How to Create a Performance Review System That Actually Works: A Guide for HR Leaders

Performance reviews are often dreaded by both managers and employees. Done poorly, they can feel like a box-ticking exercise, a chore that inspires dread rather than development. However, when handled well, performance reviews can drive growth, align goals, and boost employee engagement.

If you’re an HR leader looking to transform your company’s performance review system into a tool that actually works, here’s a comprehensive guide to creating a review process that is relevant, actionable, and empowering.

Monark’s TL;DR

• Align your performance review system with your organization’s needs by clarifying your objectives and setting goals accordingly.
• Evaluation of the past may be required, but adding future-focused elements to your review can lead to greater organizational success and employee satisfaction.
• Ditch the annual review and replace it with a culture of continual feedback.
• Provide leaders with training to ensure they can provide employees with a positive performance review experience.
• Make sure to continually evaluate your program and make improvements as needed.

Set Clear Goals and Objectives

A performance review system is only as good as the goals it aims to achieve. Before you start designing or revamping your system, take a step back to ask: What do we want our performance review process to accomplish? Here are a few potential goals we suggest:

• Align individual goals with company strategy. Make sure that employees understand how their work contributes to the organization’s overall mission. Results from our Organizational Health and Effectiveness Profile survey indicate that this approach pays off as companies that excel at making this link clear tend to perform better on employee engagement and wellbeing indicators than those that don’t. McKinsey has also found that it plays a critical role in ensuring employees find performance management programs to be fair.
• Ensure ongoing preparedness. The best systems are forward-looking, focusing not just on what’s been done but on what’s next. Develop your program to encourage upskilling and identify talent that can be shifted up as well as across the organization, preparing you for agile restructuring.
• Improve communication and engagement. Use reviews as a way to enhance manager-employee relationships through constructive dialogue. Leverage this opportunity to enforce company values of continual improvement and allow two-way communication between leaders and direct reports to create deeper trust among employees.

The clearer your objectives, the more focused your performance review system can be.

Encourage Autonomy and Career Development

Performance reviews should not just be about evaluating past performance; they should be a springboard for future development. Make sure your system emphasizes:

• Collaborative goal-setting. Involve employees in setting their goals to increase buy-in and motivation. When employees have a say in defining their objectives, they are more likely to take ownership and stay engaged. Encourage managers to work closely with their team members to identify goals that are challenging yet attainable, aligning individual ambitions with the company’s vision.
• Personal development plans. Encourage employees to create plans for acquiring new skills or taking on new responsibilities and future roles. Within our Organizational Health and Engagement Profile, we’ve found that one of the most common desires within the area of Performance Development is a clear understanding of career progression. Employees want to understand what the “next step” is, and what they need to do to get there.

This future-focused approach transforms the review from a look back to a plan forward, making it more valuable for both the employee and the organization.

Move Beyond the Annual Review

The traditional annual review has many drawbacks, chief among them the fact that once-a-year feedback is not frequent enough to foster improvement. Consider shifting to a continuous feedback model, which includes:

• Quarterly or bi-annual performance reviews. More frequent reviews allow for course corrections before the year ends. It also diminishes the likelihood that performance assessments come as a shock— decreasing the chance such conversations will lead to emotional disagreements.
• Regular one-on-ones. Encourage managers to have weekly or bi-weekly check-ins with their team members to discuss progress, roadblocks, and upcoming priorities. Especially in a hybrid or remote work environment, such conversations can be critical to ensuring managers have enough information to accurately assess performance. Technology such as Monark’s upcoming 1:1 tool can also help store and summarize these conversations allowing managers to easily leverage data about past performance when review season does come around.

This shift to continuous feedback creates an ongoing dialogue and avoids surprises during formal review periods.

Train Managers to Provide Performance Feedback

Managers are the linchpin of any successful performance review system. Yet, many managers lack the training or confidence to provide clear, actionable feedback. As an HR leader, you can ensure the effectiveness of your system by:

• Offering training on the organization’s system. While we encourage keeping performance management systems simple where you can, many organizations have added complexity to their programs to account for various factors. This can be fine, but it’s essential to prepare leaders to fill out such performance documentation (so that performance reviews are consistent across all leaders) and correctly answer questions about the system you’ve created. This is vital to ensuring that employees perceive your performance reviews as fair.
• Offering training on delivering feedback. Provide guidance on how to give feedback that is specific, strengths-based, and focuses on behaviors rather than personalities. It’s also critical to ensure that leaders have strengthened soft skills to leverage the opportunity to improve on relationships with their direct reports through the process and deal with difficult conversations when they arise. At Monark, we suggest courses like ‘Leading High Achieving Teams’, ‘Communicating, Negotiating, and Resolving Conflict’, and ‘Building Trust and Relationships’ as powerful foundations.

Investing in manager training can make a significant difference in the quality of performance conversations.

Measure the Effectiveness of Your System

Creating a performance review system isn’t a “set it and forget it” task. Continuously evaluate its effectiveness by asking:

• Are we meeting our original goals? Regularly assess if the system is achieving the objectives set out in the beginning. Ideally ensure the goals you set are measurable and specific from the start to ensure you can easily answer this question down the road.
• What do employees and managers think? Collect feedback from both groups to see what’s working and what’s not. Choosing a third party provider like Monark to dive into such questions can be helpful to ensure employees feel comfortable providing their honest feedback and can provide insightful industry comparisons.
• What does the data tell us? Use additional metrics like turnover rates, employee engagement scores, and promotion rates to measure success and add color to the feedback you receive.

Make adjustments as needed to ensure your system continues to meet the evolving needs of your organization.

Ready to Revamp Your Performance Review Program?

Start small with incremental changes or jump into a full system overhaul. Either way, remember that the ultimate goal is to create a performance review process that supports growth—for individuals and the organization alike.

If you have questions or need advice on specific performance review challenges, feel free to reach out. Let’s make performance reviews work for you, not against you!