It’s March. You ask your managers who should get a promotion or a salary increase.
The answer? “Everyone’s working hard.”

June arrives. One of your top specialists walks in with a competing offer. Shock. Confusion. “Why didn’t they say anything earlier?”
But really — when were they supposed to say it?

If these situations sound familiar, it’s a sign your company is operating in reactive mode. Instead of proactively managing growth and performance, you’re constantly putting out fires. One solution? Implementing a structured employee performance review process.

Performance reviews tend to resurface in companies like a boomerang. Some leaders see them as an essential management tool. Others view them as bureaucratic overhead that adds little value.

The truth is: when thoughtfully designed, performance reviews bring structure and clarity to areas previously defined by guesswork and tension. They create an early warning system that helps you catch issues before they escalate.

This article walks you through 8 signals that it’s time to introduce a performance review system in your organization. At the end, you’ll also find a checklist for a quick self-diagnosis.

What Are Performance Reviews — and How Do They Differ From Development Conversations?

Before we dive into the signs, let’s clarify definitions.

Performance reviews are a formal process used to evaluate an employee’s work over a specific period. They assess goals, results, progress, and competencies. It’s a retrospective — looking back to understand what worked and what didn’t. Reviews often influence decisions like pay adjustments, promotions, or role changes.

Development conversations, on the other hand, are regular, less formal meetings focused on growth and the future: career aspirations, learning needs, and upcoming challenges. They help employees progress independently of their last quarter’s metrics.

In short:

• Performance reviews look backward and are linked to HR decisions.
• Development conversations look forward and are designed to build engagement and growth.

8 Signs It’s Time to Introduce Performance Reviews

Below are the warning signs that indicate your company needs a structured performance evaluation process.

1. Promotions and salary increases are based on gut feeling

A classic scenario: you’re reviewing the compensation budget and someone says, “Agnieszka has been with us for five years — let’s give her something extra.”
You ask, “How did she perform in the last project?” Silence. No one knows. No one has data.

Compensation decisions made without objective criteria quickly lead to chaos and a sense of unfairness. According to Adams’ Equity Theory, employees constantly compare their effort and rewards to others. If the system feels unclear, they feel undervalued — even if they received a raise.

A performance review system introduces objectivity. Instead of relying on empathy or tenure, you evaluate results, competencies, and goal completion. It may not be perfect, but it provides a foundation for transparent, defensible decisions.

2. You don’t know who your high performers are — or who is falling behind

You manage a team of 15. Everyone is “doing something,” but who actually delivers? Who consistently exceeds expectations? Who has been struggling for months?

Without regular evaluations, you lose visibility into the talent and performance landscape of your company. That’s not just an HR issue — it’s a business risk. You can’t plan future growth if you don’t know who can drive your next big project.

Performance management expert Herman Aguinis notes that an effective review system helps organizations identify:

• High performers — who deserve strategic, challenging assignments
• Solid performers — the stable core of the company
• Low performers — who need support or may be better suited for different roles

Without this clarity, staffing decisions become guesswork — which is dangerous when the business faces new challenges.

3. Employee goals are unclear, vague, or simply nonexistent

Goal-setting theory by Locke and Latham shows that clear, measurable (yet ambitious and achievable) goals improve performance by 11–25%. But for that to work, employees must know what success actually looks like.

“Increase sales” isn’t a goal.
“Complete three client implementations in Q2” is.

When goals are missing, employees operate in the dark — leading to frustration and misalignment.

A good performance review process forces goal clarity. It ensures that everyone has defined expectations and understands what success means. This clarity boosts ownership, confidence, and productivity.

4. Feedback shows up only ‘on the spot’

If feedback only appears during crises or salary talks, employees start associating it with negativity. Instead of supporting development, it triggers stress.

Performance reviews create rhythm and predictability: annually, semi-annually, or quarterly — everyone knows when they’ll sit down with their manager to discuss progress. Feedback becomes a natural part of work culture, not an unexpected “attack.”

Gartner reports that companies using regular feedback cycles see 43% higher employee engagement and 30% higher retention in key teams.

Ad hoc feedback still matters — but it can’t be the only source of performance insight. Teams need regular moments to reflect on the bigger picture.

5. Managers avoid difficult conversations about performance

“Maciej didn’t do well on the project, but I don’t want to demotivate him.”
A year passes. Maciej still works the same way because no one told him anything was wrong.

