If you work in the HR industry, there’s a good chance that you’ve heard something to the effect of “the annual performance review is dead” discussed among your colleagues. The trend toward moving away from annual performance reviews began to ramp up in 2015, when a small but prominent list of large corporations began making headlines for abandoning the practice.
Noteworthy companies that discontinued annual reviews over 2015-2016 include IBM, Cigna, Accenture, General Electric, and Deloitte. Other prominent companies, including Microsoft, Adobe Systems, Juniper Networks, Motorola, and Gap, Inc., began phasing out annual performance reviews as early as 2011. According to management research firm CEB, the trend is growing. To date, 6% of Fortune 500 companies have moved away from using annual reviews to evaluate employees and 70% of companies are currently in the process of deliberating whether performance reviews are the best option for their business.
If you’re a business owner or HR manager that conducts annual performance evaluations of your staff members, this growing trend may leave you wondering whether you should follow in step and reexamine your own review process. Many HR professionals become wary at the very thought of abandoning a well-established review process that provides them with tidy metrics for performance. So, then, why are so many companies rethinking the practice? To better understand the trend, it may be helpful to take a look at the overall advantages and disadvantages of annual performance reviews.
The Up Side
For decades, the standard annual performance review process has seemingly worked for the majority of businesses, whether large or small. This may be because:
Annual Reviews Provide a Standard Benchmark Analysis
How would a manager determine whether an employee is improving, regressing, or remaining stagnant over time without utilizing some kind of benchmark analysis? Relying on memory or “gut instinct” is unlikely to provide reliably accurate data, and employees would likely assume bias was involved under such a system. And what happens if a manager or supervisor leaves the company and is replaced mid-year?
Questions like these tend to come up when a company is contemplating making changes to their review process, and for good reason. Many argue that keeping a solid benchmarking system in place ensures fairness and consistency.
Annual Reviews Serve to Quantify Performance
Performance is difficult to describe consistently, as every manager naturally has a different voice and approaches description differently. Without a standard rating scale that is consistent company-wide, employees would be left at the whim of their specific manager’s style of describing performance.
By using a set rating scale, managers and supervisors can accurately document performance rather than relying on their own subjective comments and descriptions. This results in reviews that are quantifiable, and therefore fair, rather than being completely open to varied interpretations.
The Down Side
Despite the widespread popularity of annual performance reviews, recent data from research firm CEB indicates that 90% of managers and supervisors are dissatisfied with the way their companies currently carry out annual performance reviews, and nearly 90% of HR leaders hold the opinion that the annual employee review process does not yield accurate information. Additionally, according to data collected by the Society for Human Resource Management (SHRM), 44% of employees surveyed felt that their manager or supervisor was being dishonest during their annual performance review. These statistics certainly appear to indicate that something is not working properly under the current annual review system. Commonly cited problems include:
Annual Reviews Create Discomfort
Many employees report feelings of anxiety and resentment surrounding the annual performance review process. Even high-performing employees tend to dislike the annual review process and find it unfair. As a result, reviews that should ideally motivate employees can instead actually harm employee performance and employee-manager relationships.
Annual Reviews Take Up Too Much Time
According to CEB research, managers report spending an average of 210 hours a year dealing with activities related to annual performance management. The same managers estimate that their employees each spend 40 hours a year on such activities. And with 90% of HR leaders holding the belief that reviews deliver inaccurate information, having to spend so much work time on the process can be understandably frustrating.
What’s the Answer?
It is fair to argue that there are clear benefits to maintaining an annual performance review process of some kind:
- They provide standard benchmarks to fairly evaluate employees
- They allow employee performance to be clearly quantified
Alternatively, statistics and company trends indicate that there are significant drawbacks to the annual performance review system:
- The majority of managers don’t believe they deliver accurate data
- Employees distrust them and are not motivated by them
- They are highly time-consuming
In the end, it is up to individual business owners and HR managers to evaluate the pros and cons of conducting annual performance reviews at their own companies. Deciding what is best for your business can be made easier by keeping up with the latest industry trends and monitoring what actions larger corporations are taking and what results they get from these actions.
By Rebecca Wentworth