Companies that have eliminated performance review include Accenture, Adobe, Deloitte, the Gap, KPMG, Medivo, and Microsoft. Altogether, about six percent of Fortune 500 companies have gotten rid of rankings, says management research firm CEB. And government agencies should also consider the idea, recommends consultant Howard Risher in Government Executive. “The ratings are clearly inflated—no organization has that many high performers or such a small number of poor performers,” he writes.
What’s particularly significant about Accenture and Deloitte is that they’re each consulting companies with a number of major clients, meaning that their decision might well lead to similar moves with at least some of their clients. The most recent company to eliminate the performance review—Accenture, which is moving to a new system next month—is also one of the largest to do so, writes Max Nisen in Quartz.
Performance reviews are typically a pain to do. Adobe found that the entire performance review process took up to nine months to complete. CEB also found that the average manager spends more than 200 hours a year on activities related to performance reviews. (Though making them paperless can help!)
“When you add up those hours, plus the cost of the performance-management technology itself, CEB estimates that a company of about 10,000 employees spends roughly $35 million a year to conduct reviews,” writes Lillian Cunningham in the Washington Post.
Organizations also dropped performance reviews because, despite all that work, they still weren’t doing a very good job at gauging performance or motivating employees.
“The process and results can feel rigorous, and provide a legally helpful record when it comes to termination lawsuits,” Nisen writes. “But in addition to the stress they put on both sides and their intensely bureaucratic nature, they’re rife with bias (people tend to give excessively high ratings), and ranking people can easily backfire and demotivate huge chunks of a workforce.”
Microsoft, in particular, was criticized in the past not just for its performance reviews, but for its reliance on a technique known as “stack ranking” (or “rank and yank,”, in the case of GE—which is also working to eliminate performance reviews). Managers were only allowed to give top marks to a certain percentage of employees. Similarly, they were also forced to give poor marks to a certain percentage of employees, who were then often targeted for layoffs or other ways to encourage them to leave. Stack ranking is particularly unconstructive in knowledge worker jobs such as IT, advises Deloitte.
“Their performance is driven by their skills, attitude, customer empathy—and by their ability to innovate and drive change by working through teams,” the organization writes. “These skills must be built over time, and successful performance management must be focused on constantly developing these capabilities rather than ranking them at a moment in time.”
Indeed, performance reviews in general—particularly in IT—often seem to favor employees who are good at promoting themselves, rather than necessarily the employees who do their jobs well, writes John Brandon in Computerworld. “You have to ask yourself: What is the real goal of a performance review system for IT workers?” he writes. “The managers around me didn’t seem to be trained in recognizing whether the IT employees were actually completing their objectives. For some reason, we worked really hard tracking their time but didn’t really track their performance.”
That’s not to say that Accenture and the other companies have eliminated evaluations altogether. Instead, they’re moving to much simpler, yet more frequent, evaluations. More frequent, less formal feedback is both less effort for the managers and more conducive to actual employee change as opposed to defensiveness, they find. (And you can use a proxy to help measure productivity as well.)
“Putting so much emphasis on a once-a-year process tends to focus all goal setting and feedback to one point, discouraging the sorts of frequent conversations and updates that truly improve performance,” Nisen writes. “Without a real opportunity to course-correct, people end up blindsided by negative feedback.”
The travel website Kayak, for example, is moving to five-word performance reviews, reports Julie Power in the Sydney Morning Herald. “And no, that doesn’t mean “You suck at your job,’” she adds.
Deloitte, for its part, is moving to a four-question survey that managers complete after finishing a project with an employee, write Marcus Buckingham and Ashley Goodall in the Harvard Business Review:
- Given what I know of this person’s performance, and if it were my money, I would award this person the highest possible compensation increase and bonus [measures overall performance and unique value to the organization on a five-point scale from “strongly agree” to “strongly disagree”].
- Given what I know of this person’s performance, I would always want him or her on my team [measures ability to work well with others on the same five-point scale].
- This person is at risk for low performance [identifies problems that might harm the customer or the team on a yes-or-no basis].
- This person is ready for promotion today [measures potential on a yes-or-no basis].
“In effect, we are asking our team leaders what they would do with each team member rather than what they think of that individual,” they add.
By taking a set of those ratings over a period of time, company leaders can use them to decide things such as what future projects employees should work on, how the employees should be developed, whether they should be promoted, and what sort of training the employees might need to improve their performance, they continue. For example, some IT staff might be ready to lead project teams or become managers, while others might need training in how better to manage their time or communicate with coworkers.
So far, although there has been some concern about too narrow a perspective, response from the business world has been overwhelmingly positive. In one survey, 80 percent of respondents said they approve of Accenture’s move, Power writes.
Hopefully, we won’t have to wait a year to find out how well the no-performance-review process is working out.
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