Why Top Companies Are Ditching Annual Performance Reviews

Annual performance reviews are a practice that most employees and managers don't look forward to. Good thing they only take place once a year, right?

A recent report from Gallup found that only 14% of employees strongly agree their performance reviews inspire them to improve.

If everyone in your company dislikes annual performance reviews and they don't seem to be effective, why conduct them?

That's the direction many companies are moving in—they're ditching annual performance reviews for good, and they're ditching them in record numbers. Here's why: annual performance reviews aren't the best use of your time.

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Why annual reviews may not work 

In the Wall Street Journal piece "Get Rid of the Performance Review", UCLA professor Samuel A. Culbert laid out exactly how annual performance reviews "...destroy morale, kill teamwork, and hurt the bottom line."

Culbert noted that:

• Review participants have two different mindsets, with the boss focused on discussing areas in need of improvement and the employee focused on issues like compensation and career advancement.
• Performance doesn't determine pay.
• Objectivity is subjective.
• Reviews can create schisms in boss-employee relationships and disrupt teamwork.

Feedback from a project completed a quarter ago, six months ago, or up to a year ago is hardly timely, and often irrelevant to an employee's current projects. But just because annual reviews are an outmoded methodology doesn't mean the entire concept of employee reviews is worthless.

Here are a few modern approaches you can take to improve the performance review process and make it more meaningful in a modern business context.

1. 360-degree reviews

360-degree reviews involve gathering confidential, anonymous feedback from an employee's peers, managers, and direct reports. 360-degree feedback can even extend to clients, vendors, and other individuals an employee interacts with on the job.

This type of review provides the recipient with a broader picture of his or her strengths, opportunities for improvement, and competencies as perceived by the rest of the team. 360-degree feedback can be an effective way to address soft skills, behaviors, and competencies as well. More objective measurements, job-specific skills, and performance objectives can still be discussed in a one-on-one meeting between the employee and the supervisor.

2. More frequent, lightweight reviews

One of the reasons annual performance reviews are so ineffective is their once-per-year cadence. A better option is to conduct a series of shorter reviews at intervals such as every six months, quarterly—or even monthly.

If you strongly dislike annual reviews, the thought of conducting more frequent reviews may make you cringe! But, bear with us for a moment.

Giving feedback more frequently means that adjustments can be made right away. It's also much easier to remember what's transpired over the last month or so than it is to address an entire year's worth of work. Performance review software can be helpful in both preparing for more frequent reviews, giving continuous feedback, and streamlining the process.

3. Employee recognition tools

Some employee recognition tools can help provide a more complete picture of an employee's contributions. For example, when it comes time to review an employee, you can look at reports detailing recognition the employee has earned from others.

You can use this data to identify performance trends and gauge cultural alignment by how frequently an employee is being recognized for behaviors that align with your company's core values.

These are exactly the types of contributions that are often difficult to quantify and tend to go unnoticed during the traditional annual performance review process. By using modern tools and methodologies, not only can you ensure that your employees' contributions are noticed and appreciated in the moment—you can easily look back and take them into account when appraising an employee's performance. 

The takeaway

The widely disliked annual performance review is on its way to becoming a relic of the past, and it's unlikely anyone's going to shed a tear when it's gone.

There's no reason not to embrace the modern age of organizational culture and employee performance management. If you're ready to take the next step, check out our latest resource! ⬇️