By February 1, 2007 9 Comments Read More →

Are Annual Reviews Killing Your Morale?

Deming listed the annual review process as one of the “deadly diseases” of management.

From this website:

Evaluation of performance, annual review, merit rating.

  • nourishes short-term performance
  • annihilates long-term planning
  • demolishes teamwork
  • promotes competition
  • builds fear
  • promotes playing politics
  • destroys morale
  • it leaves people bitter
  • encourages mobility of management

I’ve certainly seen all of that in my career and I’m seeing it this year. I’m going to post a podcast soon with Eric Christensen, the president of a self-described “Deming company.” Eric will talk about how they abolished their sales incentive programs and how that has actually helped them thrive.

Since it’s annual review season, do you have any horror stories to share?

One horribly demotivating thing I saw back when I worked for Dell happened to a friend (yes, it really was a friend, not me). She was fresh out of business school and had worked her butt off for six months. She was told by her manager, “I would rate you a ‘1’ but nobody gets a ‘1’ in their first year, so you get a ‘2’.” Arbitrary rules and custom meant she got a smaller raise than she deserved, they told her as much. That did more to sap motivation from her than anything they could have done. It wasn’t fair and it wasn’t good for the company.

Annual prizes, quota contests, and “incentives” often have the same effect. Do you have an award or recognition for the “top” person in your group, organization, or company? How does that make all of the “losers” feel when they aren’t the top person? If you can only have one “top” person, do you think about the demotivating impact that has on the others?

I wish more companies and leaders listened to Deming or hadn’t forgotten about him at this point.

So what did Deming suggest? It was always a simple mandate, hard to execute:

Substitute Leadership




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Mark Graban's passion is creating a better, safer, more cost effective healthcare system for patients and better workplaces for all. Mark is a consultant, author, and speaker in the "Lean healthcare" methodology. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. His most recent project is an eBook titled Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also the VP of Improvement & Innovation Services for the technology company KaiNexus.

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9 Comments on "Are Annual Reviews Killing Your Morale?"

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  1. Matt Meyers says:

    I don’t know what the big deal is, and I don’t share the perceived concensus that annual reviews are all bad. Is the problem that the annual review is the ONLY feedback received?; if so, I agree that’s abysmal. But with regular feedback during the year, the review is an opportunity so show what was accomplished against objectives – you know, those metrics that measure your performance objectively. Are the objectives never stated up front, such that the annual review is a subjective look at a year’s performance? yeah, I agree, that’s pathetic. Annual reviews are good as long as people are given clear, specific, acheivable (some within a stretch) objectives that are in line with a corporate strategy or goal. Just like anything else, the idea behind the review can be misapplied, producing desctuctive results, but categorically dismissing annual reviews seems short sighted.

  2. Mark Graban says:

    My point, and concern, with annual reviews is that most of them are done badly, for the reasons you list and then some.

  3. Anonymous says:

    I’m leaving a job where the annual reviews were just moved to February from December, leaving all the employees wondering when/if it was even going to happen at all.

    At this company the annual review is traditionally when you get your yearly raise.

    In an unrelated series of events, my boss decided that he didn’t really need a [my job, which is not administrative], but he did need an executive assistant. He then gave me a surprise “promotion” which should be accompanied by a raise.

    Of course, the raise from the “promotion” would theoretically kick in sometime in February, and would be about the same amount of money as I’d be getting anyhow from the yearly raise. Looks like my boss killed a few birds with one stone: found a secretary and didn’t even have to give a promotion-related raise.

    He also killed what little interest I had left in working for him, so it was a nice coincidence that I got an offer for a much better job the next week.

    Respect for employees in the review process (as well as other management duties) is incredibly important. I believe that reviews can be a huge benefit for a company, but for this particular company they were mostly “fill out a form, get a standard raise, now go away and don’t bother me.”

    Apologies if that was too off-topic, but I’m still angry about it and the effect that type of ‘leadership’ has on employees (and it more or less tied back into the annual review). It can’t possibly be lean to treat your employees so badly they all leave.

