Annual Review: It's Not the Review Itself That Fails,
But the Months That Follow

The Origins of the Annual Review—and Why It's Controversial

Formal performance appraisal is a product of the 20th century. As early as the 1940s, about 60 percent of U.S. companies were already using appraisals to document performance and distribute rewards. Since then, the tool has oscillated between two extremes: control and development. As early as the 1950s, social psychologist Douglas McGregor advocated for involving employees in the appraisal and goal-setting processes. In the DACH region, the annual performance review is now standard practice, often linked to goal-setting and bonuses.

The arguments in its favor are valid: It establishes a fixed time for reflection, encourages dialogue, documents agreements, and gives both sides an opportunity to provide feedback. Analyses by the Institute for Employment Research (IAB) show that performance reviews are positively correlated with job satisfaction, engagement, and employee retention.

The criticism is just as clear. The annual review looks back rather than forward; managers are expected to serve as both coaches and judges; and the effort involved is considerable. Deloitte calculated the costs of forms, meetings, and ratings—and arrived at a total of nearly two million hours per year. Gallup found that only 14 percent of employees strongly agree that their performance review inspires them to perform better.

Dialog Before Evaluation

Evaluation isn’t worthless. Salary, promotions, and fairness need a foundation. But it doesn’t belong at the center of a development discussion. Gallup therefore recommends deliberately turning “performance reviews” into “progress reviews”: discussions about progress rather than judgments about the past. A proven strategy is to schedule salary discussions and development discussions at separate times, because otherwise the other person will focus solely on the number or become fixated on it.

Often, two questions go further than twenty criteria: What helped you make progress this year? And what do you need to grow next year?

Added to this is something that has gained importance in recent years: the relationship. Hybrid work, distributed teams, and AI tools make face-to-face conversations less common—and therefore more valuable. AI can prepare for a conversation, summarize it, and suggest appropriate learning opportunities. But it cannot listen, ask questions, build trust, or make decisions. That is exactly what the annual review is for.

Why Measures Fall by the Wayside and Why the Rhythm Should Be Shorter

The training course that never gets booked. The project that no longer exists after three months. The goal that’s already outdated by February. The reasons are almost always the same: No one is responsible for implementing it, no one follows up, and there’s no place for it in the day-to-day work routine.

Many companies are responding by adopting shorter cycles. Adobe replaced the traditional annual review as early as 2012 with regular “check-ins,” recommending at least one check-in per quarter. Deloitte relies on short, frequent check-ins between managers and their teams. Employees themselves also want more: In a survey reported by the trade magazine *Personalwirtschaft*, only 17 percent considered the traditional annual review sufficient. A quarter of those surveyed wanted feedback every six months.

This does not mean that the annual review must be eliminated. A more sensible approach is to have a core meeting with periodic check-ins: one in-depth discussion per year, supplemented by two to three brief check-ins lasting 20 to 30 minutes. The key question in each of these check-ins is always the same: Where do we stand on what we’ve agreed upon?

Performance, development, and learning go hand in hand

This highlights a structural problem in the industry: it operates in silos. Goals are tracked in a performance management tool, learning opportunities in an LMS, skills in an Excel spreadsheet, and meeting notes in a Word document. Systems, providers, and often even departments are isolated from one another. As a result, what is agreed upon in meetings never makes its way into day-to-day learning.

Development only becomes effective once the chain is complete: 

Goal → Required skill → Specific learning activity → Check-in → Next meeting. 

Gallup highlights just how important this connection is: Employees who can align their goals with those of the organization are 3.5 times more likely to be engaged, yet only 44 percent see this connection. A skills-based approach helps bridge this gap (read more about this in our article on skill management). Here’s what’s already possible with MaxBrain today: Agreed-upon training programs are assigned directly as courses or learning paths, and it’s clear whether they’ve been completed by the next check-in. What we’re testing with pioneer customers: Together with the labor market data specialist x28, our first customers are capturing current and target skill profiles for key roles and using them in development discussions. What’s still a vision: that meeting preparation, action items, and learning recommendations are generated directly from this data.

Digitization: Less Process, More Content

Digitizing performance reviews doesn’t mean simply uploading a 12-page form as a PDF to the intranet. It should shift resources from the process to the content: reminders, preparation, summaries, and tracking of actions all happen automatically. The time saved is then dedicated to the review itself. Adobe estimated that the time its managers spent on the old process alone amounted to about 80,000 hours per year.

This leads to a simple rule: Form and structure are secondary—the simpler, the better. Three good questions on a page are more effective than a matrix with forty criteria that no one honestly fills out. A process that everyone understands gets put into practice. One that needs to be explained gets checked off the list.

Further Reading

• Peter Cappelli, Anna Tavis: The Performance Management Revolution. Harvard Business Review, October 2016.
• Marcus Buckingham, Ashley Goodall: Reinventing Performance Management. Harvard Business Review, April 2015.
• Ben Wigert, Annamarie Mann: Give Performance Reviews That Actually Inspire Employees. Gallup.
• Harvard Business Review (Ed.): HBR’s 10 Must-Reads on Performance Management. Harvard Business Review Press, 2023.
• Adler, S. et al.: Getting Rid of Performance Ratings: Genius or Folly? A Debate. Industrial and Organizational Psychology, 9(2), 2016.
• Kim Scott: Radical Candor. St. Martin’s Press, 2017.
• Reinhard K. Sprenger: The Myth of Motivation. Campus, Special Edition 2021.