Why Top Companies Are Ditching Annual Performance Reviews

Written by
George Dickson
George Dickson

Annual performance reviews are an antiquated practice that both employees and managers dread. Good thing they only take place once a year, right?

If everyone in your company hates annual performance reviews, why even bother conducting 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 are worse than a waste of time.

In an article in the Wall Street Journal titled "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.

Annual performance reviews are anachronistic and irrelevant in modern business.

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:

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.

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 hate annual reviews, the thought of conducting more frequent reviews may make you cringe, but bear with me 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 such as Small Improvements can be helpful in both preparing for more frequent reviews, giving continuous feedback, and streamlining the process.

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 dreaded 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 modern age of organizational culture and employee performance management. If you're ready to take the next step, check out our latest resource:

Read the Guide to Modern Employee Recognition

Originally published on September 02, 2015 → Last updated July 11, 2019

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George Dickson

George is dedicated to strengthening organizational cultures with thoughtful leadership and frequent recognition. George formerly managed content and community at Bonusly.

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