There’s plenty of anecdotal evidence that performance appraisal systems hurt more than help. I’ve been looking for evidence performance review systems help or hurt the bottom line. A New York Times article by Kelley Holland entitled Performance Reviews: Many Need Improvement points to some interesting survey data:

“According to one study by Watson Wyatt, the human resources consulting firm, only 3 in 10 employees believed that their companies’ performance review system actually improved performance. In another study by the firm, almost half of the employers surveyed thought that their managers were at best only slightly effective in helping underperforming employees to improve.”

Those findings feel right, but focus on what managers or employees think about their systems, not how the programs affect actual company performance.

Holland suggests there’s no consensus on a replacement:

“But performance reviews are unlikely to disappear. Many companies believe that a paper trail of reviews can protect them against lawsuits from former employees, and many consultants and human resources executives contend that well-designed reviews, along with frequent conversations about performance, can truly help employees improve and develop.”

50 to 70 percent of managers and employees think their programs are not working, but there’s no movement to change them. Wonder why? According to Watson Wyatt’s study:

“Many corporations view their performance management programs as ‘organizational wallpaper,’ meaning they exist only in the background and aren’t expected to add value.”

Maybe I can’t find hard data because performance mananagement isn’t expected to add value in the first place?

What do you think about performance review systems? Do they help the bottom line? How would you design a replacement?