5 Reasons to Hold Regular Performance Reviews

View all blog posts under Articles | View all blog posts under Business Administration |

Whether you are already in a managerial position or plan to pursue one after earning an MBA, chances are you already have or will have to conduct staff reviews. Although this may not be the most fun part of managing a team, regularly performing reviews of your employees’ work can have a dramatic impact not only on your staff, but the overarching goals of the company.

Here are five reasons why you should hold regular performance reviews for members of your staff:


1. Improve overall performance

One of the clearest benefits of regular reviews is the opportunity to improve the overall performance in the workplace. Taking the time to analyze the work produced by your staff over the last year, or any period you wish to review, is the perfect opportunity to find areas that need attention. Analyzing problems and finding solutions, when possible, can avoid the necessity of hiring a new employee.

Performance reviews can motivate staff.

According to a study by Heather Boushey and Sarah Jane Glynn of the Center for American Progress, the cost of hiring a new employee for a mid-level position is 20 percent of the annual salary [i]. Replacing a manager who makes $50,000 a year would carry a price tag of about $10,000 [i]. The cost of a lower-level position with higher turnover is less, at about 16 percent, but the cost of replacing an executive position that requires a high level of education is significant: 213 percent of the annual salary [i].

As a manager, you can help your employees create benchmarks to judge progress and set deadlines for each stage of performance. If the problem is significant, you may need to put a staff member on probation until improvement is seen. Conversely, providing a financial incentive may give extra encouragement and speed up the process.


2. Increase employee engagement

Performance reviews are not just about what they can do for you. They can also help your employees. One of the primary benefits is that regular feedback can increase engagement, which can pay dividends for your company. According to Forbes contributor Kevin Kruse, 28 research studies have found correlations between employee engagement and quality, sales, service, retention, safety, profit, sales and total shareholder returns [ii].

“Companies constantly evolve, and they need new ideas all the time. Engaged employees are a lot closer to the best ideas,” Jim Harter, PhD, chief scientist of employee engagement and wellbeing at Gallup, said in a press release. “They’re thinking about the whole company and how they fit into it, and their ideas lead to better decisions” [iii].

By reviewing the performance of your staff members at periodic intervals, they will gain greater understanding of how their position contributes to the goals of the company and likely become more invested in the outcome.


3. Identify promotion opportunities

When you have a position in your organization that needs to be filled, the perfect candidate could be right under your nose. Reviewing the performance of your staff regularly ensures that you know the strengths and weaknesses of each member and their potential to fill specific positions within your business. This will give you a better idea of whether you should start advertising for external candidates right off the bat or consider promoting someone who already works for your company.

Promoting from within is not just about increasing employee morale or saving yourself time. It can ultimately be what is best for your bottom line. According to a study published in SAGE Journals, external hires tend to perform significantly lower on performance reviews during their first two years than internal workers promoted to similar positions [iv]. These external hires also left the company at higher rates and earned salaries that cost employers 18 to 20 percent more [iv]. Consequently, you may find that employees who are promoted from within perform better, cost less and are less likely to leave the company compared to those who are hired externally.


4. Identify training needs

Your new employees may likely go through training when they are first hired, but workplace learning does not stop once onboarding is completed. Whether you adopt a new system or implement a different strategy, your staff members will likely need additional instruction at other points during their tenure with your company.

If multiple staff members are struggling in the same area, it may not be that they are not performing well of their own design. There may not be a proper system in place to help them learn the ropes. Though employees may bring up topics that they need additional training in (on their own), one of the surest ways to make sure your team is properly onboarded is by regularly reviewing their performance. This process may help you to discover areas where new hires should receive more training or experienced employees need refreshers.

Workforce analytics can play an important role in identifying these areas. According to Mark Huselid, PhD, a professor of workforce analytics and director of the Center for Workforce Analytics at D’Amore-McKim School of Business at Northeastern University, gathering data on metrics that will be useful for solving problems that you are facing is key [v].

“We need to let our strategy dictate the metrics we adopt. We’ve got to focus on the data that we need and not the data that we have,” Huselid said [v].


5. Strengthen relationships and loyalty

When you work in a position where you oversee a team of employees, you will likely have numerous demands on your time every day that may keep you from interacting with your employees regularly. By reviewing the performance of your staff at least once a year, you set aside intentional time to talk in-depth with each member of your team, which offers opportunities to positively impact your relationship with each staff member. You can praise good performances, reward hard work, and listen to any complaints, questions, or concerns that your employees may have.

Strengthening your relationship with your staff members is not just good for team morale. It can also positively impact your bottom line by increasing employee retention rates. When employees stay with your company longer, you do not have to hire replacements as frequently, which, as previously mentioned, can carry a high price tag. Keeping up performance reviews and regular communication can help in that area.

“Employees want to know what they are doing well and where they can improve,” Kristen Leverone, a senior vice president at talent development and transition company Lee Hecht Harrison, said in an interview with Fortune magazine [vi]. “Career conversations are critical to engagement and retention” [vi].

Performance reviews are an opportunity to not just discuss the work of your employees, but also ask questions about why they are—or are not—content with their current position. By initiating open dialogue, you can strengthen those relationships and gain valuable insight into how you can improve employee retention.


Recommended Readings

3 Hot Management Trends Shaping The Business World

5 Steps to a Career in Management Consulting

Northeastern University Online MBA Program



[i] https://www.americanprogress.org/wp-content/uploads/2012/11/CostofTurnover.pdf

[ii] http://www.forbes.com/sites/kevinkruse/2012/09/04/why-employee-engagement/#194b10e66043

[iii] http://www.gallup.com/businessjournal/163130/employee-engagement-drives-growth.aspx

[iv] http://journals.sagepub.com/doi/abs/10.1177/0001839211433562

[v] https://www.shrm.org/hr-today/news/hr-news/Pages/How-to-Gain-Competitive-Advantage-Through-Workforce-Analytics.aspx

[vi] http://fortune.com/2012/06/27/are-annual-performance-reviews-necessary/