While studies show most HR professionals and executives are dissatisfied with their current performance management system, the solution may not be as simple as eliminating performance reviews.
Are you considering eliminating annual performance reviews? You’re not alone. According to the Corporate Executive Board (CEB), in 2015 nearly 12% of Fortune 1000 companies were ditching annual reviews—up from 1% in 2011 and 2% in 2012.
Headlines such as “Why the Annual Performance Review is Going Extinct” and “More US Companies Moving Away from Traditional Performance Reviews” are at the top of online search pages, and companies such as Deloitte are writing whitepapers on how and why they’re implementing a culture sans performance reviews.
The Debate for Eliminating Performance Reviews
There’s no doubt that quarterly or annual performance reviews are getting a bad rap. SHRM and CEB studies show that 58% of executives believe their performance review system does not increase engagement or performance, 95% of managers are dissatisfied with their performance management systems, and 77-90% of HR professionals are dissatisfied with their organizations’ performance evaluations.
The research seems to back these opinions up. According to multiple studies, performance reviews may hurt more than they help.
Researchers found that performance reviews…
Organizations such as CEB and SHRM sought to resolve the performance review debate once and for all. During those studies, they found that performance reviews:
– Are wildly inaccurate. 2/3 of employees who receive the highest scores in traditional performance management reviews are not actually the highest performers.
– Yield little to no improvement. Managers told CEB that conventional reviews only generate a 3-5% improvement in employee performance.
– Are bad for morale. According to a neuroscience-based framework codified by David Rock, employee’s brains respond to performance rankings with an overwhelming fight or flight response that impairs good judgment that can impair thoughtful, reflective conversation.
– Reveal more about the rater than the ratee. In a paper published in the Journal of Applied Psychology, a study of nearly 4500 managers rated on certain performance dimensions by two bosses, two peers, and two subordinates revealed that 62% of variance in ratings could be accounted for by the individual raters’ peculiarities of perception. Actual performance accounted for only 21% of variance.
Studies like these as well as the anecdotal observation that performance reviews just didn’t seem to be getting the job done naturally lead HR managers and executives considering that, perhaps, performance reviews should be eliminated altogether. But research shows it’s not quite that simple.
Eliminating Performance Reviews Isn’t as Cut-And-Dry as it Seems
CEB studied organizations that eliminated performance reviews and found that in most organizations that eliminated performance reviews:
– Manager conversation quality declined by 14%
– Time spent on informal conversations decreased by 10 hours
– Employee engagement dropped 6%
However, some organizations, such as Adobe and GE, have seen incredible results from eliminating performance reviews from their company culture.
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How can you Eliminate Performance Reviews While Improving Team Performance?
One of the best case studies for effectively eliminating annual performance reviews is that of GE.
When they eliminated performance reviews for a 7,000 employee, 12-region pilot team within GE Oil & Gas Turbomachinery Solutions, GE saw a fivefold productivity increase in 12 months.
Their goal, according to Leonardo Baldassarre and Brian Finken, engineering and operations executives at GE Oil & Gas Turbomachinery Solutions, was to facilitate more frequent and meaningful conversations between managers, employees, and teams to cultivate empowered, collaborative, cross-functional teams.
To do this they not only eliminated performance reviews; they also implemented a culture of on-the-spot performance coaching.
“At its core, the approach depends on continuous dialogue and shared accountability. Rather than a formal, once-a-year review, managers and their direct reports hold regular, informal “touchpoints” where they set or update priorities that are based on customer needs. Development is forward looking and ongoing; managers coach rather than critique; suggestions can come from anyone in an employee’s network…”
GE’s Real-Time Performance Development by Leonardo Baldassarre and Brian Finken
Eliminating performance reviews rid the organization of the negative aspects of these annual ineffective pressure situations. However, replacing performance reviews with a culture of collaboration, continuous communication, and shared accountability led to an increase in creative problem solving, teamwork, engagement, excellence, and morale, while decreasing defensiveness, conflict, and frustration.
What is Performance Coaching and Why is it the Best Replacement for Performance Reviews?
Performance coaching is the ongoing process of communication, feedback, direction, and support. Instead of ratings and forms, teams have autonomy and decision-making authority to achieve a shared goal.
In this model, a manager acts as a coach instead of a director. They serve as a sounding board, a supportive critic, and a source of facts and ideas derived from broader experience. Managers go from being a voice of judgment to being someone who listens, asks, facilitates, integrates, and provides support.
“We’re finding that the new performance-development system is promoting trust between managers and employees — the foundation of high-performing teams. The insights we are giving and receiving are very different compared to the scrubbed and anonymous 360-degree reviews of the past. This is uncomfortable at first: It is difficult to truly self-reflect and spot the gifts embedded in the increased feedback. As managers, we need to be more vulnerable and show our teams we are growing to give them the license to do the same.”
GE’s Real-Time Performance Development by Leonardo Baldassarre and Brian Finken
GE considers this change to be a culture shift from “command and control” to “empower and inspire,” and the improvements in productivity, engagement, and morale are dramatic.
In 2012, Adobe also eliminated performance scores and instituted ongoing discussions between managers and employees to set expectations, offer feedback on performance, and recognize strong work. They developed a series of resources focused on coaching and growth to equip managers to become better coaches.
The impact of this program at Adobe saved 80,000 hours of manager’s time in annual review processes and is attributed to a 30% decrease in voluntary turnover.
What’s the Bottom Line?
The bottom line is that simply eliminating performance reviews with the hopes it will increase the potential for more organic conversations between managers and direct reports doesn’t work. In most companies, this approach results in a decrease in productivity, fewer quality conversations, and lower employee engagement.
To improve productivity and employee engagement while getting rid of performance reviews, replace the annual reviews with a culture of real-time performance coaching. This introduces a mindset of empowerment and inspiration that creates opportunities for more creative problem solving within and between teams, builds trust and confidence, improves performance, and increases employee engagement.
About the Author
Chief Learning Officer
Dave has unique capabilities in training facilitation and developmental coaching across mid-sized and global organizations. Previously, Dave was the chief learning officer with RSM McGladdrey. He also has extensive experience as a director of human resources and recruiting at Arthur Anderson, Inc. Dave has an M.S. in Instructional Technology from Utah State University.
Founder and CEO
Patrick effectively coaches leaders at all levels and across a number of industries with a pragmatic, consultative approach. Previously, he was vice president with Right Management and held other senior OD and development positions in manufacturing and the professional services Industries. He holds an M.S. in Industrial/Organizational Psychology from Lamar University.
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