With only a few weeks left in 2014, soon many people will begin evaluating the past 12 months and start committing to well-intentioned resolutions for 2015. Managers and employees alike will also begin to feel their stomach tighten with a sense of dread as they are asked to prepare for the year-end annual review.
Few people find annual performance reviews useful. Only 3% of managers reported that their organization's overall performance management system provided exceptional value (Mercer Global Performance Management Survey, 9/13/13), and a recent university study found that even employees who are oriented toward learning and growth find negative performance appraisals unhelpful (Association for Psychological Science, 1/9/2014). When both the reviewer and the reviewed confess that annual evaluations hold little value and causes unnecessary anxiety, should they continue to be part of the performance system?
In the 1980s, Jack Welch, famed CEO of GE, popularized a bell curve rating system that forced managers to rank 20% of employees as top performers who were eligible for raises and promotions, 70% as middle performers who needed improvement, and 10% as low performers who were let go. The system caught on and was implemented by many companies, including Microsoft, Enron, and Amazon. However, flaws in the ranking system have caused many organizations to re-evaluate whether it makes sense to encourage competition between employees, stifle innovation, and mandate that only 10-20% of employees can be qualified as excellent contributors. This type of performance appraisal system has fallen so much out of favor that Yahoo! was criticized just last year for adopting a similar ranking system, which encouraged managers to grade employees on a curve and fire those at the low end.
Although there are ways to make annual reviews less painful (TradePost, 12/20/2012), others are opting to do away with the typical annual review arrangement altogether. Adobe Systems scrapped their extensive annual review system after noticing that the number of employees resigning increased after the round of reviews and that the system required more than 80,000 hours of work each year.
Adobe did not, however, eliminate feedback for employees. On the contrary, Adobe replaced their systemic, formal review with an informal and unstructured "Check-In" (Human Resources Executive Online, 7/24/2013). Adobe's new initiative is about encouraging managers to give ongoing, real-time feedback and does not require any formal documentation or process. Donna Morris, Adobe's SVP of People and Places who oversaw the elimination of the formal review beginning in 2012, explains that managers decide how often and in what format to give feedback to employees and are encouraged to evaluate employees based on their ability to meet goals, not on how they compare to their peers. By replacing the review with Check-Ins, Adobe is encouraging more frequent and specific conversations about performance.
Other companies are following Adobe's lead and eliminating the formal review system. Microsoft and GE have both ditched their rankings system. Juniper Networks, a telecom equipment manufacturer, replaced their annual review with a "conversation day" that is not documented, recorded, graded, or reported to HR in any way. However, very successful companies, including giants such as Amazon and Google, continue to advocate stack ranking systems.
Samuel Culbert, professor at UCLA's School of Management, blasted annual performance reviews as facades that lead to "just-in-case and cover-your-behind activities that reduce the amount of time that could be put to productive use" (The Wall Street Journal, 10/28/2008). Culbert asserts that annual reviews should be replaced with reciprocally accountable, regularly scheduled previews, which he defines as two-sided conversations where both manager and employee are held accountable for results produced. Previews are problem-solving discussions that focus on the future, whereas reviews target past failures or mistakes.
As more and more companies are discarding ranking systems, others are going one step further and eliminating the annual review process entirely and replacing the dreaded appraisal with more frequent, informal feedback given in real-time.
Readers, does your company do annual reviews? Do you dread them or welcome them?