Why It’s Time to Replace the Performance Review

by Lisa Bodell, futurethink

This past summer, IBM announced that it would exchange annual performance reviews for a different approach: instead of being held to a set of goals drafted every January, employees will check in with managers throughout the year and get more frequent feedback, shifting priorities and goals if needed. The new process was crowdsourced through the company’s internal social media platform by 380,000 IBM employees in 170 countries.

What compelled IBM to overhaul this area of its business? While performance evaluations once served their purpose rather well, HR departments have become more data-oriented, and their systems for evaluating an employee’s contribution have become layered and complex. Today’s employees are reviewed and ranked according to an algorithm that may comprise anything from “met revenue or budget goals” and “achieved client success” to “demonstrates kindness” and “collaborates well with others.”

For managers, all these criteria represent multiple data points to plot, more questions to ask and answer, and a volume of forms to complete and submit to HR. Meanwhile, the average employee is bewildered about how to use her boss’s evaluation to improve her job performance. How exactly does she improve the rating that emerged from an appointed algorithm? Be more of a team player or assert herself more in meetings? Follow directions better or take more initiative? Many directives cut across one another, leaving the average employee frustrated and demoralized.

Indeed, an analysis of 607 separate studies on the impact of performance reviews found that at least three in 10 actually diminish employee performance. Beyond the potential harm to employee morale, they’re a huge drain on time and resources. Management research firm CEB found that the average manager spends about 210 hours a year on performance review activities like training sessions, and managing and completing forms.

The level of complexity around performance reviews has increased because our instinct is to add layers to an established process instead of blowing up what exists and replacing it with something simpler. We don’t deliberately choose complexity; we just ask ourselves what’s the easiest, most expedient way to accomplish the task at hand? And that’s exactly what sets us up for complexity. We fail to take a moment and identify what really matters: improving, developing, and retaining employees.

Ahead of IBM, other organizations have bravely taken a moment to re-evaluate performance evaluations. Last August, GE reported its decision to scrap formal annual reviews for all 305,000 employees, replacing those evaluations with “touchpoint” discussions between managers and employees about goal progress. Instead of performance scores or rankings, it introduced PD@GE, an app to help employees’ managers and teammates share feedback for continuous improvement.

Accenture, a professional services company, also did away with performance reviews in 2015. Instead of relegating feedback to a once-a-year exercise, managers now provide employees with feedback on assignments as needed throughout the year. By coaching staff in real-time—instead of trying to recall mistakes or successes from 10 months ago—these check-ins enable managers to identify and resolve performance issues in a timely manner. And by removing the anxiety and formality associated with annual reviews, the feedback itself can become less threatening and more supportive to employees.

Regular input provides employees with a sense that the organization is investing in their personal development, which keeps them more engaged and often, more productive. Ideally, the feedback should be linked to organizational strategy so employees understand how their individual performance impacts the business from a strategic viewpoint. Employees who have a clear idea of what they need to do to improve and advance in their careers are also less inclined to seek employment opportunities elsewhere.

Whether or not your organization is prepared to simplify its employee evaluation process, the evolution is already in progress. Stacked ranking systems and time-sucking forms will soon go the way of fax machines and pagers. In their place will be a simpler system of frequent feedback and productive dialog that is supported by technology instead of dictated solely by algorithms.