360 Feedback vs. Performance Appraisal Systems: Which Is the Best?

There's no better way to illustrate the 360 feedback vs. performance appraisal debate than by looking at a company like General Electric. 

Led by CEO Jack Welch from 1981 to 2001, GE was famed for its "rank and yank" performance reviews. They involved scoring individual employee performances each year and firing the bottom 10% who hadn't hit the mark. 

Under the new leadership of Jeff Immelt, GE rolled out its new performance appraisal system in 2016, switching to an agile and feedback-driven culture with more frequent check-ins. Susan Peters, GE's Head of Human Resources, explained the company's performance management pivot to Quartz: 

"The world isn't really on an annual cycle anymore for anything. I think some of it is millennial-based. It's the way millennials are used to working and getting feedback, which is more frequent, faster, mobile-enabled, so there were multiple drivers that said it's time to make this big change."

If you're intrigued by the differences between 360-degree feedback, and a more traditional performance assessment system, this guide will break down the value of each.

🔍 360 Feedback vs. performance review: What is the difference?

If you're new to performance management terms, we'll start with a question you've probably been scratching your head over. What's the difference between 360 feedback vs. performance reviews? 

What is a performance review? 

A performance review is a process where a manager retrospectively evaluates an employee's work performance. The evaluation covers a set period, usually six to twelve months.

The performance review process often includes:

• A review of the employee goals, objectives, and KPIs;
• A discussion of the employee's successes and challenges;
• A review of the manager's feedback;
• A performance rating or score;
• An action plan for the next review period.

What is 360 feedback? 

360-degree feedback is a performance management process in which employees give and receive a wide variety of multi-directional feedback, including: 

• Upward feedback from an employee to a manager; 
• Downward feedback from a manager to their direct report;
• Peer-based feedback from team members or colleagues from adjacent teams;
• Self-appraisals by the reviewee.

This model is more accurate as it provides redirecting and reinforcing feedback from a wider group of people who see the employee in different contexts. Plus, employees can receive feedback on predetermined competencies or skills more frequently than a traditional appraisal. 

Some see 360 feedback as more casual than an annual appraisal. However, it still uses a formal structure and links to development plans to drive growth.

What's the purpose of measuring performance with an appraisal or 360 feedback? 

All companies have business goals and objectives to hit, and measuring individual performances is one way to ensure we meet these goals. Feedback and employee appraisals are the perfect performance metrics, as they calibrate whether an employee is on track and highlight any improvement areas. 

For example, an employee aims to increase sales by 10% in the next quarter. 360 feedback reviews identify whether this target is realistic and whether the employee has reached it. It also pinpoints the next steps, including training and further support such as mentoring and setting new employee goals. 

➡️ Check out our guide to improving performance management for a deeper look into driving a culture of growth. 

"It's no secret that the traditional performance management system is broken. Countless studies have shown that the annual performance review is ineffective at improving employee performance and engagement. In fact, many employees find the process to be stressful and anxiety-inducing.

360 feedback is a more holistic approach to performance management that considers input from an employee's peers, direct reports, and managers. This type of feedback: 

- Provides a well-rounded view of an employee's strengths. 
- Highlights areas for improvement and can provide a forum for discussing how to address those areas.
- Can be an effective way to improve communication and collaboration within an organization." Jennifer Hartman, Human Resources Expert, Fit Small Business.

🆚 Pros & cons of 360 feedback vs. performance appraisals

Let's break down the pros and cons of how 360 feedback fares compared to performance appraisals in terms of these top HR concerns.

Bias 

Feedback bias is a common issue in formal reviews, with 188 different unconscious biases that could creep up. 

The content of annual appraisals can be misleading and inaccurate due to some of the following types of bias:

• Recency bias - if you hold appraisals on an annual basis, a reviewer might only recall information that happened directly before the review rather than a project that concluded 11 months ago. 
• Ageism, gender bias, or racial bias - a single reviewer holds a traditional performance appraisal, and their individual biases can skew the results. 
• Halo effect - a manager might judge an all-star performer on an area they shine in rather than being given a well-rounded evaluation of their actual performance. 

Tip: Frequent feedback from various sources can stamp out some of these biases, whether intentional or unconscious. 

Employee engagement 

Performance appraisals are often a one-way conversation where the manager tells employees what they did well and what needs improvement. 

But if an employee is already disengaged, an annual performance review can be the final straw, thus creating a negative feedback loop.

Alternatively, 360-degree reviews go beyond delivering employee feedback and openly surveys the workforce to gather opinions that will drive company success. The goal is to close the feedback loop and use data to improve employee engagement.

And the results speak volumes. Companies that seek and act on employee feedback via 360 reviews have 40% higher engagement rates compared to companies that don't invest in this area, according to a Qualtrics report. 

Team relationships 

While annual performance appraisals can strain the manager-employee relationship, 360 feedback opens up the floor to get input from an employee's entire team. This can improve communication and collaboration within an organization.

