The End Of Annual Performance Reviews: Are The Alternatives Any Better? by [email protected]

When it comes to workplace events that produce resentment and anxiety, few score higher than the big annual performance review. Calls to end this time-consuming and often unproductive practice have gone unheeded — until now. Recently, Adobe, Kelly Services, GE, Deloitte and PwC have ended them, and the rippling out to smaller firms and other sectors appears to be underway. To which many say: good riddance.

“It’s a big change, the extent to which it seems to be happening, and it’s happening broadly,” says Wharton management professor Peter Cappelli, who has researched the usefulness and accuracy of performance reviews. What’s happening now is nothing less than a revolution in performance management systems, he notes, and for companies that take it seriously, “it’s a fundamental change in the way to manage your employees and the relationship with them.”

Annual Performance Reviews
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Annual Performance Reviews

Decades of unhappiness finally gave way in 2014 and 2015 to a quick dive in the annual performance appraisal, says Anna A. Tavis, a clinical associate professor in leadership and human capital management at New York University who has tracked its passing. The traditional annual review with its ranking system essentially sent the message that “here’s your grade for the year, and you can’t do anything about it, and, by the way, there are compensation consequences — that’s where the culture of fear came about, Peter is better than Paul,” says Tavis. “Then you factor in bias or that a manager might not have visibility, or doesn’t remember what 35 or 40 people have done, and there were lots of faults built into the old system.”

To be sure, new systems are coming on line. A survey by leadership advisory firm CEB found that in 2011, only 1% of Fortune 1000 firms were eliminating the annual review. By 2015 that number jumped to 12%. But are better systems and results coming in behind the old? While the traditional annual performance review is surely dying, Cappelli, who is also director of Wharton’s Center for Human Resources, has a wait-and-see attitude about whether employers will really create a different kind of relationship with employees, or end up doing less performance appraisal and replacing it with nothing instead.

“For a lot of companies that are thinking about this change, they are just copying what other companies are doing,” he says. “We will see a lot of false starts on this thing, and then they will discover their relationship with employees is worse off. The thing I would watch is to what extent this is an ideological battle. Is it all about the money, all about rewarding people — that [this is] how things get done, we have to punish the bad employee and fire them? Is it all about the economic incentive? Or is it much more about relationships and developing people and encouraging them to perform better? It’s an ideological divide that has to do with human nature. And to some extent that’s at the heart of this whole issue.”

“It’s a fundamental change in the way to manage your employees and the relationship with them.”–Peter Cappelli

More Job Coach, Less Task Master

Indeed, CEB’s research shows that newer is not necessarily better — at least, not yet. At firms where reviews had been eliminated, measures of employee engagement and performance dropped by 10%, according to CEB’s survey of nearly 10,000 employees in 18 countries. Managers actually spent less time on conversations, and the quality of those conversations declined. Without a scoring system to motivate and give structure, performance management withered. As one manager told CEB: “When I gave someone a low score in the past, I felt responsible for helping them out, now I just don’t feel that I have to spend time doing that anymore.”

There are useful aspects of the annual review well worth saving, according to Wharton management professor Adam Cobb. “One of the trends we’ve seen in the past several decades is the attempt to link pay to performance and less to tenure or seniority or more political factors. There is reasonable evidence that women and non-whites don’t necessarily get the same kind of performance review for the same work,” he notes. “Should we go back to the same system in which pay is based on non-objective things? That’s where we were 40 years ago, and we’ve moved beyond that.”

Some firms are successfully replacing the annual review with something better, says Tavis. Companies like GE and Cisco, for example, prepared carefully for change, and clearly communicated their objectives. The best companies have shifted to conversations with workers that occur much more frequently than once a year, are less focused on the past and more on the future, and involve continuous adjusting of goals. These firms also are giving managers the skills to be coaches, “rather than task masters,” she says. “Getting feedback once a year is totally not serving a purpose,” says Tavis. “It comes as a verdict, a judgment, whereas the intention here is to be course-correcting, to have coaching throughout the year, so at the minimum companies are recommending or requiring managers to hold quarterly conversations and [to develop] more trust and better relationships overall, which obviously becomes a much more collaborative culture in the long run.”

Apps and that Big Brother Feeling

There is one other aspect of the performance management revolution that has become de rigueur, and quite useful. “Now it’s expected that when a performance system goes in, you are going to launch your own app,” says Tavis. And even firms that aren’t developing their own are using apps being developed by others, she says — tools that allow managers to provide real-time feedback to employees, give workers quick access on how to navigate certain situations, and create a record that is more reliable than memory months after the fact.

“Getting feedback once a year is totally not serving a purpose. It comes as a verdict, a judgment, whereas the intention here is to be course-correcting, to have coaching throughout the year.”–Anna A. Tavis

“First of all, it’s a fast and efficient way of communicating between managers and employees, where a manager can enter a couple of points on the app, and if there are touch points it’s all getting documented there,” Tavis notes. “It’s … user-friendly and efficient, people carry their devices with them everywhere, they don’t have to go into the database. There is great tracking capability, and some apps almost have coaching on demand, more real time learning built into them.” If a manager has a question about how to handle, for instance, a difficult conversation with an employee, “that is searchable, that gives you skills on demand, in the moment,” Tavis adds. “Over time, a picture of the employee emerges. They build up to a consistent pattern.”

There are a lot of these apps coming into use, notes Cappelli. “I think in principle it’s a good idea. The devil’s always in the details,” he says. “The GE one allows the option of not just your boss weighing in, but others as well. You could game

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