Performance Reviews Considered Harmful

Performance reviews are widely accepted in software companies to provide feedback, justify or object to promotions, and discuss compensation increases. Typically, they occur between an engineering manager and their reports, often cited as a necessary function of management within an organization. They are simply "how the world works." Big companies do them, small companies do them, and highly paid consultants develop new and better ways of conducting them.

But what if all this is based on the wrong assumption? What if performance reviews are actually harmful to an organization, fostering unhealthy dynamics while failing to deliver the benefits people expect? In this article, I will outline the tensions I see with performance reviews and discuss how companies can thrive perfectly well without them.

Don't get me wrong — performance reviews worked exceptionally well for me when I was still employed. They typically came with promotions and salary increases. However, what might seem great from an individual perspective can be disastrous from a systemic viewpoint.

Performance Reviews Are Often Tied to Individual Achievements

Performance reviews frequently focus on individual goals, such as leading a specific project, achieving certain metrics, or meeting personal targets. 

This emphasis on individualism can come at the expense of team or company goals, leading to a culture where personal achievements become more important than collective success. In reality, most achievements should be a team effort, and we must foster a sense of collective ownership.

I've witnessed situations where individuals take credit for achievements that were clearly the result of teamwork. A true leader is nothing without their team; a great leader cultivates more leaders. They uplift their team, guiding them to excel even in the leader's absence.

A great senior engineer spends less time coding alone and more time collaborating with junior teammates, sharing knowledge, and fostering growth. Therefore, we cannot and should not judge performance solely on individual contributions.

Performance Reviews Are Too Infrequent

How often do typical companies conduct performance reviews? Yearly? Twice a year? — High-performing teams continuously monitor and improve their performance through regular feedback and open communication. 

Designating special yearly events for performance reviews is not only too rare, but also too late to address issues that may have arisen throughout the year. Continuous feedback fosters a culture of growth and improvement, allowing teams to adapt and thrive in real-time.

Performance Reviews Are Often Subjective

The average engineering manager may not fully understand their team's performance. This observation may sound harsh, but it reflects a common reality. 

Vocal employees are frequently perceived as higher performers than their quieter counterparts, and the dynamics of the manager-report relationship can skew perceptions of performance.

To achieve a fairer approach, we need to mitigate these human biases. One alternative could involve employees nominating peers they believe had a significant impact on performance, both positively and negatively. If individuals provide examples to support their nominations, we can aggregate this data across teams or company-wide to gain a clearer picture of performance rankings, less influenced by individual relationships. 

This method also acknowledges the contributions of individuals who may not be in the spotlight but are instrumental in supporting their colleagues.

Performance-Review-Based Promotions Are Based on Flawed Assumptions

Companies that rely on performance reviews to identify promotion opportunities operate under flawed assumptions. 

1. Assumption of Accurate Assessment: The first assumption is that we can accurately assess someone's performance in their current role. Even if we have objective metrics, they rarely tell the full story and can often be manipulated. When we fill in the gaps with subjective observations, we risk introducing our biases into the evaluation process.

2. Assumption of Predictive Performance: The second assumption is that current job performance predicts future job performance. The Peter Principle suggests that people are regularly promoted to a level of incompetence, resulting in many individuals occupying roles for which they are not suited.

3. Assumption of Achievement Importance: The third assumption is that doing well in your current job matters more for getting promoted than having a genuine interest or enjoyment in a new position. In our industry, there's a trend where the top engineers are regularly moved into management roles, which are quite unfamiliar and may not be satisfying for them. Many new leaders don't have the skills they need to succeed and need proper training and guidance.

Promoting individuals into new roles presents challenges that stem from how we structure organizations. Self-organizing companies mitigate these issues by implementing more transparent and equitable compensation models, reducing the need for traditional promotions.

Adding to this, humans are multi-faceted beings, and we should not try to confine them to rigid job descriptions or roles. Instead, we should support them in discovering how to make the most positive impact within the company, aligned with their intrinsic motivations. See also my article “Don’t motivate people” on the importance of intrinsic vs. extrinsic motivation.

Promotions play a significant role in pyramid-shaped organizations, leading many individuals at the bottom to compete for scarce positions higher up. This competition creates an unhealthy company climate, separating company goals from individual aspirations.

Conclusion

In conclusion, while performance reviews are the go-to-approach in many organizations, their effectiveness should be questioned. 

They can undermine teamwork, promote unhealthy competition, and lead to subjective assessments that do not accurately reflect an individual's contributions. 

By exploring alternative approaches — such as continuous feedback, peer evaluations, and self-organizing structures — we can foster a healthier, more collaborative workplace.

It’s time to rethink our reliance on performance reviews and embrace methods that truly support individual and collective growth. Let’s start the conversation about how we can create a more positive and productive work environment for everyone.

In my next article, I will go more into the details of what we can do instead of traditional performance reviews.

Want to have a chat about how you can move away from performance reviews in your organization? — Schedule a free call with me here.