Editor’s Note: This article is one of the top 10 business lessons of 2015. See the full list here.
Starting this month, global professional-services firm Accenture will add its name to a growing list of organizations including GE and Deloitte that are ending their annual performance review and ranking systems.
David Brennan, general manager of Achievers, a firm that helps businesses reward and recognize their staffs, tells Fast Company, "There’s a growing understanding within the HR industry that the annual performance review just isn’t a good way to manage people or boost performance."
Around 10% of Fortune 500 companies have ditched the practice, recognizing that they’re often inefficient, and that the dread that fills employees prior to a review actually restricts their creativity, according to neuroscience.
Across the wider business landscape, leadership advisory firm CEB found that 12% of Fortune 1000 companies are ditching annual reviews and rankings, up from 1% in 2011.
For Brennan, there’s a simple reason to leave it behind. "It’s a process that looks in the rearview mirror, that’s focused on what your employee did a year ago," he explains. "It’s no longer a relevant or fruitful procedure for the new generation of employees." This squares with Susan Peters's take on GE’s announcement to move away from annual performance reviews. "The world isn’t really on an annual cycle anymore for anything." Peters, the head of GE’s human resources, told Quartz. "I think some of it, to be really honest, is millennial based. It’s the way millennials are used to working and getting feedback, which is more frequent, faster, mobile-enabled, so there were multiple drivers that said it’s time to make this big change."
Regular feedback helps make staff feel appreciated, yet according to Achievers's research, 60% of employees surveyed don’t receive in-the-moment feedback from their managers.
For companies that continue to rely on the annual performance reviews as the check-in, it’s understandably challenging (especially with a larger staff) to transition to a regular feedback system that increases engagement. David Hassell, CEO of 15Five, told Fast Company, "Companies don’t have an effective communication structure in place to let employees have an outlet and a voice." He founded 15Five, based on Patagonia’s Yvon Chouinard’s practice of a regularly scheduled quick sweep of staff achievements and challenges that would keep him in the loop and also motivate his workforce to maintain a competitive edge.
Moving towards this mode of managing takes effort, says Brennan. He offers some guidelines for making a constant feedback loop stick.
Just like we've seen with diversity and inclusion initiatives, sustainable success starts at the top. "Executives will warm up to a new performance management system if you speak the same language: Data," says Brennan. That means any new program you adopt will need to include reporting on what the return on investment is for financial leaders, customer satisfaction for sales leaders, and engagement for HR, he explains.
He suggests recording baseline metrics before eliminating the old review system, then track changes as managers begin to roll out real-time feedback, to help executives see concrete evidence that the new system achieves desired outcomes.
Managers need to be equipped with tools for frequent and productive employee conversations. One of them is why the new program is important, in addition to how you want them to handle it. "Managers will provide much more effective feedback when they understand the goals for the new system," says Brennan, "and when they can understand what feedback and communication techniques are most effective."
Traditional performance reviews are not only anxiety inducing, they are awkward for managers who are trying to talk to employees who shut down and turn defensive in the face of imminent criticism, he observes. "Teach your leaders how to engage in real-time conversations that raise performance—not blood pressure," says Brennan.
When you get rid of annual reviews, Brennan says, consistency of the new procedure is king. One-on-one meetings that are held each week encourage conversations that help managers set career paths for their reports, provide coaching moments, listen to ideas, and identify areas where they need to remove roadblocks.
"The focus isn’t on grading how well people are doing, but on constant improvement through consistent communication," Brennan maintains. "These frequent conversations reinforce the right behaviors that the employee is exhibiting, directing the employee towards success, and ultimately creating a more engaged team member."