Why performance reviews are so important

Nick Stanley
By Nick Stanley

If you did a quick whip-round of business-owners, managers, and employees, you'd be hard-pressed to find many fans of performance reviews.

They can be time-consuming, confronting, stressful, and costly.

You're not legally obliged, in New Zealand, to conduct performance reviews either. So why bother?

Because having a performance review system is an important tool for bringing the best out of your people and keeping your business running smoothly.

It gives the chance to gauge whether employees are achieving expected levels of performance and to offer them important feedback, guidance, and encouragement.

It is also an important way to identify and address poor performance before the problem leads to dismissal.

There are many ways to design and implement a review system, and it should be tailored to the size and structure of your company.

Quality, responsive software can help schedule and track key check-ins and meetings, taking care of all the admin-related tasks so you can focus on talking to your people.

Whether you base your review system around a personal development plan (PDP) with a yearly check-up, or more regular, informal sessions, there are some compelling reasons why all New Zealand businesses should do – or keep doing – performance reviews.

Provide feedback

Performance reviews give both the company and your employees important feedback.

They provide the opportunity for your employees to receive recognition for a job well-done or to highlight areas that may need more attention.

Acknowledgement and constructive criticism helps motivate people to improve. Without feedback, your team members may be unaware of poor performance and won't be able to change it.

Once any barriers to success have been identified, management and employees have the chance to work together to formulate plans to tackle them.

Remember that performance appraisals work best as conversations. When giving feedback, also offer people a chance to raise any concerns and suggestions they have.

Maintaining open lines of communication enhances working relationships, encourages collaboration, and raises morale.

Improve performance

A study of global companies by research and advisory company, Gartner, found that employee performance was 10 percent lower in organisations that don't conduct reviews.

The lack of regular feedback and recognition was especially detrimental to high-performing employees, whose productivity was 28 percent less.

Your business' success relies on the efforts of each team member. Reviews help provide clarity about company goals and expectations, and provide a benchmark so you can see when an individual's performance slips.

You then have the opportunity to work with your employees on solutions, such as additional training or support, or redefining roles.

If employees know what is expected of them and ways to improve performance, management can spend less time directing individuals and focus on building the business.

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Spot talent

Performance evaluations are a great way to identify and nurture your talent.

They provide a view of how your workers are doing in the development of their skills, knowledge, initiative, and engagement with the company's vision.

You can look back over a person's work history and identify whether they are ready to assume greater responsibility or need further training to fill any skills gaps.

This ongoing record of an employee's strengths and weaknesses enables you to fine-tune a career path within the company where they can put their talents and interests to best use.

Your people will be more invested in the business, and by promoting internally, the company retains all the organisational knowledge they have built up.

Target training and development

In the modern business world, employees need to stay up-to-date on industry best practices, new technology, and any new procedures and initiatives.

Performance reviews provide an excellent opportunity to identify and discuss any development and training requirements, which can be planned and then reviewed throughout the year.

By demonstrating your commitment to helping people be their best, you boost individual self-esteem and overall company morale.

Having each member performing at their best means your team will be more productive.

You will also be enable to match people's strengths with job duties and identify the best candidates for the right teams.

If you ignore gaps in skills and training, you can compromise the business' progress and long-term sustainability.

Encourage engagement

As well as diminished performance, the Gartner study found employees, particularly high performers, become disengaged without performance evaluations.

The review process enables valuable conversations with employees, giving regular feedback and encouragement, drawing attention to what's important, and ensuring they have all the tools, skills, and knowledge to do the job well.

By treating employees as partners working towards common business goals, you build a team where people support each other to succeed.

This has the flow-on effects of aiding staff retention and improving the service you provide to your customers.

Find out how MyHR makes performance reviews easy.


Frequently asked questions

What is a 360-degree performance review?

360-degree performance reviews involve a group of colleagues, managers, and customers (typically between 4 and 8) giving feedback on an employee’s performance. The individual will usually do a self-assessment as well.

Proponents of 360-degree feedback say it’s more complete and balanced than feedback from one manager alone and gives a better understanding of how a person’s performance, skills, and behaviour are viewed by others.

The downsides are the complexity of compiling and analysing multiple sets of feedback (more administration!) and the need to ensure the review adds value to the performance review system.

What's the difference between performance reviews and performance improvement plans?

Performance reviews evaluate an employee’s performance against an agreed set of objectives over a set time period, e.g. a financial or calendar year.

A performance improvement plan (PIP) charts a path for improving an employee’s performance, usually because they are struggling to achieve as expected. This is typically shorter than a performance review cycle, because you’re addressing clear, specific concerns with support from management to get them where they need to be.

The length of a PIP should correspond with how long it will reasonably take your employee to show improvement. Most PIPs are between 4 and 12 weeks long.

What are good objectives for a performance review?

Objectives should be above-and-beyond performance measures such as sales targets or project deliverables rather than the basics of the job, e.g. turning up on time.

Also, remember to make the goals SMART: Specific, Measurable, Achievable, Relevant, and Time-bound.

Get answers to more common questions about performance reviews.