Many managers fear performance conversations. Without a structured process, tools, or dedicated time, it’s far too easy to postpone uncomfortable discussions.

But avoiding feedback doesn’t protect the employee. It leaves them alone with a problem they cannot see.

Performance reviews give managers an official, expected moment to address performance. They won’t magically make the conversation easy — but they make sure it actually happens.

6. There’s no performance history — everything relies on memory

Imagine discussing a promotion and someone asks, “How did Asia perform last year?”
If her most recent project was excellent, she shines. If her latest mistake was serious, it overshadows 12 months of work.

That’s the recency effect — overvaluing the latest events instead of the full picture.

Without documented reviews, you lose continuity. You can’t trace growth, plan career paths, or make fair decisions about advancement or termination.

A performance review system becomes a reliable history of employee development — critical during restructuring, succession planning, or assigning key roles.

7. Every manager works differently

In one team, the manager meets monthly.
In another, not at all.

Employees compare experiences — and the result is confusion about fairness.

Inconsistency erodes trust. If development opportunities depend on a manager's personal style instead of company standards, frustration grows and motivation drops.

Performance reviews establish a shared framework. Not a rigid form — but a consistent standard across the organization.

8. Turnover is rising, and exit interviews point to lack of development and recognition

If more people are leaving, and exit interviews repeat themes like “lack of clarity,” “no feedback,” or “no growth,” you’ve got a red flag.

People don’t leave only because another company offered €100 more. They leave because they don’t see progress or purpose.

Gallup’s 2024 research shows that employees who regularly receive high-quality positive feedback are 45% less likely to leave within two years.

Without structured reviews, employee achievements get lost in daily tasks, and development conversations never happen — often until it’s too late.

A review system won’t eliminate turnover completely, but it helps catch issues early.

Where to Begin?

If several of the signs above sound familiar, it’s time to pause and reflect.
You don’t need a complex 360-degree system on day one. Start simple: understand what works, where gaps exist, and which expectations need clarity.

This checklist will help you diagnose your current situation.

Checklist: Does Your Company Need a Performance Review System?

Answer YES / NO:

• Are promotion and salary decisions based on data rather than intuition?
• Do you know who your high performers are and who needs support?
• Does every employee have clear goals and success criteria?
• Is feedback regular rather than “as needed”?
• Do managers address performance issues early — before they escalate?
• Do you have a documented history of employee performance over the years?
• Is the evaluation process consistent across teams and departments?
• Do exit interviews not repeat: “no development,” “no recognition”?
• Do managers know how to conduct performance and development conversations?
• Do performance discussions lead to concrete decisions — raises, promotions, changes?

If you answered “NO” to several questions, your organization likely lacks a structured performance management system — and that can fuel disengagement and turnover.

Performance reviews won’t solve every organizational problem. But without them, companies fall into reactive mode — constantly firefighting instead of building a long-term culture of development. Clear criteria, regular feedback, and transparent decisions are the foundations of a healthy organization.

FAQ: 8 Signs Your Company Should Introduce Performance Reviews

When should a company introduce a performance review system?

When promotions and salary decisions are intuitive, high performers aren’t clearly identified, goals are unclear, feedback appears only ad hoc, managers avoid tough conversations, documentation is lacking, teams work inconsistently, or exit interviews highlight “no growth” or “no recognition.”

How often should performance reviews be conducted?

Most companies run them annually or semi-annually. Some fast-paced industries prefer quarterly cycles. The key is regularity — predictable, meaningful reviews that capture issues early without becoming burdensome.

Do small companies need performance reviews?

Yes — even teams of 10–30 benefit from a simplified review process if they struggle with unclear expectations or inconsistent feedback. Startups under 10 people often rely on informal but regular development conversations.

How to prepare a company for implementing performance reviews?

Start with a diagnosis using the checklist. Then define the goals of the review system, set evaluation criteria and frequency, train managers, choose a documentation tool (like Calamari Performance module), run a pilot, and gather feedback before full rollout.

Do performance reviews increase employee engagement?

Yes — if done well. Gartner’s research shows that companies with regular feedback cycles see a 43% higher engagement rate. The process must be fair, clear, and lead to real decisions. Poorly executed reviews can have the opposite effect.

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