Accenture, GE, Google, IBM, Microsoft and Zappo’s are among the many organisations that have scrapped the annual performance review. Why is this?
Before we answer this question, let’s be clear about what an annual performance review (APR) is… Simply put, it’s a systematic and periodic process that evaluates employee performance and productivity against predetermined criteria. The results are often plotted on a curve, and if you are lucky, it will also take into consideration their achievements, behaviour and future opportunities for improvement.
Like many other business processes, the APR has become increasingly ineffective due to globalisation and a changing workforce. Let's look at the main reasons for replacing them with a more dynamic approach:
- Globalisation has brought about an increase in matrixed organisations; with employees reporting to multiple managers and working in dynamically changing collaborative teams. As a result, the typical one-on-one APR has lost its validity as an effective measure of an individual’s performance.
- APRs are a measure of past performance; and do not improve performance when it is needed most. They often do more harm than good, as they focus on evaluating past performance rather than figuring out how to improve current performance. Yearly goals are a thing of the past!
- APRs are supposed to be motivational. Unfortunately, they cause high levels of stress for both the manager and the employee, as they involve ranking people against their peers to determine promotions and bonuses. There is also a high propensity for bias.
- Today’s workforce demand regular feedback from their direct reports, managers and peers. They are no longer content with a once a year summary of what they did or did not achieve. They find ongoing feedback and guidance both encouraging and motivational.
- APRs require a lot of time. Just imagine how much time an organisation with more than 100,000 employees spends on filling in forms and having meetings. Deloitte estimate that it costs their organisation 2 million hours per year.
So now that we know why some companies are doing away with APRs, the big question is what are they being replaced with?
Whilst there is no definitive best practice guide for reviewing performance in today’s business context, here are some of the common elements that many world-class organisations have already implemented or are starting to implement:
- Feedback should be regular and timely. If a project is running behind schedule, there’s no point giving feedback after the horse has bolted.
- Feedback should come from various sources, including; direct reports, managers and peers. This allows for a more holistic review.
- Employees should be able to request feedback from their direct reports managers and peers when they believe they need it.
- Bonuses and promotions should not be tied to feedback, and there should be a separate process for their review.
The move from the traditional APR to a more modern approach for reviewing performance will mean that time spent on ranking people against their peers to determine promotions and bonuses will be spent on encouraging people for their performance and helping to get them back on track.
To facilitate this change, organisations need to invest in technologies that allow direct reports, peers and managers to give and receive feedback. Managers also need to adopt a coaching approach with a focus on feed forward rather than feedback.