  4. Charles H. Green says:

    Thanks for the Deming comment, because his legacy has gotten unfairly confused, IMHO.

    Deming was one who, I believe, gets credited with the value of measurement. Fair enough; but the business world of today has converted the value of metrics in processes into an un-thoughtfully applied panacea, with rather awful results–some of which you point out.

    We have come to celebrate the numbers rather than what they are supposed to represent. Your friend’s sad case is but one example. “If you can’t measure it you can’t manage it” has become the mantra. Not only is it obviously false on the face of it with a moment’s reflection, it has become the excuse for a thousand forms of conflict avoidance. Basically avoiding, as you point out, the requirements of leadership.

    As Alfie Kohn points out in his lifetime of work, the celebration of external rewards at the expense of intrinsic rewards has another said result–the destruction of a sense of pride in work well done, or well-being from having served others. If everything is done only in order to receive a rating or a bonus, then the point of everything is inherently selfish.

  5. Ron Pereira says:

    My former employer was famous for setting the goals for the half (6 months) about 3 months into the half. So we would find out what the goals for the half were around mid March. Sadly some of the goals were then unachievable since we needed more time to get things done (major projects, etc.). It was an ubelievably bad way to run a company and turned off so many willing and able employees.

  6. LeanPrinter says:

    In my 22 years in the corporate world, all of them as a salaried employee, I’ve had 3 actual “reviews”. That’s all. Three. The rest of them have simply been a quick 60 second “meeting” where I was told what my raise was, or a long distance phone call for the same reason.

    In my last company the annual review schedule for employees changed three times in three years, all driven by when the company wanted to take the charge on their books. One year the “annual” reviews didn’t take place until late March.

    Suffice it to say, while I have worked for at least one boss who had respect for people, I’ve yet to work for a company that did. Maybe that’s why I’ve gone into business for myself. I “review” my performance everyday.

  7. Mark Graban says:

    I have a friend today who was told for 20 minutes by his boss what an outstanding job he was doing in all regards. Then, on the last page, his final score was “average.” He was told “well, the group didn’t have a good year” as if that had any impact on his “merit” raise. The company calls it a “merit raise” but it’s based on so many other things. “Average” as a final score was necessary to make sure he didn’t get too big of a raise, I guess as punishment for the group not doing well.

    I have my review tomorrow. I’ll probably avoid saying anything about it in a public forum, though.

  8. Rich says:

    While all of the commentary above really point to some serious shortfalls in leadership (a serious problem in business today) I would also ask for recognition that there are always two sides of every situation. Over the Christmas break I received an email from an associate I led 4 years ago telling me how much she hated me and how unfair I am. My offense? I gave a merit raise to a coleague of hers that she didn’t think deserved it (at least as much as she herself did). The most “unfair” thing I could have done as a leader is give everyone the same “merit” raise, yet from her perspective it was fundamentally unfair. Amazing that she has apparently stewed bitterly over 4 years now about this…Leaders, you have a responsibility to review performance and do it as fairly and as often as you possibly can. If you have the courage to do this, though, beware! You may wind up on a blog somewhere as a leadership horror story! :-)

  9. LeanPrinter says:

    Rich,

    Too late for me – it’s already happened, and on more than one occasion.

    Some long time employees who’ve received reviews over the years from “the new guy” (ie. me) have been very upset, some saying it was the “worst” review they’ve ever had, including one 30+ year employee. He was one of those employees who was always given the same merit raise as every one else, year after year after year, irregardless of performance, attendance, safety, etc.

    My response, was “knowing your former supervisor this is probably the first real review you’ve ever had”. That was followed by “here’s what we can do going forward”. That same 30+ year employee came up to me at his retirement party a couple of years later and told me I was one of the best persons he had ever worked for, simply because I listened and spoke honestly and openly to him and everyone else.

    People need to be given honest feedback and full support – nothing less than what we ourselves expect from our bosses. It’s not easy, especially when you’ve inherited a performance review system that is complete failure and a demotivator, but you have to, as you say, have the courage to do this.

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