What’s Next for Performance Reviews?

What’s Next for Performance Reviews?

In the past year or two, many organizations have radically reformed their approach to performance reviews, in some cases ditching them altogether, and in many cases keeping the review but getting rid of performance scores or ratings, as GE became the latest major employer to do in July. On the other hand, our research at CEB has found that removing ratings tends to diminish the quality of the review process and doesn’t help performance; others have questioned this new trend as well. Looking at all the changes going on in this field (and drawing heavily on CEB research!), Knowledge@Wharton considers what’s working, what’s not, and what the future holds for performance management:

While the traditional annual performance review is surely dying, [Peter] Cappelli, who is also director of Wharton’s Center for Human Resources, has a wait-and-see attitude about whether employers will really create a different kind of relationship with employees, or end up doing less performance appraisal and replacing it with nothing instead.

“For a lot of companies that are thinking about this change, they are just copying what other companies are doing,” he says. “We will see a lot of false starts on this thing, and then they will discover their relationship with employees is worse off. The thing I would watch is to what extent this is an ideological battle. Is it all about the money, all about rewarding people — that [this is] how things get done, we have to punish the bad employee and fire them? Is it all about the economic incentive? Or is it much more about relationships and developing people and encouraging them to perform better? It’s an ideological divide that has to do with human nature. And to some extent that’s at the heart of this whole issue.” …

Some firms are successfully replacing the annual review with something better, says [New York University professor Anna A.] Tavis. Companies like GE and Cisco, for example, prepared carefully for change, and clearly communicated their objectives. The best companies have shifted to conversations with workers that occur much more frequently than once a year, are less focused on the past and more on the future, and involve continuous adjusting of goals. These firms also are giving managers the skills to be coaches, “rather than task masters,” she says. “Getting feedback once a year is totally not serving a purpose,” says Tavis. “It comes as a verdict, a judgment, whereas the intention here is to be course-correcting, to have coaching throughout the year, so at the minimum companies are recommending or requiring managers to hold quarterly conversations and [to develop] more trust and better relationships overall, which obviously becomes a much more collaborative culture in the long run.”

Cappelli’s point about false starts is particularly important. Before jumping on any performance management bandwagon (removing ratings, ending formal reviews, etc.), HR leaders need to think about the purpose or goals of their performance management process and the culture of their organizations, especially the relationship between employer and employee. The examples Tavis cites exemplify this imperative: Successful changes in performance management are thoughtfully designed and tailored to the organization’s needs.

What we’ve found at CEB is that the traditional model of performance management is due for a change, but simply getting rid of ratings or annual reviews doesn’t necessarily work. What does make a difference to performance is making feedback ongoing rather than episodic, looking forward rather than backward, and including feedback from peers as well as managers. CEB Corporate Leadership Council members can read our latest research on performance ratings and reviews here.