Employees who receive feedback from their peers are more likely to trust their coworkers and feel like they're part of a team. And when employees feel like they're part of a team, they excel in their roles. 

Forbes' "3 Ways to Create Value in Team Coaching" describes the amazing results of creating a trust-based team using 360-degree feedback at the heart of its communication. 

Real-time insights

One of the main criticisms of traditional performance reviews is they take place through the rear-view mirror. By the time an employee sits down with their manager, the situation has already passed, and it's too late to change the course of events.

But late reporting isn't an issue with the continuous nature of 360-degree feedback. Employees can address issues as they're happening. And managers can give real-time feedback that can improve an employee's performance.

Tip: Fast course correction is the beauty of having an always-on feedback system. It's not about catching someone doing something wrong; it's about encouraging the behaviors that will help an employee - and your business - succeed.

Employee motivation 

If you're looking for the ultimate way to motivate your employees, then regular conversations and ongoing coaching hold the key to success. The numbers below don't lie: 

• 60% of employees desire daily or weekly feedback.
• 80% of employees want to receive feedback on-the-spot rather than during an annual performance appraisal. (HR Dive)
• 89% of HR leaders believe that continuous peer feedback produces successful outcomes. (Forbes)

Employees crave continuous constructive feedback to power their career development. Companies that want their workforce to stay motivated must decide the most valuable type of feedback to provide. Crucially, the feedback should be actionable. 

💡 Follow these feedback best practices to get the most out of your 360 review cycles. 

Impact on staff turnover 

Employees who stay with a company do so because they feel part of something. Bidirectional feedback allows them to have their voices heard and feel motivated in their roles.

The lack of opportunity to improve is one of the main reasons employees leave companies. Still, companies have the option to turn this around. 

Jonathan Franchell, CEO of Ironpaper and Forbes Council Member, says: 

"Companies can take the easy road — letting employee X go, chalking up them leaving to the Great Resignation. Instead, the hard thing to do is get feedback from those who leave and those who stay. Take that feedback and begin change."

Ease of implementation 

One of the greatest misconceptions about 360 feedback cycles is that they're hard to implement. After all, providing regular check-ins with staff sounds means extra work.

Wrong. When done right, 360 feedback can save you time. You no longer need to wait until an annual performance review to improve the performance of each team member. Instead, regular feedback will respond to current performance, allowing you to course-correct to drive future performance. 

We recommend using a 360 feedback tool to automate employee feedback so it runs seamlessly in the background. This way, you can focus on more important things — like smashing your business objectives!

⬇️ If setting up your first review cycle sounds daunting, you can't go wrong with a 360-degree feedback template. 

🙅 5 Performance review downsides

Traditional performance reviews come with several downsides to avoid. Here are some of the main ones:

1. Appraisals can be paper-heavy 

The beauty of moving to feedback software is that your feedback systems are digitized and automated. This way, you can avoid the paper-heavy process of performance appraisals, where managers lose track of documents and have to go through the laborious task of filling out endless worksheets. 

2. Appraisals rely on memory

Formal performance reviews are the most unreliable as they cover outdated events that a manager may or may not recall correctly. As a result, employees may feel frustrated because this doesn't accurately represent their performance.

3. Reviews can foster a negative environment

Performance appraisals can often be a chance for managers to vent their frustrations with an employee. Unfortunately, this can lead to a negative environment where employees feel belittled rather than motivated. 

While redirecting feedback does serve a purpose when dealing with performance issues, it's essential to use it strategically. Avoid making redirecting feedback the main focus of your performance feedback cycles. 

4. Traditional reviews don't always encourage positive change

If employees are constantly told they need to improve in the same area, they're likely to become discouraged. And if their manager isn't providing any solutions, they won't know how to make the changes required. This is where bidirectional feedback comes in, as it offers a more positive and proactive way to encourage change. 

5. Appraisals can lack accountability 

Appraisals can be confusing. Even when a manager and employee have agreed on performance goals for the year ahead, who is responsible for ensuring the employee hits the targets? 

Will the manager be accountable for providing adequate training and being available to mentor throughout the year? 

Or is the employee accountable for finding their path? 

➡️ Create the feedback and performance system of your dreams, with Zavvy

If you have to choose one over the other, then it's clear that continuous 360 feedback is the way of the future. 

However, there's a strong case for traditional performance reviews coexisting alongside continuous feedback as long as they tie to an employee's growth and development plan.

With actionable insights, employees will know how to gain more skills and knowledge and improve their performance.

Zavvy's 360 review software enables companies like yours to implement a forward-thinking data-driven feedback system at the click of a button. Our performance management software will save you hours running processes, including: 

• Employee development check-ins;
• Performance reviews;
• Performance development (on top of measuring it)
• Monthly 1:1 meetings;
• Remote engagement surveys;
• Team-level feedback; 
• Leadership development surveys.

And it all runs in the flow of work! Schedule a demo to learn more.