Companies’ changing attitude to annual employee performance reviews seems to be a significant trend: Is this ritual moribund?
Annual Performance Reviews have traditionally served as an important cornerstone for employees’ career progression. Every company has developed its own performance appraisal criteria and standards, thresholds and strategies. But annual performance reviews have shortfallings. They;
1) Don't offer regular feedback: The changes companies have implemented show today’s employees need frequent open conversations, feedback, and transparent relationships with management.
2) Lack constant encouragement: Optimal productivity, as well as morale, requires continuous motivation and guidance.
3) Foster competitivity rather than a collaborative ethos: While a commendably consistent approach to evaluation, appraising each employee in the same way connotes comparison – even ranking – of individuals (proven to be bad for morale1), when members of a team deliver value through contribution of their individual strengths and being able to collaborate with colleagues well.
4) Look backwards: Annual performance reviews, as the name suggests, focus on employees’ past year – arguably to hold them accountable for their behaviour2 – rather than the ever-present concern of how to interweave the future development goals of employee and company as well as solving current problems. IBM’s decision to ditch annual reviews is in line with its CEO’s motto; “Never defend your past”.3
5) Base grades on subjectivity: If companies are striving for a consistent, quantitative scoring of employees across a team, department or entire enterprise, it must be calculated objectively. Various managers gauge staff contribution to the company based on inherently limited knowledge (plus staff may be part of various workgroups with different managers), all framed by their liking for each employee, subject to cycles of confirmation bias and how well the employee manages up and promotes their work.
Jack Welch – GE CEO, 1981-2001 – advocated stack-ranking
How are companies changing?
With tech companies Adobe, Juniper, Dell, Microsoft, and IBM leading the way, enterprises such as Kelly Systems, Gap, Lear, Deloitte, Accenture, PwC, and GE (whose 1980s-90s CEO advocated stack-ranking4) have followed in deconstructing their practice of annual reviews2.
They have generally replaced their annual employee reviews and ranking systems with an ethos of continuous feedback and conversation to better keep employees engaged and motivated in approaching new challenges. According to a Corporate Executive Board survey of the Fortune 1,000 companies, the number of employers doing away with employee ranking or the entire performance review process since 2012 has risen from 4% to more than 15% in 20155, spreading beyond one third of US companies in 20162.
Accenture CEO, Pierre Nanterme, spoke of a “massive revolution” in their annual rankings.6. IBM’s Chief HR Officer, Diane Gherson, says “In the new system... It leads to a much richer, more balanced discussion.”3
If companies don't like Annual Performance Reviews, they need to find an alternative.4
- Quarterly Performance Reviews: Assessing the performance more regularly allows for through accordingly. IBM’s new scheme, “Checkpoint” includes at-least-quarterly feedback and was shaped by staff input7, very much in the spirit of making the purpose of reviews more about the employees.
- Weekly One-to-Ones: In this system managers discuss employees’ work and challenges every week, work to be done before the next review, touching on issues of performance, engagement and culture as appropriate. This is comparable to Agile sprint retrospectives (typically fortnightly), rapidly identifying problems and solving them, assigning and checking individual contribution to projects ensures they keep moving forwards consistently quickly with no tasks forgotten, as staff develop their skills.
- Continuous Evaluation: Managers would ideally identify and discuss problems as they arise, but this is impracticable. We’ll return to how this notion can be implemented.
Even changes put into effect by the world’s largest enterprises must be proven to bring tangible benefits to work at all, and even then this doesn’t mean they work in each unique organisation. However, lessons can be drawn from implementing new practices and any reasons behind the impetus – or resistance – to change.
More important than looking at the changes companies are making per se is to establish the fundamental goals behind them. This allows us to explore further improvements. In addition, different approaches – balanced with the changed in resource (i.e. time/cost) required – will best suit different organisations. So, what are the goals and “costs” of ways to achieve them?
The goals of annual reviews match those of ongoing management
The goal of Annual Reviews prima facie is to assess employees’ contribution to your organisation, but the purpose is really to optimise this value being delivered, which is enhanced through support and motivation, in the form of personal development and ensuring employees are happy in their work. Effectively, these connected goals are the essence of day-to-day management. This suggests Annual Reviews are superfluous, but managers still need to be able to ensure employees are working and developing well through being aware of their activity. Such a “Continuous Review” approach was deemed impracticable earlier; it would frequent manager-employee communications, disrupting daily work. As we often find at BlueOptima, managers can assume that problem isn’t circumventable, because they are not aware of the solution. In the case of managing software developers, BlueOptima provides a near-real-time view of performance within an organisation, team and individual (as well as project/release) level. Compiling this data around productivity and quality of output requires no time from staff, and further, gives an objective, consistent account of developers’ work, while a conversation between manager and employee is susceptible to subjectivity and manipulation respectively, as touched on earlier.
This approach means enjoying the direct benefit of time and effort saved; Deloitte saved two million hours per year by stopping Annual Reviews8; with no danger of throwing out the baby with the bathwater: Managers have a constant, accurate view of developers’ work. Finding which developers’ hours of productivity – or proportion of good quality code – is low is a startpoint for identifying training needs or additional work developers are carrying out besides coding, of which their managers are not aware, or prove to take too much time away from programming.
Developers needn’t know their work is being measured; this is up to our users, as is the decision to stack-rank developers, which we advise against, in the interest of morale.
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1. Punishing by Rewards: When the Performance Bell-curve Stops Working For You, Vaishnav and Khakifirooz, MIT, and Devos, ACM.
2. The Performance Management Revolution, HBR, October 2016.
3. IBM is Blowing Up its Annual Performance Review, Fortune.
4. Should You Fire 10% of Your Employees Every Year?, Inc
5. Ugh! Performance review time, In Business.
6. In big move, Accenture will get rid of annual performance reviews and rankings, The Washington Post.
7. IBM Changes its Employee Reviews, Business Insider.
8. Reinventing Performance Management, HBR.