Annual performance reviews have been the cornerstone of performance management for years, but few employees or managers like them. A Deloitte survey found 58% of its managers believed traditional performance reviews did not serve their purpose. What’s more, CEB found 95% of managers were dissatisfied with how their companies conduct performances reviews, and almost 90% of HR leaders said the performance review process doesn’t even provide accurate information.
No wonder companies such as Deloitte, General Electric and Accenture have all declared the they will no longer conduct annual performance reviews.
Here’s why companies are ditching the annual performance review.
1. They are not practical
It is not realistic to think humans have the capacity or memory to translate every possible action of an employee in the last 12 months into one single, one-dimensional score. Did you know that 62% of the variance in performance ratings is explained by individual raters’ biases and prejudices and only 21% by actual performance? For example, it is well known that supervisors generally tend to inflate scores because they are concerned about de-motivating their staff by giving them low ratings.
2. They eat too many resources
When companies start counting, they usually spend thousands of hours in annual performance discussions behind close doors instead of nourishing human bonds. This tends to lead to managing scores rather than people.
3. They have an inverse effect
More than a third of the time performance appraisals have a negative impact on performance, causing at least as many problems as they solve. While they can be useful for the 3% of people who are not performing adequately, everyone is wrongfully put through the same process with more adverse than intended effects. Many employees even misinterpret the most positive feedback, leaving them with a feeling of emptiness and frustration.