In 2015 a number of Fortune 500 companies quietly did away with something that a few onlookers noticed — they got rid of their annual performance reviews.
Their decision to switch to a more continuous feedback approach may have been influenced by this study, which found that of the 32,000 full-time employees interviewed, 65 percent reported they were not highly engaged at the workplace. What’s more, only 36 percent said they found current performance reviews effective at developing their professional skills.
Employees do not want annual performance reviews.
Rather, they prefer frequent and helpful conversations that assist in their development at work.
Let’s take a look at the companies that discontinued annual performance reviews, answer why did they did it and how it turned out:
In September 2015, management consulting, technology services and outsourcing company Accenture eliminated the annual performance review requirement for its approximately 373,000 employees worldwide. It replaced the process with a more fluid system, in which employees received timely feedback from their managers on an ongoing basis.
Pierre Nanterme, CEO and previously Chief Leadership Officer, said, “people want to know on an ongoing basis, am I doing right? Am I moving in the right direction? Do you think I’m progressing? Nobody's going to wait for an annual cycle to get that feedback."
Retaining top talent is the priority in today’s workplace. Motivating people, pushing them to stretch their own boundaries is vital to keeping these highly skilled individuals. The performance management process is important to get people to do their very best.
For the digitally native millennial generation, it pays to understand how they communicate and what they want from manager. Companies provide value to this generation through effective performance management processes that meet their expectations.
Accenture is treating company talent as a “workforce of one." Workplace diversification and the dominance of millennials, who are spoiled by custom products and services, mean that the modern workforce has to tailor its practices according to each employee's performance and expectations.
General Electric replaced its stack ranking system with a performance management system which favored more frequent feedback delivered via a mobile application.
The old system ranked employees according to their performance. The "vitality curve" boiled employees’ performance down to a number on which they were judged and ranked against their peers. The company then fired a bottom percentage of under-performers.
The mobile app feedback became the solution to a performance management system which required managers to set employee goals over a 12 month period. Managers had to provide feedback as to how well employees met (or didn't meet) the goals, and then rate them on a scale from one to five.
What resulted was indifferent managers giving most of their employees a score of three, meaning all had average performance.
GE has turned to a growth mindset, which motivation researcher Carol Dweck defines as the ability to continually learn new skills and competencies. By setting up short term goals and having ongoing development conversations that are not tied to compensation General Electric reinforces the notion that any employee can rise to the occasion and learn to be successful professionals.
In 2012, Adobe announced that it would replace its performance review process for something more agile and continuous. These "check-ins" encouraged employees and managers to regularly meet to discuss how work was going and assess if they were on track to complete their yearly goals.
The idea came about when then Senior Vice President of People and Places, Donna Morris, realized that very little communication was occurring between employees and their managers. Eliminating endless forms and questionnaires meant managers could convey what they expected from their employees and, in turn, employees had the opportunity to give and receive feedback, as well as grow professionally and personally.
The form and frequency these check-ins took were left entirely in the hands of the manager. Although quarterly checks-ins were required once, some managers preferred more frequent meetings, and some would schedule regular one on one conversations with their employees.
In this new system, managers were required to be open to feedback with the new system. Adobe organized organization-wide leadership workshops where managers were trained on how to deliver constructive feedback, and how to receive feedback about their own performance as team leaders. Employees were compensated against how well they accomplished their developmental goals. Instead of providing each manager with guidelines on how to compensate their employees according to performance, each manager was given a budget and left to decide on its distribution.
And in February of this year, IBM announced it was replacing its performance management system for a system known as "checkpoints." The new system matched the ongoing tasks employees had to undertake at IBM.
The company’s previous performance framework was based on a system known as PBC (Personal Business Commitments). The framework was built according to "Value principles" and included performance management targets such as "drive to win," "execute quickly" and "team spirit." At the end of the year, the department manager gave the employee feedback on how well she or he performed and rated them on a scale of one to four.
This process ranked employees and put them into "buckets." During periods when the company fell short of expected revenue growth, the PBC system — more commonly known as stack ranking — helped IBM identify and fire the bottom 5 percent of "underperforming employees.”
Employees were also subjected to the "band" categorization structure. This classification level went up to nine and 10 for the most senior executives, sector leaders and partners. What this effectively meant was that employees in lower bands were more likely to end up at the bottom 5 percent, simply because they were not in senior roles.
This structure encouraged managers to suppress any form of ambition to improve or encourage professional growth.
In the new system, feedback would be solicited at least once a month by a manager from each department, and at the end of a each year, employees would be judged according to five criteria: business results, impact on client success, innovation, personal responsibility to teammates and skills.
Reviews That Mirror the Company Culture
As company after company realizes the importance of employee engagement and retention, so too do they realize that the old system of stack-ranking does not meet the new requirements of company culture. Stack ranking leads employees to compete with each other rather than competing with other companies, leaving no motivation to work together as a team.
Ultimately, the main goal of a performance management system should be always aimed at retaining a talented workforce.
A vital result of the performance management process is that it creates a transparent relationship between manager and employee. It also gives everyone inside a company the opportunity to speak up, enhancing the communication process. It’s interesting to note that most of these feedback solutions these companies turned to rely on anonymity, which after all, is a tool for honesty that encourages people to raise problems that otherwise would hardly come out.