Rethinking Performance Management

Navigating Performance Management: A Burdened Obligation or a Pathway to Achievement?

Why traditional performance reviews fail - and how organisations can design a fair and effective alternative

When performance reviews do more harm than good

Performance management and annual performance reviews remain a fixed ritual in many organisations. Yet these terms rarely evoke motivation among employees and leaders alike. More often, they trigger frustration, resignation, or indifference. What was originally intended as a tool to enhance performance, development, and fairness is frequently experienced in practice as demotivating, subjective, and counterproductive.

This issue is particularly critical for organisations that rely on innovation and creativity. Flat hierarchies, close collaboration, and limited resources amplify the effects of good - but also poor - performance management systems. The central question, therefore, is not whether performance management is necessary, but how it is designed.

What performance management actually means

Organisational psychologist Hermann Aguinis defines performance management as:

a continuous process of identifying, measuring, and developing the performance of individuals and teams in alignment with the organisation’s strategic goals.

This definition highlights three key elements:

1. Continuity rather than isolated annual reviews

2. Measuring and developing, not merely evaluating

3. Strategic alignment with organisational objectives

In practice, many systems fail precisely on these points. Reviews are rarely prepared on an ongoing basis, development remains vague, and the link to strategy is often unclear.

Why we systematically overestimate our own performance

One of the core challenges of performance evaluation is the human factor itself. Numerous studies demonstrate that self-assessment is highly biased. A well-known example is the Dunning-Kruger effect: individuals tend to overestimate their abilities, particularly in areas where they lack competence.

A study by the ADAC showed that more than 80% of respondents considered themselves above-average drivers - a statistical impossibility. Similar effects are evident in the workplace. A case study in medical education revealed that almost all junior doctors believed they were capable of teaching venipuncture, even though only around 10% objectively met that standard.

Conclusion:Without a structured external mirror, realistic performance development is nearly impossible.

Absolute vs. relative performance evaluation: an underestimated trade-off

Organisations face a fundamental decision:Should employees be evaluated absolutely (against clear standards) or relatively (in comparison to one another)?

Forced distribution and its downsides

One well-known relative system is forced distribution, popularised by Jack Welch at General Electric. Employees are categorised into performance groups regardless of the team’s overall performance.

Supporters argue that it:

• promotes a high-performance culture

• enables clear differentiation

• improves succession planning

Critics point to:

• declining morale

• fear-based cultures and internal competition

• reduced knowledge sharing

• increased employee turnover

For organisations that depend on collaboration, innovation, and trust, forced ranking often proves to be culturally toxic.

The most common biases in performance evaluations

Even seemingly objective assessments are vulnerable to cognitive biases. Particularly relevant are:

• Availability bias: recent events overshadow the entire review period

• Leniency bias: overly generous ratings driven by a desire for harmony

• Central tendency error: avoidance of clear differentiation by rating everyone average

• Attribution error: success is attributed to individuals, failure to external circumstances

• Halo effect: one dominant trait distorts the overall assessment

• Gender bias and beauty bias: systematic disadvantages for certain groups

Meta-analyses show that women in male-dominated environments receive lower evaluations on average, even when performance is identical.

What organisations can do in practice

1. Rater error training

Leaders learn to recognise and systematically reduce common evaluation errors. Studies show significant improvements in rating accuracy following such training programmes.

2. Frame-of-reference training

Shared performance standards are developed. What does excellent, average, or insufficient performance actually look like? This approach substantially increases consistency and perceived fairness.

3. Skill matrices instead of gut feeling

The use of skill matrices has proven effective in practice. Relevant competencies are clearly defined per role and assessed across levels. This makes development visible, measurable, and manageable.

360-degree feedback: opportunity with limitations

360-degree feedback integrates perspectives from supervisors, peers, employees, and customers. Studies indicate that approximately 45% of feedback reveals new insights - so-called blind spots.

At the same time, the following applies:

• 360-degree feedback is primarily suited for development, not for bonus or termination decisions.

• Without clear criteria, it tends to reproduce existing biases.

Rethinking leadership: from evaluator to coach

One of the most effective shifts is a change in leadership role - from judge to coach. The ACS model (Assessment - Challenge - Support) provides a structured framework:

• Assessment: What truly needs to be developed?

• Challenge: How does the individual deliberately leave their comfort zone?

• Support: Who accompanies and supports this process?

A feedback approach inspired by Adam Grant is particularly powerful:Feedback does not begin with criticism, but with a clear developmental intent and confidence in the individual’s potential.

Performance management is not one-size-fits-all

There is no universal model. Every organisation must adapt its performance management approach to its strategy, culture, and level of maturity. What is clear, however, is this:

Poor systems cost motivation, trust, and performance.Good systems create clarity, development, and sustainable results.

Summary

• Performance management is effective only when it is continuous, fair, and development-oriented.

• Cognitive biases distort evaluations more strongly than many leaders realise.

• Forced ranking is generally unsuitable for collaborative, innovation-driven organisations.

• Skill matrices, rater training, and coaching-based approaches increase objectivity and impact.

• Leadership today means enabling development - not merely assessing performance.

Next steps for organisations

• Review existing performance evaluation systems for bias risks

• Train leaders in objective and reflective performance assessment

• Introduce clear competency models and continuous feedback formats

• Embed a coaching mindset within leadership culture

About the author

Dominique Giger is a coach, speaker, and transformation expert with over 18 years of international experience in change and performance management. She holds an MSc in Computer Science from ETH Zurich and combines neuroscientific insights, psychological expertise, and entrepreneurial practice. Her work focuses on healthy performance, modern leadership, and the development of resilient high-performance teams.

References (selection)

• Aguinis, H. (2019). Performance Management. Pearson

• Dunning, D., & Kruger, J. (1999). Unskilled and unaware of it. Journal of Personality and Social Psychology

• Gallup (2023). State of the Global Workplace

• Pulakos, E. et al. (2015). Performance management can be fixed. Industrial and Organizational Psychology

• Grant, A. (2021). Think Again. Viking