Once a year, you sit across from your manager and hear a formal assessment of your work. You receive ratings, perhaps on a scale from 1 to 5. You discuss goals for the coming year. The conversation is oddly formal, different from your normal interactions with your boss. Both of you seem uncomfortable, yet you both understand this ritual must be completed.
Performance reviews are one of corporate life's most universally dreaded activities. Managers hate writing them. Employees hate receiving them. HR departments struggle to get anyone to complete them on time. Study after study shows that traditional performance reviews often do more harm than good, demoralizing employees and failing to improve performance.
Yet they persist. Why do organizations cling to a practice that almost everyone agrees doesn't work well?
The Problem This Was Meant to Solve
Organizations need ways to make decisions about employees: who gets promoted, who gets raises, who needs development, who should be let go. These decisions require some assessment of how well people are doing their jobs. Without formal evaluation, these judgments become entirely subjective—based on who the boss likes, who's most visible, or who's best at self-promotion.
Performance reviews were designed to make these decisions more systematic and fair. By creating a formal process with defined criteria, organizations hoped to reduce bias and ensure that rewards went to the most deserving. The written documentation also provides legal protection—evidence that employment decisions were based on performance rather than discrimination.
There's also a feedback problem that reviews attempt to address. Employees need to know how they're doing to improve. But giving negative feedback is uncomfortable, so managers often avoid it. By requiring a formal review, organizations force conversations that might otherwise never happen. The structure provides cover for difficult discussions.
Finally, reviews create alignment. When goals are set annually and evaluated annually, employees and managers have shared expectations. The review conversation connects individual work to organizational objectives, at least in theory. It's a coordination mechanism that tries to ensure everyone is working toward the same ends.
How It Actually Came to Exist
Formal employee evaluation has military roots. The US Army began systematic performance appraisals during World War I to identify officer candidates. The practice spread to industry in the 1950s as management became more professionalized and companies sought to apply scientific methods to personnel decisions.
The Management by Objectives (MBO) framework, popularized by Peter Drucker in the 1950s, formalized the goal-setting aspect of reviews. Employees and managers would jointly set objectives, then evaluate performance against those objectives. This created the structure that most modern reviews still follow: set goals, work toward them, evaluate results.
By the 1980s, annual performance reviews had become standard practice in most large organizations. The ratings, the written evaluations, the formal meetings—all became expected parts of corporate life. HR departments built elaborate systems around them, tying reviews to compensation, promotions, and professional development.
The late 20th century brought attempts to improve reviews. 360-degree feedback gathered input from peers and subordinates, not just managers. Forced ranking systems like those famously used at GE required managers to identify their bottom performers for dismissal. Continuous feedback apps promised to replace annual reviews with ongoing dialogue. None of these alternatives fully displaced the traditional review.
Why It Still Exists Today
Performance reviews persist because the problems they address haven't been solved better elsewhere. Organizations still need to make compensation and promotion decisions. They still need documentation for legal protection. They still need to create accountability for giving feedback. Until something better emerges, the familiar but flawed review fills these functions.
Legal and compliance considerations lock reviews in place. Employment decisions that lack documented justification are vulnerable to discrimination claims. The paper trail that reviews create, however imperfect, provides evidence that decisions were based on job-related factors. Getting rid of reviews entirely would require alternative documentation systems that most organizations haven't developed.
There's also organizational inertia. Performance management systems are embedded in HR software, compensation structures, and management training. Changing how reviews work requires coordinated changes across multiple systems and established practices. Many organizations that have tried to eliminate reviews have reinstated them after struggling to maintain accountability without formal evaluation.
Perhaps most importantly, the alternatives have their own problems. Continuous feedback sounds good but often doesn't happen consistently. Real-time ratings can create anxiety and gamification. No reviews at all leaves managers without structure for difficult conversations. The annual review may be flawed, but proposed replacements have yet to prove demonstrably better in practice.
What People Misunderstand About It
The biggest misconception is that performance reviews primarily serve employee development. Research consistently shows that reviews are better at justifying administrative decisions (compensation, promotion) than at improving performance. The dual purpose creates conflicting dynamics—employees can't be fully honest about development needs when the same conversation determines their raise.
Many people don't realize that the ratings in performance reviews are often predetermined by factors outside the review conversation. Budgets for raises are set before reviews happen. The distribution of ratings may be constrained by quotas. Your manager's rating may have already been calibrated with other managers before your meeting. The review conversation is often more about justifying a decision than making one.
Another misconception is that everyone's review is equally meaningful. In reality, there's enormous variance in how seriously different managers take reviews. Some write thoughtful, specific evaluations; others copy and paste generic language. Some have meaningful development conversations; others rush through a checklist. The quality of your review experience depends heavily on your particular manager.
Perhaps the most important misunderstanding is about what reviews can actually accomplish. Evaluating complex knowledge work on a standardized scale is inherently difficult. Most jobs involve nuance, trade-offs, and situational factors that resist simple ratings. The precision implied by a 3.5 versus a 4.0 is largely illusory. Performance reviews exist because organizations need some formal evaluation mechanism, but expecting them to precisely measure the value of human work may be asking the impossible.