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  • 04.13.17

Ready To Scrap Your Annual Performance Reviews? Try These Alternatives

The annual performance review has been on deathwatch for awhile. Here’s what companies from Facebook to Warby Parker are putting in its place.

Ready To Scrap Your Annual Performance Reviews? Try These Alternatives
[Photo: greenphotoKK/iStock]

Deloitte revamped its performance management system in 2015 after discovering that it was spending nearly 2 million hours a year on its review process. Last year, Adobe calculated that its 2,000 managers were investing 80,000 hours into performance reviews. Accenture learned that 75% of its review process was devoted to talking about employees, leaving only 25% for actually talking to them. And that’s before you consider the bias issues long known to plague an already unpopular corporate ritual.

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It’s no secret that performance reviews have been on deathwatch in recent years. Companies big and small have taken wrecking balls to their own performance management efforts, while others are just trying to make the review experience fairer and more human. Here’s a look at what some of them have done after turning the traditional performance review sideways or ditching it altogether.

Rethinking Ratings

It’s easier to toss something out than to decide what to put in its place. When Accenture got rid of ratings altogether in 2015, chief leadership and HR officer Ellyn Shook‎ says employees worried they’d no longer know what criteria would determine their pay. Those fears were assuaged once employees received their bonuses and raises in December, after completing the new review process. Even at companies that scrap rankings, Shook points out, employees may still get judged behind closed doors. One thing she’s heard from her peers in the HR field is that while companies have “thrown out rankings and ratings, they kind of do it in the back room anyway.”

That’s one reason why Facebook stuck with a more formal, biannual review process, after an HR audit a few years back, in which ratings are directly tied to pay. The process starts with a self-evaluation, then every employee can nominate three to five peers to review them. Next, managers write up the performance review and come up with a rating by comparing evaluations for employees in similar roles and levels, to “normalize for people who may be hard graders or easy graders,” says Janelle Gale, Facebook’s VP of HR business partners.

Once the rating is in, the manager has no control over compensation, Gale says. Employees get paid a predetermined sum associated with each rating—a system that applies not just to base pay, but also to bonuses and equity. This helps spare employees from getting “black box” ratings by the powers that be, without any say in the matter, Gale explains.

At PwC, which has also stuck with a rating system, managers rate employees on five qualities, each on a one-to-five scale—but they so do on a rolling basis, whenever employees request it through a companywide app that was introduced in 2016. Chief people officer Mike Fenlon says employees like that this gives them a quick overview of how they’re doing; the app overlays a visualization of the results of past evaluations on their latest one.

Not everyone is rethinking existing ratings systems, though; some are even adding them for the first time. Education startup Quizlet added them in 2016—more than 10 years after the company was founded. Quizlet raised $12 million in Series-A funding in 2015, leading to a slew of new hires; the company’s headcount shot up from 15 to more than 50. Suddenly, employees who’d been around awhile were clamoring for performance reviews, hoping it would add some clarity to their career paths at the company.

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“It was pretty shocking for me to hear that people were asking for a formal performance management process and wanted to make sure that their progress and growth in their roles was documented,” Aisha Stephenson, VP of people operations, said. Quizlet’s team had no trouble getting behind the idea, Stephenson explained, but wanted to make sure it wasn’t too “corporate.” So they put in place a combination of self, peer, and manager reviews instead of the standard, once-a-year-by-your-boss model.

Making Peers More Powerful

Facebook is hardly alone in turning to peer reviews. Mobile commerce startup Button and fraud detection company Sift Science both added them to their performance review processes recently. Button cofounder Stephen Milbank says he’s heard many calls from employees for more regular feedback, “but I don’t think that peers necessarily take the time to give that feedback.” So Button decided to simply mandate it in 2016, as part of a review process it dubbed “Kaizen,” the Japanese word for “continuous improvement.” 

Berlin-based education startup CareerFoundry took that idea and ran with it, making its review process exclusively peer-based. (In pursuit of complete transparency, the company eliminated manager roles, putting all employees on equal footing except for its two cofounders, then made salaries transparent, too.) After a round of Series-A funding last year, CareerFoundry grew rapidly from about 15 to 50 people, and it was then that employees actually requested reviews. The company’s peer review process occurs twice annually, and reviewers evaluate each other based on six questions. In addition, CEO Raffaela Rein and her cofounder fill out evaluations for all their employees.

