The Real Cost of Performance Reviews

When it comes time to do an annual review, employees are not the only ones with anxiety. Given the tremendous amount of time annual reviews require to plan, execute and respond to, they are also a huge drain on management and resources. Each year companies spend hundreds of thousands of dollars on their annual review. However, recent data shows that companies can avoid the annual review entirely – and see better results improving ROI and employee engagement – using real-time feedback.

With millennials in the workforce, real-time, constant feedback has become a critical workforce need. In order to be able to learn and get better at what you do you need to more frequent feedback. This is why singular, annual reviews no longer make sense in today’s working environment. As companies across all industries are realizing, using an annual review no longer delivers a strong ROI when it comes to developing and engaging employees.

Read: GE re-engineers performance reviews and pay

The real costs of performance reviews are surprisingly high – even when calculated with a conservative approach. On average, managers earn $75 per hour and spend three hours per employee creating documents, gathering feedback, preparing reports, and holding discussions. The average individual contributor earns $50 per hour and spends around three hours preparing a list of achievements and success of project deliverables, creating future internal objectives and development goals, and a face-to-face meeting with their manager.

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Given these premises, an organization with 500 employees dedicates upwards of $200,000 to an annual review on time alone. This is shocking when you consider that $200,000 is only an average estimate looking at time spent based on hourly wage. It does not include work opportunity lost, HR resources or third party consulting or service fees to process and analyze data. Not to mention the associated anxiety, which can take a toll. Both the added time resulting from anxiety as well as the decreased productivity should not be underestimated for those seeking to improve employee happiness, engagement and productivity!

In order to be able to learn and get better at what you do you need to more frequent feedback. Click To Tweet

Since it is clear that everyone in a company is affected by an annual performance review on multiple levels, the larger the company, the more loss incurred. Larger companies and corporations can see cost of performance reviews reach the millions. Accenture mentioned that they spend over 2 million hours on performance reviews, which nets out to hundreds of millions of dollars in cost.

With such high costs and low returns, it is no surprise that large companies such as Deloitte and Accenture have both removed the annual performance review and rankings. They have replaced the annual review with Real-Time Feedback and frequent, lightweight Check-Ins and already have seen incredible results. Deloitte recently released a report that engagement and performance has increased significantly for the groups that have moved to more frequent, lightweight Check-Ins. Their move and rapid success to implement Real-Time Feedback will will continue to inspire others to make the move.

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