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Traditional performance reviews increasingly seen as unhelpful

“It is time for us to do performance appraisals for our teams, and I have to say I can’t think of a bigger waste of time.  The forms the company wants us to use don’t align well with people’s current jobs, and they do nothing whatsoever to improve motivation or performance. Several of my colleagues agree with me on this. And I’m sure there are others who think this effort wouldn’t be worth it. How do you build consensus on a big change like this without making an enemy of everyone in the building?”

You’re certainly not alone in wanting to overhaul the system. Numerous companies, including Adobe, Lear, Motorola, Accenture and Expedia have gotten rid of their traditional annual performance review systems in favor of more frequent, informal check-ins between managers and employees.

A number of surveys appear to validate the trend. A CEB (formerly Corporate Executive Board) survey of Fortune 1000 companies showed that the number of employers that dropped their numerical ranking of employees or tossed their entire performance review process grew from 4 percent in 2012 to 12 percent in 2014.

Deloitte reported a year later that only 12 percent of U.S. companies that it surveyed were not planning to reconsider their performance management systems.

The shift away from appraisals is not limited to U.S. employers. Another study by PwC indicated that two-thirds of large companies in the United Kingdom were in the process of changing their systems.

On the employee side, some 66 percent of employees say the performance review process interferes with their productivity and 65 percent say it isn’t even relevant to their jobs, according to a CEB survey of 13,000 employees worldwide. And the human resources people aren’t pleased either. The CEB reported that 90 percent of HR professionals don’t believe their company’s performance reviews provide accurate information.

Performance appraisals can be traced back to the merit rating system created for the military during World War I. By the end of World War II, about 60 percent of U.S. companies had adopted them and that number had grown close to 90 percent by the 1960s, according to Peter Cappelli and Anna Tavis, who wrote about performance appraisals for the Harvard Business Review in October.

In the 1980s, General Electric CEO Jack Welch promoted a highly publicized forced-ranking system for his staff, dividing employees into A, B and C players, with the idea that the lowest performers, the C players, should be dismissed. GE backed away from the practice in the mid-2000s after critics complained that the system forced managers to get rid of talented people.

In many companies, performance appraisal systems continued to evolve as ways to hold employees accountable and to allocate financial rewards. Later on, many companies began to adopt a performance or “learning goal” approach with the idea that the point of the appraisal is really designed to help the individual achieve higher performance.

But David Burkus, author of a 2016 book, “Under New Management: How Leading Organizations are Upending Business as Usual,” noted that appraisals that contain learning goals are highly flawed as well. Researchers at Kansas State University designed a study to test whether goal orientation actually affects individual’s reactions to their appraisals and how they process the feedback they receive.

 “They found that those who viewed their rating as negative were disappointed with the evaluation process regardless of their goal orientation or mindset,” Burkus wrote. “Even learning-oriented employees, who should be most able to improve, are put off when they receive a rating that is less than expected.”

In an interview, Burkus said research shows that performance appraisals rarely deliver on their promise of improving performance. “Instead, they occupy a lot of time and become a walking dead of corporate routines.”

Besides wanting to get rid of mindless paperwork, researchers say the real reasons for companies shifting away from annual performance appraisals is an increased focus on employee retention, which is critical today in a tighter labor market. Traditional performance appraisals try to hold people accountable for past behavior and activities at the expense of improvements to current performance, researchers say.

“Replacing the system with feedback that is delivered right after client engagements helps managers do a better job of coaching and allows subordinates to process and apply the advice more effectively,” Cappelli and Tavis wrote.

They pointed to two other reasons for this change, including changes in business cycles and the emphasis on teamwork. Many employees today work on short-term projects that change all the time, so goals for the coming year can’t be outlined accurately. And teamwork is critical in many jobs.

When Adobe eliminated the yearly appraisal five years ago, the company listened to a lot of feedback from employees before taking the leap. The company, which eliminated numbered rankings in favor of informal “check-ins,” gives merit increases based on informal assessments.

Two years after the performance appraisal ended at Adobe, the check-in process has worked, Burkus says. Morale has increased and Adobe has seen a 30 percent decrease in the number of employees quitting and a 50 percent increase in involuntary departures by people who were not meeting expectations, and the company has recovered many of the estimated 80,000 hours it took to do annual reviews.

“Add the informal method first and it should prove the uselessness of the formal one. Eventually, the old guard might come around more easily,” Burkus says.

Managers at Work is a monthly column exploring the issues and challenges facing managers. Contact Kathleen Driscoll with questions or comments by phone at (585)249-9295 or by e-mail at kadriscoll@aol.com.

1/6/2017 (c) 2017 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.

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