The dreaded annual performance review. Managers avoid them, and employees stress about them. In a world of rapid feedback on projects and celebration of successes, are annual reviews still necessary?

Yes, they are. Annual reviews, like New Year’s Eve, present a chance to look backward on successes and failures, but also look forward to new growth.

Project-based feedback provides opportunities for employees to achieve goals that are time-limited and objectively evaluated. This is very useful. But if colleagues understand that their organization’s purpose is, at its core, to improve people’s lives, then an effective annual review must apply the same logic to the person: How is the organization improving his or her life?

I use what I call the “whole person” review. It is based on three questions: Are you growing professionally? Are you growing personally? Are you going spiritually?

In my experience, if any of these is failing, a colleague is heading for frustration and poor performance. My reviews are thus open-ended conversations, usually off-site and always private.

When managers ask these three questions, they are aligning themselves with the thinking of Peter Drucker, who had a lot to say about effective performance reviews. “That one can hire only a whole man [or woman] rather than any part thereof explains why the improvement of human effectiveness in work is the greatest opportunity for the improvement of performance and results,” Drucker wrote.

Asking these questions also demonstrates empathy, an effective way to cause the release of the neurotransmitter oxytocin. My research has shown that oxytocin release motivates cooperation and care for others—essential elements for highly engaged employees.

Before you begin someone’s annual review you should already know about his or her performance. If productivity is sub-par or he or she is knocking the ball out of the park, this should already be recognized and a plan to fix it or celebrate successes has already occurred. Performance needs to be part of daily or weekly feedback—not part of an annual review, which should be longer-term in nature.

When it comes to professional development, a key question is, “Am I helping you get your next job?” The next job might be with one’s present organization or it might not. This question ensures that the organization is investing sufficiently in colleagues and that they have a career path. Without movement forward, motivation stalls.

Or sometimes people tell me that they are perfectly happy with their present job because it enables the other dimensions of their life to develop. That’s important for them to understand and for me to know.

When it comes to personal development, I inquire about family and home life. Personal life feeds back on professional performance and vice versa. We shouldn’t pretend that it doesn’t.

Finally, there’s the issue of spirituality. Colleagues can interpret this dimension any way they like, but it assesses whether one is developing as a full human being. What are their outside-of-work passions? How are they making the planet and people around them better? Are they personally flourishing?

Human development, if not nurtured, eventually leads to frustration and sadness. And those are not performance boosters.

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Paul J. Zak is the director of the Center for Neuroeconomics Studies at Claremont Graduate University and the author of The Moral Molecule: The Source of Love and Prosperity.  This post originally appeared in The Drucker Exchange, December 6, 2012

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