article by HR Practice (2018) shows that only 15% of employees feel that the interview matches their skills.
Finally, a whopping 66% of employees report that an annual interview cycle lowers their productivity.

However, the problems go a step further. Management and HR are also dissatisfied with the current method of assessment in the traditional HR cycle:

90% of HR managers report that the appraisal interview lacks qualitative information.
95% of managers say they are not satisfied with the annual interview cycle.

A manager with a team of 8 employees spends an average of 220 hours per year on the interview cycle.

Why abolish? The disadvantages of the traditional performance appraisal

The traditional performance appraisal has recently come under a lot of criticism. Voices were raised to abolish it or even stop evaluating employees altogether.

Employees, managers and HR alike indicated that the annual performance appraisal was a "must-do." Because it only took place once a year, critics said it did not correspond to actual performance throughout the year, was subjective and left too little room for employee development.

And if one performance appraisal per year is the only conversation your HR cycle consists of, then it is indeed time to take a critical look at it.

The reasons for criticism and the disadvantages of the traditional performance appraisal are:

The performance appraisal is only limitedly effective in improving employee performance, because it consists of a retrospective assessment. In other words – it is not focused on the future and development.
Many employees and managers find that the traditional performance appraisal does not work well: only 1 in 5 employees agrees that their appraisal interviews are transparent and fair (Gallup 2024)
Some organizations are even moving away from assessments entirely, because the classic appraisal interview often consisted of one conversation per year based on a five-point scale. This can be seen as subjective, as it is a snapshot, often based on input from one manager.

💡 Curious how to make assessments fairer and clearer? Also read: How to approach objective Performance Management

That many employees experience their appraisal interview as unfair is also evident from research by organizational psychologist Kilian Wawoe. The criteria and the process on which their assessment was based were not clear, not objective, and only partially traceable to their actual performance.

Such a subjective assessment can have a negative impact on the motivation and engagement of employees:

Unfairness: employees may feel they are not being fairly assessed, which can lead to less engagement, lower productivity and even more turnover.
Uncertainty and lack of clarity: if it is not clear what an assessment is based on, employees can become uncertain about the expectations of their role and performance.
Lack of control: subjective assessments can make employees feel they have no control over their performance and development, which is bad for motivation and engagement.
Less focused on development: an assessment that mainly focuses on the past – and does not look at someone's growth over a longer period – can be less motivating than one focused on development and growth in the future.

All in all, it has many negative consequences for your organization when employees find the assessment process subjective, unfair and demotivating.

Compared to employees who do find the assessment process fair, they even have a 2.5 times higher chance of looking for another position, according to Betterworks.

Only 2 in 10 employees strongly agree that their performance is managed in a way that motivates them to do outstanding work.
– Gallup, 'Re-engineering performance' (2018)

Why renewing is better than abolishing performance appraisals

And yet – despite the criticism of the traditional performance appraisal – there are many advantages to maintaining a minimum number of conversations in your HR cycle. At least if you want to stimulate the growth and development of employees.

Research by Gartner showed that companies that abolished the entire appraisal or performance interview saw a drop in employee engagement of 6%.

This is because of the essence of an evaluation interview.

Whether you call it a development conversation, evaluation or performance appraisal – a conversation between manager and employee gives managers the opportunity to coach, give feedback and set goals. Without such a conversation, managers lose an important tool to guide their teams.

These are all the reasons why completely abolishing performance appraisals is not the best solution:

1. When optional, conversations don't take place

Very simple: if you don't make evaluation conversations mandatory, there is always another priority in the heat of the moment.

What you give attention and structure to, time is made for. In other words: a minimum number of fixed conversations ensures that evaluation and development conversations actually take place between managers and their team members.

2. Lower quality of conversations

By removing conversations from your HR cycle, you often also take away the vision and structure for the content of those conversations. Both managers and employees get fewer tools for good conversation topics or useful feedback questions.

Research shows that the quality of interaction between manager and employee decreases by 14% for conversations that do still take place.

3. Less engaged employees

Evaluation conversations are an important way to involve employees in their development and performance. If you set up the HR cycle in a modern way, employees also have influence on the development goals they set together with a manager.

Without a cycle with a minimum number of conversations, employee engagement can decrease. Research by Gallup shows that 73% of employees experience more job satisfaction thanks to growth opportunities.

4. Less career growth and employee development, higher turnover

If you don't reserve any time for conversations, employees miss essential feedback on their progress on goals, performance and development.

Without formal assessments, employee development can stagnate, making them less motivated and more likely to look for another job. More growth opportunities and more chance of professional growth are the 2nd and 3rd reasons why employees consider quitting their job (Betterworks 2023).

5. More subjectivity, less transparent assessments

A minimal HR conversation cycle provides a level of transparency and equality in how performance is assessed.

Without a number of formal assessment conversations, employee trust in their manager and the organization as a whole can decrease. Conversely, according to Betterworks, the engagement of people who find their performance appraisals fair is 14% higher, and their productivity up to 23% higher.

6. You miss important HR data

If you don't track people's performance, progress on goals and professional growth with a conversation, you also don't build up documentation.

Moreover, you not only miss data on individual employee performance, but at a higher level, you also get no insight into which departments and employees are performing well.

A lack of data can be problematic when, for example, there is underperformance, but managers and HR have no data to base a contract renewal on. Additionally, assessments provide valuable data for strategic workforce planning.

Tip 💡 You can easily track employee goals, performance and development in a Performance Management tool

7. No insight into the best (and worst) performing employees

Without any form of assessment and performance data, it is difficult to determine which employees are performing above average and who is underperforming.

This makes it difficult to invest specifically in the development and motivation of employees, let alone how to fairly reward them for their work.

"Classic performance management is outdated. At the beginning of the year you set goals and then evaluate them at the end of the year. That system dates back to 1920 and was still very measurable then. But more and more organizations are concluding that this system no longer fits their organization and are completely stopping with, for example, the performance appraisal." – Joost Kuijf, co-founder of Learned

The solution: modern, objective Performance Management

How do you ensure that you keep performance appraisals, but renew them in such a way that they are effective, objective and motivating for employees?

The solution is Performance Management:

renewed HR cycle with a minimum number of mandatory conversations, and ongoing 1-on-1 conversations for feedback between managers and employees in between
modern Performance Management based on objective assessment criteria

Several large companies such as Microsoft, Deloitte and Accenture have since shown that the new approach of modern performance management works. For example, consultancy firm Accenture switched from a purely performance-oriented assessment method to one that also includes behavior and trust. They conduct performance appraisals based on colleague feedback, behavioral examples and job profiles.

In short, with the right tools and approaches you can overcome all the challenges of the traditional performance appraisal and create a stimulating, engaged workplace.

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