Performance Review - what is it and how is employee performance evaluated

There are many important and less popular aspects in business. For example, a rather complex term like Performance Review. In modern business, a key factor for a company's success is not only strategy or innovations but also the effectiveness of each employee. It is human capital that determines how capable an organization is of achieving goals, adapting to changes, and competing in the market. 

To understand employee engagement levels, their strengths and weaknesses, most companies use a performance review system. This is a comprehensive procedure that allows for regular evaluation of work results, formation of individual development plans, and enhancement of the entire team's productivity. This tool has long been standard in multinational corporations and is gradually gaining popularity in Ukrainian companies.

What is a performance review?

To start, a Performance review is a systematic assessment of an employee's work results over a certain period. Most often, it is conducted once every six months or annually, but some companies opt for a quarterly format. The main goal is to objectively measure an employee's achievements, compare them with set goals, and determine directions for further development.

Unlike a regular evaluation or control, a performance review implies a deeper analysis: not only the result is considered but also the approach to work, teamwork, initiative, and problem-solving ability. In many organizations, this process is combined with career planning, salary increases, provision of bonuses or incentives. Thus, the performance review serves as a motivation tool and a means for strategic human resource management.

What goals does the performance review have?

Of course, this is not just a term but a full-fledged process with its own goals and results. Therefore, the performance review system performs several important tasks:

1. Assessment of work results. Managers and HR specialists have the opportunity to objectively assess how well an employee performs their duties and achieves certain KPIs.

2. Feedback. The employee learns which of their strengths are recognized by management and what needs improvement. This allows for a better understanding of personal prospects within the company.

3. Motivation and development. A clear understanding of what results are expected pushes employees to increase productivity. Additionally, the review helps to create a skill development plan.

4. Career planning. Based on the evaluation, it is easier to determine which employees are ready for promotion, expanded responsibilities, or transitioning to a new position.

5. Improving communication. The process promotes open dialogue between the manager and the employee, which builds trust and reduces the likelihood of conflicts.

Thus, a performance review is not only a control tool but also a way to improve organizational efficiency through personnel development.

How does the evaluation process take place?

The performance review process usually consists of several stages that help make the evaluation objective and understandable:

1. Preparation. At this stage, the HR department and managers determine the criteria by which the evaluation will take place. These can be key performance indicators, project goals, or behavioral competencies.

2. Self-assessment by the employee. In many companies, employees are asked to analyze their results themselves. This helps to uncover the extent to which their views align with management's assessment.

3. Data collection from colleagues and superiors. For the sake of objectivity, the '360 degrees' method is often used, where feedback is provided not only by managers but also by colleagues, subordinates, or even clients.

4. Meeting to discuss results. A key moment in the process is the personal conversation between the employee and the manager. Here, achievements, problems, and plans for further work are discussed.

5. Development plan formation. Based on the evaluation, an individual plan is drawn up: training sessions, new assignments, mentoring, or other activities for skill enhancement.

It is important that the process is as transparent and understandable for the employee as possible. Only then will it be perceived not as a formality, but as a real tool for professional growth.

Key tools and methods of performance review

In modern practice, there are several popular methods for assessing effectiveness. All of them are quite important: 

1. 360-degree method. Allows gathering feedback from various sources - from managers, colleagues, and even clients. This provides a comprehensive view of the employee's performance.

2. KPI (Key Performance Indicators). The most common tool that allows comparing specific results with set goals.

3. OKR (Objectives and Key Results). A methodology that focuses on the company's overarching goals and ties them to individual employee results.

4. Competency model. Evaluates not only results but also skills: communication, responsibility, leadership qualities.

5. Balanced scorecard. Combines financial and non-financial criteria, allowing for a more complete view of the employee's contribution.

Companies choose a method based on their activity specifics but often combine several approaches for greater accuracy.

Advantages for companies and employees

Implementing a performance review system has numerous advantages for both business and employees. To start, what can be so important in the process for the company: 

• increased team productivity;

• talent reserve formation;

• reduced employee turnover;

• better alignment between company strategy and employee actions.

Advantages for employees:

• clear understanding of expectations and their role in the company;

• opportunity to receive feedback and development plan;

• increased motivation through recognition of achievements;

• career growth prospects.

