Long considered a necessary evil, the efficacy & value of performance reviews has recently been called into question by business leaders & academics alike. 

Today, a wave of prominent organizations is doing the unthinkable and retiring the annual review process for good. But what will take its place as a feedback and measurement tool?

It’s the ultimate irony: the universally hated performance review is now getting a taste of its own medicine. After decades of being seen as an indispensable part of the talent-management cycle, the value of annual reviews has been put into question.

Managers, business analysts, and academics alike have started to turn a critical eye to this HR function and question whether the performance review is actually doing a satisfactory job.

And it’s not the young, trendy companies that are turning their backs on this venerable HR tool. The list of companies that have recently chosen to jettison the annual review include blue-chip organizations such as GE, Motorola, Microsoft, Adobe, and Gap.

Unpopular with employees

For reviewers and the reviewees alike, the review process is often stressful and awkward. And it’s not just under performing employees who dread them. Even “good” employees are negatively affected.

Recent research examining perceptions of performance reviews found that even the most industrious and development-oriented employees viewed the process negatively. Or, as the Washington Post phrased it when reporting on the research, “basically every single person hates performance reviews.”

Unpopular with researchers

Of course, employees might also hate workplace fire drills and having to stack the break-room dishwasher. “Everybody hates it” isn’t a good enough reason to abandon something if it has a positive effect on the organization.

But in the case of performance reviews, that positive impact is by no means certain. Beyond the dip in morale that performance reviews effect, the research suggests that performance reviews earn a solid F-minus in terms of actually measuring and improving performance levels.

In a 2010 survey of 750 HR professionals, the majority of respondents (54 percent) said that the system was not worthwhile considering the amount of time expended in conducting and reporting the evaluations.

More recently, Deloitte eliminated formal performance reviews after surveying their management stratum and discovering that the majority (58 percent) felt that annual reviews did not serve their purpose, even after nearly two million hours per year were spent on the process. And a 2015 literature review on the subject warned that the tendency of reviewers to cluster review subjects at the mid-upper end of the ratings scale turned the whole exercise into an “administrative ritual.”

The search for an alternative

If traditional performance reviews need an overhaul, what should take their place?

Many early adopters, including Accenture and Deloitte, have moved towards a system that provides feedback early and often, and supports frequent peer-to-peer input and recognition. It’s an approach that’s in line with Agile HR principles, including the immediacy of feedback, the peer-driven element, and the focus on employee engagement (rather than control and oversight).

Instead of packing a year’s worth of performance input into a meeting that may last no more than 15 to 20 minutes, the continuous feedback system gives employees support, direction, and recognition regularly to guide their performance throughout the year.

This type of performance management approach has many advantages over the traditional annual review:

More accurate feedback: It’s not realistic to expect people to remember performance details from several months ago. Memories become progressively more imperfect and incomplete as time wears on, and the quality of the feedback collected suffers if people are asked to remember things that happened nearly a year ago. When feedback is delivered contemporaneously, the details are still fresh in the reviewer’s mind.

Greater engagement: The more immediately an employee receives feedback or reinforcement for their performance, the more engaged they will be in the process. This is one of the gamification principles that’s transforming HR. When employees receive feedback right after a task is performed or a project completed, it has greater resonance and is more likely to influence future behavior.

Faster course-correction: No organization can afford a year of sub-optimal performance. When feedback is only given once a year, it could mean a year of poor performance for an employee who could have improved with some just-in-time support or development.

Conversely, employees with the potential to be promoted could end up squandering those abilities for a full year—if they aren’t poached by a rival organization before the year is up.

Lower costs: For Deloitte, the cost of a cumbersome annual review process required nearly two million people-hours per year to maintain. While continuous performance processes aren’t free, they are far less administration-heavy.

There’s no shortage of affordable peer-recognition software—Impraise, TapMyBack, and Give a WOW are just a few examples—and platforms such as Cornerstone provide more formal venues for collecting continuous input from managers and connecting employees to the development resources they need. (The Cornerstone platform is also notable for integrating competencies into this review process).

More forward-looking: While there’s no real reason annual reviews can’t use past performance to support future success, the reality is that when people are tasked with sifting through an entire year’s worth of employee data, the process tends to look backwards rather than forwards.

When feedback is collected and communicated on a continuous basis, it’s less likely to focus on the year in review and more likely to give the employee useful input they can use to improve in the immediate future.

The bigger picture

While continuous feedback supports a more balanced performance review process, it doesn’t preclude a more formal, periodic review. Getting digital back-pats and shout-outs can be very rewarding, but they’re no substitute for more strategic, one-on-one discussions that help employees visualize their potential in the organization.

By rolling up several months’ worth of feedback into a larger narrative about a person’s career path, you can help them stay focused on the bigger picture while empowering them to take greater control over their career day to day.

Learn more about competency-based performance management.

Post last updated: October 22, 2020.