Rein has found that people were more inclined to take input from peers seriously. “They are the ones working together every day, so there’s no hiding,” she says. “Sometimes, if only the manager gives feedback, then you only work hard while he’s there.” Facebook has discovered much the same thing. Peer reviewers aren’t obligated to share their input with the person they’re evaluating, but Gale says 70% of employees still choose to do so.

Untying Reviews From Promotions And Pay

Not many companies have totally divorced performance reviews from compensation and promotion, but a few have tried to keep them a little more distinct. CareerFoundry conducts “peer promotions” in a process separate from peer performance reviews. Employees simply vote on who they’d most like to see promoted, and while this process has only been in place for the last two quarters, Rein says she’s already promoted the most voted-for nominees—eight in total—without hesitation.

“I think people were like, ‘Wow, we’ll handle that responsibility with honesty and integrity.’ It was very positive,” Rein says. “If I promote somebody, it’s actually less meaningful than if your entire team decides that you deserve to be promoted.” And since peer promotions take place at CareerFoundry every other quarter, employees have a shot at getting promoted twice each calendar year. When I mentioned that it sounds like something that could turn into a popularity contest, Rein stressed that while she was initially worried about that, the process had actually promoted more introverted employees, including the sole CareerFoundry employee who didn’t speak English and had trouble communicating with many of the other non-German employees. Still, this approach may not work at a larger company, where employees might self-segregate and cast a vote for their friends, or punish unpopular peers, even if their work merits a promotion. 

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Sift Science requires performance reviews to take place at least once a year, but teams can choose to do as many of them as they like whenever they want; the goal is to keep promotions separate from the review process. Health marketing agency Klick Health started doing something similar after CEO Leerom Segal swapped performance reviews for weekly feedback sessions as early as 2013. Promotions and compensation now get addressed individually in yearly meetings.

Our philosophy is that [promotions] should not happen at any one particular point,” says Sift Science CEO Jason Tan. “It could be driven by a performance review, but it shouldn’t have to be.”

Making Informal Feedback More Meaningful

Companies that throw out performance reviews don’t always find that informal check-ins lead to fairer, better feedback. “The goal is very admirable,” says Rebecca Zucker, executive coach and partner at leadership development firm Next Step Partners. In theory, she agrees that “feedback shouldn’t be an event in and of itself.” But scrapping reviews doesn’t always lead to effective “ongoing conversations about performance.”

As Zucker explains, giving and receiving good feedback is a skill—one that takes time to develop. Without it, “feedback either doesn’t happen or doesn’t happen well.” Many of the people I spoke to said they hired leadership coaches like Zucker for exactly this reason, knowing that without skillful feedback swapping, replacing formal reviews with informal check-ins wouldn’t make a difference.

Since Sift Science only requires a yearly performance review, the company tries to keep tabs on how often employees get regular feedback. “One of the things we’re doing pretty regularly is meta-feedback: It’s feedback about feedback,” Tan said. “It sounds silly, but I think it’s really important. We poll a team member and ask, ‘How often do you get feedback from your manager?’” Tan says the Silicon Valley dogma of “radical candor”—being both compassionate and candid—actually matters in a context like this.

Zucker insists that feedback applies in all directions—upward, downwards, and sideways,” but employees often hesitate to critique their superiors. Warby Parker recently came up with a workaround for that issue: its biannual review process lets employees give managers feedback outside of the company’s monthly feedback meetings where doing so might feel uncomfortable. Facebook has a tool in its performance review system that lets employees submit feedback at any time; the official review process also requires Facebook employees to give feedback on their managers.

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Warby Parker is also known for its weekly happiness ratings, where employees rank their happiness during any given week on a scale of zero to 10, a process that forces conversations between managers and employees. I joke that feedback is a gift,” Warby Parker co-CEO Neil Blumenthal says. “It’s the opposite of revenge—it’s best served hot.”

About the author

Pavithra Mohan is an assistant editor for Fast Company Digital. Her writing has previously been featured in Gizmodo and Popular Science magazine.

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