What Is a Performance Review?
Performance reviews evaluate employee contribution and set expectations. Learn how modern organisations are rethinking the traditional annual review.
Key Takeaways
- Traditional annual reviews are widely seen as ineffective — continuous feedback is more useful
- Effective performance conversations are specific, two-way, and forward-looking
- Calibration sessions prevent rating inflation and ensure consistency across managers
- Link performance reviews to compensation and progression decisions transparently
What a performance review is
A performance review is a structured conversation between a manager and employee to assess the employee's contribution over a period, provide feedback on strengths and development areas, and set expectations and goals for the next period. In traditional organisations, reviews happen annually. In more progressive organisations, formal reviews happen quarterly or bi-annually, supplemented by continuous informal feedback. The goal is to help every employee understand how they are performing and what they need to do to grow.
The problem with annual reviews
Research consistently finds that traditional annual performance reviews are one of the least valued HR processes. Core problems: the annual cadence means feedback is too delayed to be actionable; recency bias means recent performance dominates the assessment regardless of the full year; reviews tend to be backwards-looking rather than development-focused; and the link to compensation decisions contaminates the feedback conversation — employees focus on their rating rather than their development.
More effective approaches
Organisations moving away from traditional annual reviews typically adopt: more frequent formal conversations (quarterly or bi-annual), continuous informal feedback embedded in regular 1:1 meetings, goal-setting using OKRs that create natural mid-cycle check-in points, 360-degree feedback from peers, direct reports, and other stakeholders, and separation of development conversations from compensation conversations — having them at different times of year.
Making reviews effective
Quality of a performance conversation depends on: preparation (both manager and employee review concrete examples of work, not just impressions), specificity (feedback grounded in specific observable behaviour and outcomes, not personality judgements), balance (strengths acknowledged alongside development areas), forward focus (most of the conversation about the future — what the employee needs to do differently or develop), and genuine two-way dialogue — the employee's perspective on their performance and manager's effectiveness should both be part of the conversation.
Calibration
Calibration sessions — where managers discuss and align on performance ratings before communicating them — are essential for preventing rating inflation and ensuring consistency. Without calibration, some managers rate generously and others harshly, creating unfairness that damages trust. In a calibration session, managers discuss top and bottom performers, challenge ratings misaligned with observable evidence, and agree on a distribution that reflects genuine performance variation.