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Why Your Company Needs Performance Reviews (...Kind Of)

An in-depth look at performance reviews and their place in performance management.

Leah Ward
10 years experience in HR, PeopleOps and scaling startup teams
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Performance reviews. Annual Reviews. Performance Appraisals. Uttering these phrases is often met with shudders, eye-rolls, or resentful sighs. Which is understandable, because almost everyone who has been on the receiving end of a performance review has a horror story—a rating delivered by someone with no familiarity with your projects, unclear compensation comments, or an unnecessarily awkward conversation resulting in no helpful information to move forward with. 

These scenarios would make anyone cringe every time the phrase “performance review” is mentioned. So it’s valid, even necessary, to ask the question: do we really need to do performance reviews? 

In This Article

Over the past 15 years, many companies have done away with the performance review in the forms we are familiar with, opting for performance management instead. So the short answer is no, your organization may not need the performance review you’re thinking of when your stomach drops. But you do need systems to foster conversations about performance. Most importantly, the systems you create need to drive alignment and accountability with what your company is aiming to achieve, and how each employee’s work contributes to that larger aim. Of course, this is easier said than done, whether you’re using traditional performance reviews or newer performance management frameworks.

performance review meeting with managers

Why Your Company May Choose Performance Reviews

There are lots of potential answers to why your organization would measure an employee’s performance using a performance review. 

Legal Obligations

While there is no law requiring performance reviews, some companies institute performance review processes to check off standard business practices, which may be required by grant funding or other certification processes. Alternatively, leaders may simply want a paper trail in case they need to terminate an employee. While there is nothing wrong with these reasons, it may not inspire a process that motivates employees–because that’s not actually the goal. 

Employee Engagement

Other organizations view performance reviews and performance management as part of an overall employee engagement strategy. They use these checkpoints to ensure that employees are not only accomplishing the work set out for them, but are invested in their growth and development over time. These organizations may choose a structure heavily highlighting career development conversations and presenting opportunities for growth internally, facilitating frequent, lightweight check-ins over a longer annual review. 

Manager Effectiveness

How do you know your leaders are leading effectively? There are plenty of data points to choose from in measuring a manager’s performance. Employee sentiment and feedback expressed during a performance review cycle may be a data point that an organization relies on to ensure its leaders are leading effectively. 

Organizational Values 

Any performance management system you implement should align with the values of the organization. Some organizations value speed and quick decision-making, so they may deploy ratings in performance reviews so the form can be completed expeditiously. Other organizations may value clear, candid communication that may be better incorporated into a written performance review. 

All types of performance reviews may not aid your performance management goals, so it's essential that yours include the relevant key components.

management and financial performance reviews

Performance Review Components

If your career has been long enough to allow you to experience performance reviews at different companies, you’ve probably found that no two are the same. There are a plethora of approaches, tools, and techniques that are employed by companies to measure the performance of their workforce. You may be familiar with a few of the common components of performance reviews listed below. 

Self-Reflection on Performance

Employees are often asked to evaluate their own performance during the review cycle. They may be asked to rate themselves, or write up a self-appraisal to share with their manager during the performance review cycle. Allowing employees to have a voice in the performance review can help them perceive the process as more fair and satisfactory. Writing the self-reflection can even be a ritual for their growth.

360 Employee Review

Unlike a traditional performance review strictly between the employee and manager, a 360 review opens up the floor to peers and direct reports to provide feedback on the employee’s performance. This process allows feedback from managers, direct reports, and colleagues, giving the employee a greater view of the impact of their work. It’s less about direct accomplishments and more about how the employee is affecting their colleagues and company through their work. 

Peer Feedback

Many companies are aiming to foster continuous feedback among their employees, especially peer-to-peer feedback. Agile teams move quickly and find the timing of annual reviews to be cumbersome to their nimble sprint approach. These companies have moved to prompting employees to give quick, simple, ongoing feedback to their peers.

Rating Scale

An employee’s performance rating often ties in to compensation decisions, and can be a difficult task for managers. How do you sum up the employee’s performance in one number? Every company that employs a rating scale gives its own definitions and guidance, with the most popular approach being the 5-point scale (although some argue for the simpler 3-point scale).


Every manager rates their employees on their own without any comparison to other peers or employees, producing varied results with some ratings being too lenient, and others too harsh. That’s why companies run performance review calibrations, to ensure employees are being graded fairly and equally across the organization

Defining Your Performance Review Process

With all of these components to choose from and areas to cover within performance management, how do you develop a set of procedures for your organization? There isn’t one formula for success and unfortunately, this article does not contain the perfect performance review system for you. 

Before you try to figure out which components to include in your review process, ask yourself and the leaders at your organization what exactly needs to be measured and why. Starting with what you’re measuring and why you’re measuring it can help direct your efforts towards the components that make sense for your organization. 

Choosing a Performance Management System

Once you’ve settled on the what and why of performance management at your company, you’ll need to decide how to run the cycle. This moment is when performance management software comes into play. 

You may be tempted to rely on manual forms and distribution, but the time spent tracking and managing a manual process could be better spent on training managers and communicating to employees. There are a lot of performance management systems to choose from, and before you start taking demos, take a few minutes to establish the requirements of the system you’ll implement. 

Company Headcount and Org Chart

Some software systems have minimum requirements for users, so establish how many users you’d be starting with in order to cut out systems your organization may not qualify for. Also consider how complex the organization is. For example, is a traditional management structure in place, or does your organization use matrix management? These answers will help you determine if the software can actually support the company.

Growth Plan and Scalability

Most companies intend to grow over time, but how drastically is your organization looking to expand, and over what timeframe? Will the system be more difficult to manage with a larger employee base, or does it have the flexibility to support your growth over the next few years?

Features and Functionality

What components of your performance review are must-haves? What components would be nice to have? 

Creating this list will help you identify which systems can actually support the performance management system you intend to roll out. If a high level of customization is required, you’ll need a system that enables you to do that. If you like a certain system’s default templates, then it may make sense to move forward with that system. 

Compatibility and Maintenance

How does this system interact with other systems already in place? Will you need to manually input employees and assign reviewers, or will that information sync automatically from your HRIS? How are reports exported and shared, and how will the system empower you with the data you need to inform strategic decisions on behalf of the organization?

A Final Thought on Performance Reviews

It can be an arduous task to develop and run a performance management strategy. However, when you set up a process that recognizes employees' contributions and efforts, structures manager feedback, and honors the commitments of the company, running a review cycle will hopefully feel more like puzzle pieces falling into place than trying to shove a piece in that doesn’t fit. 

Once you’ve run your first performance review cycle, the process doesn’t stop there! Gather feedback from every level of the organization and use that feedback to inform changes and adjustments you make to your performance review process over time. There will always be trial and error in any experiment, but your organization will be set up to succeed with the structures of feedback, alignment, and accountability in place.

Leah Ward
10 years experience in HR, PeopleOps and scaling startup teams
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Leah Ward has 10 years of experience building and scaling people programs and company infrastructure at startups. She was the Chief of Staff & Head of People at Teampay before she founded Seedling Stage, where she equips early-stage companies with foundational HR policies and processes. When she’s not geeking out over all things People Ops, you can find her sipping tea and watching cat videos.

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