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Why More and More Companies are Dropping Performance Reviews

Posted November 2nd, 2015 in Articles, Blogs and tagged by admin

In 2014 I wrote an article for Psychology Today, “Why Performance Reviews Don’t Improve Performance.” My perspective was based upon recent research and two decades of experience as an Executive Coach. I said in the article: “The reality is that the traditional performance appraisal as practiced in the majority of organizations today is fundamentally flawed and incongruent with our values-based, vision-driven and collaborative work environments.”

Performance reviews have been around for ages, apparently as far back as third-century China, but were popularized during the Industrial Revolution. Certainly by the l980’s performance appraisals in the form of GE’s CEO Jack Welsh’s “rank-and-yank” system were widely used in organizations.

Research  by psychologists at Kansas State University, Eastern Kentucky University and Texas A&M University examined how people respond to negative feedback they receive in performance reviews. Conventional wisdom is that people who are really motivated to improve their performance would respond well to getting critical feedback in a performance review. The research demonstrated this wisdom is wrong. Those employees who have a desire to learn and grow—presumably the best employees—were significantly bothered by the negative feedback they received. One of the authors of the study argues that if negative feedback has the potential to discourage even the best performers, then managers need to be aware that what was meant as praise doesn’t get misconstrued as criticism.

Now a new report, by David Rock who is cofounder of the Neuroleadership Institute, a consultant and author of Your Brain at Work  and Beth Jones, a senior consultant with NeuroLeadership Institute and heads up its performance management practice, published in the Harvard Business Review, provides support for my perspective. Rock and Jones describe how companies such as Juniper and Adobe stopped giving people a one-to-five rating or evaluating employees on a “performance curve,” also known as the “forced ranking” approach. The ranking system has been best exemplified—critically—in a New York Times expose of the toxic work environment in Amazon.

By early 2015, around 30 large companies, Rock and Jones report, representing over 1.5 million employees, have dropped traditional performance reviews. No longer defining performance by a single number, these companies were emphasizing ongoing, quality conversations between managers and their teams. “Yet in mid-2015, the trend started to accelerate. Consulting firms Deloitte and Accenture, global health services client Cigna, and even GE—the company who popularized the idea of forcing people into a performance curve—all announced changes to their performance management systems. By September 2015, 51 large firms were moving to a no-ratings systems. According to research firm Bersin by Deloitte, around 70% of companies are now reconsidering their performance management strategy,” Rock and Jones report.

The authors propose there are several cogent reasons why companies are moving away from ranking or traditional performance review systems, among which are:

  • The changing nature of work;
  • The need for better collaboration;
  • The need to attract and keep talent;
  • The need to develop people faster.

Rock and Jones conclude “Companies who have replaced ratings tend to be anxious about it beforehand and enthusiastic about it afterward. Their employees are happier, which encourages more engagement and better performance.”

Clearly, the annual performance review was designed for a work environment where control of individual employee performance was a key function. In today’s collaborative environment, that perspective no longer makes sense. Some key questions that need to be answered are: Why are we perpetuating a system that research (including recent brain research) shows is not only ineffective, but counterproductive; and what are better processes to replace the performance review?Why

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