Reason #1: Amazing employees can be hard to find

We all want to populate our business’s with star performers to set the pace for the rest of the team – but those out-of-the-box overachievers aren’t always available. Plus, firing every employee that doesn’t meet your expectation has a lot of direct and indirect costs. That’s why developing employees is so important – and that’s what today’s performance reviews are all about. While some current performance review systems still include an emphasis on accountability and ranking (some industries simply require them), there’s an additional focus on working with employees to help them improve and grow.

Reason #2: Setting goals

Using annual reviews to set goals, talk big-picture, and get team members excited about their work will have long-lasting impacts on your company’s success.

Reason #3: Employees want to know where they stand

Here’s a reality check: your employees might not know how they’re doing. Even in the smallest start-ups, where one-on-ones are aplenty and ongoing development is a core mandate, you might be lacking in one hot commodity: feedback. Especially in busy companies, it can be hard to give constant feedback, and the formal review can be exactly what employees crave to stay the course – and ask any questions they might not feel comfortable bringing up during a casual chat.

Reason #4: They keep rewards fair and transparent

Compensation and promotions can be tricky. Employees want them, but they also want to know, in extreme detail, why a co-worker might have received something different. Implementing annual rewards into performance reviews makes the process a lot easier. While rankings make this somewhat simpler, many companies have found that the simple act of communication and feedback is enough to ensure that rewards remain objective.

Reason #5: They improve communication

A good performance review system is designed to facilitate conversations between employees and their managers. While this might seem like overkill for people that are great at communicating, it’s important to remember that for a lot of people, it’s a muscle that they don’t use regularly. So, a system that encourages discussion – whether it’s every day or once a year – can have long-term positive impacts on manager-employee relationships.

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