Stop rewarding people based on Performance; start Promoting Potential.

We’ve all been there.

Once a year, our manager would call us into their office and review what we had done well throughout the year – or, more likely, what we had done wrong eleven months ago. Then we would leave the manager’s office and return to work exactly like before.

Nothing changed! This is why it’s time to replace the performance review process.

Read more about the difference between High Potential and High Performance.

Need more reasons?

Performance Reviews Aren’t Effective – Performance reviews rarely lead to a change in behaviour by the manager or the employee. Year after year, most managers give employees the same feedback. And most employees don’t do anything in response. One reported that as little as one-third of employees showed improvement after their annual review. That’s likely because performance reviews rarely offer actionable steps for employees to take when struggling.

Performance Reviews Aren’t Reliable – Seventy-seven percent of HR executives believe performance reviews don’t accurately reflect employee contributions, according to CEB research. And CEB’s HR practice leader Rose Mueller-Hanson agrees with those executives. She states, “Our research shows that individual performance ratings have zero correlation with actual business results.”

Performance Reviews Are Time-Consuming – A recent CEB survey found that managers spend an average of 210 hours yearly in performance management activities. Managers said their employees, in turn, each spend 40 hours a year. Deloitte reported that its approximately 244,000 employees spent more than 2 million hours a year on performance reviews. That’s much time spent on something that is proven to be unreliable and ineffective.

Performance Reviews Are Costly – Besides the time it takes to perform annual reviews, there’s the actual cost. According to information from the CEB, a company spends about $3,500 per employee on yearly reviews.

Given the time and cost of performance reviews, it’s surprising that more companies haven’t given them up yet. But if those aren’t enough reasons for you, the new research on how ineffective and misleading they are!

It’s time to stop evaluating performance and invest in potential.

High potentials can be challenging to identify for two reasons:

First, high performance is easy to observe and drowns out the less obvious attributes and behaviours that characterize high potentials—such as change management or learning capabilities.

Second, few organizations codify the attributes and competencies they value in their ideal employees—which means that managers don’t know precisely what to look for to assess potential.

As a result, most managers focus exclusively on performance, which can be a problem.

When performance is the only criterion employees are evaluated on, high performers will be the only ones moving up—and high potentials will move out.

You should value and reward performance, but it can’t be the only entry point.

Learn more about the Better Leader Inner Circle

What are the key characteristics of high-potential employees?

The characteristics of high-potential employees include Ability, Aspiration, Behaviour, Social Skills, Adaptability and Leadership. These traits are critical to identifying employee abilities that can contribute to the business and enable employers to put development programmes in place to maximize the skills of these individuals.

Ability relates to performance, an individual’s expertise, innate skills, and capacity to work autonomously and consistently deliver results. 

Aspiration is the desire to grow, taking accountability for decision-making. They share a drive to achieve, individually and as a team, and support and encourage growth.

Behaviour is one of the easiest traits to identify. High Potential Employees Show an increased capability to learn, cooperate with others and manage their behaviours and emotions and how they behave under pressure.

Social skills and High Emotional Intelligence allow High Potential Employees to adapt their personalities to different responsibilities and changing circumstances.

Adaptability. Under pressure, High Potential Employees usually remain calm, continue to perform, and can pivot easily.

Leadership is imperative for High Potential Employees to understand and respect quality leadership and aspire to fulfil such roles successfully.