You are here

How to Choose the Best Performance Review System

By Nancye M. Combs, HR Enterprise Inc.

If every employee were to perform exactly what is described in his or her job description, companies' results would be mediocre. 

Exceptional results are achieved when those who understand it is their duty to manage employee performance to the highest possible level implement the optimum human resources systems for their workforces.  They know that what gets measured gets done, and they need their own performance management systems that work.  Let’s explore options that might guide you to your ideal review method or help you avoid a disaster.

One size does not fit all. And the ability to resist the latest fad has kept many companies on the leaderboard of high performers in their industries. The time to select your best performance review system is at the beginning of the review cycle, and you should share it with employees as quickly as possible so they can learn how their performances will be measured.

Some companies actually brag about having no method to review performance. They use what we call “hope and pray” management.  They hope and pray employees understand what they expect and will initiate corrective action when they see management is unhappy with the results. Not going to happen. 


Those with no system might be wise to start with a self-appraisal. Employees evaluate themselves using a simple form and then meet with their supervisors to discuss performance areas where employees are unrealistic about their self-ratings.

The self-appraisal method is the least intimidating performance review. When employees know performance reviews are essential to high performance and are designed to help them improve, they become more comfortable with self-appraisals. This method creates less resistance to a move toward a more formal performance method. 

Performance Dialogue

Regularly scheduled performance dialogue works, too, but only if it is planned with clearly defined performance objectives, executed at specific intervals, documented and is conducted with honest feedback. This is the easiest method to postpone or ignore because of poor planning. Millennials prefer this method instead of the traditional annual review because it fits with their educational experience; they received grades at frequent intervals for current course work instead of one report card each year. 

Traditional Checklists

The traditional annual review is used most frequently as a performance management tool. It uses a checklist of attitudes and behaviors and ratings from 1-5 for “poor” to “outstanding.” The review is most often tied to a salary recommendation, and managers complain that it is difficult to focus the discussion on performance because employees want to know only whether they are getting raises and how much.  Employees complain about checklist methods because forms are not related to their actual jobs. If job competencies are not clearly related to their daily work, they just go through the process and continue to do what they have done.  

Supervisor Narrative

The narrative method can be challenging and has many vocal detractors. Supervisors struggle to write narratives about employees’ performances that cover full years. They also complain about narrative systems because their writing skills might be poor and they cannot describe performance deficiencies in helpful ways. Those with highly diverse workforces should be especially sensitive to the language skills of employees before choosing narrative systems. When possible, the documents should be presented in a language employees can read and comprehend. 


A performance review method with a job-specific review form is easiest for management to use and most acceptable to employees. Although people consider this method ideal, creating job-specific review forms is more costly than buying off-the-shelf forms to use for everyone. This method also requires managing the system to keep forms up-to-date when job duties change. It is the least resisted method because it makes sense to employees.


Another effective performance review tool is the management by objective (MBO) method. Each employee has about five clearly defined SMART objectives (specific, measurable, attainable, relevant and time-bound) that tie directly to the success of the business. Each objective is weighted, and the employee is rewarded for successfully reaching the target. This method requires planning, creating/weighting the objectives and conducting regularly scheduled monitoring sessions to ensure the employee is on target for successful completion.  High-performing companies lean toward this system because all rewards are based on results, it is objective and there are no surprises. The high achievers get the rewards.

Combining the MBO method with a review of workplace professionalism strengthens this method and addresses the primary reason employees are terminated involuntarily: poor interpersonal communication. This method requires work, including adoption training, but those devoted to it say it’s worth the effort.