As a result, everyone wins: the company gets a productive team, and employees gain new opportunities for growth.

Typical mistakes when conducting evaluations

Evaluating employee effectiveness is often a complex and multifaceted process that requires attentiveness and a professional approach. However, in practice, managers and HR specialists frequently make mistakes that reduce the objectivity of results and can even harm corporate culture. What are we talking about: 

1. One of the most common problems is “subjectivity of assessment.” When a manager focuses not so much on the actual achievements of the employee but on personal feelings, it breeds distrust and demotivates the team.

2. The second typical mistake is focusing only on the negative. If the performance review emphasizes mainly shortcomings, the employee perceives the evaluation as an attack rather than an opportunity for development. Instead of a constructive dialogue, they feel that their work has been devalued.

3. Another common issue is excessive formality of the process. When evaluations are conducted only “to check a box” once or twice a year, without specific analysis of achievements and recommendations, they bring no benefit. A similar situation occurs when companies use outdated templates without adapting them to real business tasks.

4. Equally harmful is the lack of two-way feedback. If the employee cannot express their thoughts or ask questions, the evaluation turns into a monologue of the manager rather than a constructive dialogue.

5. Another mistake is unrealistic expectations and unclear criteria. If the company does not set clear goals and metrics, the employee does not know by what parameters they are being evaluated. This creates chaos and a sense of injustice.

Thus, for performance reviews to be beneficial, it is important to avoid these typical mistakes: objectivity, a balance between positive and criticism, regularity, and clarity of criteria are key factors that form a quality evaluation system.

How to prepare for a performance review? 

Proper preparation for the performance assessment is the key to its effectiveness for both the employee and the manager. From the company's side, it is important to first establish a system of metrics that will be clear, transparent, and aligned with business goals. These can be quantitative indicators (sales, completed projects, KPIs), as well as qualitative criteria (teamwork, creativity, leadership skills).

The manager should meticulously gather facts and examples that confirm the assessment before the review. It is necessary to have specific situations that demonstrate the employee's strengths and weaknesses. General statements without examples lack value and come off as biased judgments.

From the employee's side, preparation is also important. They may compile a self-assessment: analyze their achievements over the reporting period, describe results they are proud of, as well as areas where they see room for improvement. This approach helps the employee demonstrate conscientiousness and an active position, creating a foundation for constructive dialogue.

Another vital preparation stage is setting goals for the future. The employee should think in advance about which direction they want to develop, what skills to enhance, and what projects may pose new challenges. This demonstrates readiness for growth and adds motivation.

Psychological aspects should not be overlooked. It is essential to be set for dialogue, not conflict. Both parties should view the performance review as a tool for development, rather than an exam or punishment. When the atmosphere of the meeting is friendly, and the tone of the conversation is open, the evaluation results are significantly more effective.

Examples of formats in different companies 

Modern companies use various performance review formats that differ depending on the organization's culture, business scale, and task specifics. What are we talking about: 

1. One of the most common options is quarterly evaluations. This format allows for regular monitoring of progress and timely adjustments to goals. Employees receive frequent feedback, promoting agile development. This approach is practiced by large IT companies operating in a dynamic environment.

2. The second option is annual assessments with interim meetings. For example, many corporations conduct reviews annually while also organizing monthly or quarterly one-on-one meetings to discuss results. This combines deep analysis with ongoing dialogue.

3. Some companies choose the 360-degree assessment format. In this case, the employee is evaluated not only by managers but also by colleagues, subordinates, or even clients. This approach allows for a multifaceted understanding of the employee's effectiveness and behavior.

4. Another popular format is OKR-based review (Objectives and Key Results). In this case, the evaluation is based on how well the employee has achieved the goals and key results set at the beginning of the period. This system provides a clear understanding of priorities and allows each employee to see how their work impacts the company's overall results.

Furthermore, companies increasingly practice informal regular discussions instead of large official evaluations. This is known as continuous feedback, where the manager constantly provides feedback and recommendations during work processes. This method reduces stress and allows for immediate correction of shortcomings.

Each organization chooses the format that best aligns with its values and working style. The main thing is that performance reviews do not become a bureaucratic process but genuinely help employees develop and contribute to the company's growth.