The 360-Degree Performance Review 

Using the 360-degree performance review as the annual review to provide feedback to managers and executives about their performances is questionable and potentially a disaster. This method requires each employee to be evaluated by supervisors, peers, subordinates and customers. The employees also evaluate themselves. This method is sophisticated and expensive to implement. Because it is the newest and most misunderstood method to review performance, it deserves extra space here to help those who are leaning toward it. There are many learned opinions about whether the 360 is a viable method that produces helpful results. Some who have used it have strong opinions:

"I've seen departments blow up and employees leave companies because the 360 wasn't handled properly," said Alicia Arenas, a leadership coach in San Antonio. "360s are most effective when they are used as a development tool, not a rating tool." 

Such instruments "were extremely popular early on," said consultant Bettina Seidman in New York City.  "Later, they fell out of favor because of a lack of reliability and validity, among other issues."

Consultant Dick Grote, author of the book “How to be Good at Performance Appraisals,” said that managers “do virtually nothing on the back end (to hold) people accountable for doing something with the data they get.”

Grote said that applying 360-degree feedback to development or coaching "probably doesn't do much harm," but when it's used for determining compensation or promotions, misleading information might be provided "by the office screw-up who doesn't know anything anyway. And also by the guy down the hall bucking for the same promotion I am (who) wants to put a dagger in my ribs."

Some commentators point out that raters are biased in many ways.  A few themes stand out:

  • Collusion. Employees collude to ensure everyone gets a good evaluation. “I’ll take care of you this time and you will take care of me next time.”
  • Payback. The 360 provides the ideal way to strike back by a person feels slighted, passed over for a promotion or increase, or to discriminate based on gender, age, race or other bias.
  • Ignorance or arrogance. The rater does not understand the questions but offers an opinion anyway or says he or she never provides a rating of 5 because “no one is that good.” 
  • Confidentiality. The employee group is too small to ensure anonymity. Five or more peers, five or more subordinates and five or more customers are essential to ensure confidentiality. The employee is always more focused on “Who said that?” and spends endless hours trying to track down the people who made negative comments. This process is never suited for small companies.


Marcus Buckingham, creator of The Stengthfinder published by Gallup and used by millions, writes about the 360-degree performance review method in his Harvard Business Review article “The Fatal Flaw with 360 Surveys.”

Buckingham points that in his extensive research he found that the best leaders know their strengths and weaknesses. They capitalize on their strengths and try to minimize their weaknesses. They do not rely on opinion surveys to address their development needs.

Buckingham said that the data gathered might be well-intended, but it is always “really bad.”

All 360-degree review systems, he said, are basically alike. The delivery methods are different but the structures never are unique.

“The bottom line is that the rater is not objective and is statistically unreliable,” he said.

Every rater offers only one perspective, and that perspective might not be objective. That’s why research companies seek the opinions of a reliable sample (usually 1,000 or more) to produce any usable outcome. Based on his association with Gallup, Buckingham understands how it works and laments about the destruction caused by giving a leader bad advice.

In addition, the process is too expensive based on the limited success of the outcome. Advisers and researchers suggest that any decision to use the 360-degree performance review should be made only after careful evaluation and the willingness to accept the risks associated with the imperfect system. In no case should it be considered as a performance review system for compensation. It is a development tool.

Forced Choice Scoring 

Before approving any method with a forced choice scoring method, be sure you understand the message you’re sending to your employees. Employees call this the “forced failure” system. This scoring method requires the raters to place employees along an imaginary bell curve. About two-thirds of employees are scored as “average,” with a small percentage in the other categories of poor, fair, above average and exceptional. Evaluators are required to place a certain percentage of employees in the “poor” category and are prohibited from placing a disproportionate number in the “exceptional” category.  In other words, 10 percent are failures whether they accept it or not, and few are exceptional, even if many perform that way. This scoring method creates serious internal morale problems and can fuel turnover if the amount of the salary increase is tied to the score.

With many options, it is important to conduct the due diligence to ensure you select the method that complements your culture and sets you up to have a high-performing team. 

Nancye M. Combs has more than four decades of practical experience in human resources. She is a university instructor for human resources professionals seeking to become nationally certified by the Society for Human Resource Management. Reach her at 502-896-0503 and