Hated by bosses and subordinates alike, traditional performance appraisals have been abandoned by more than a third of U.S. companies. The annual review’s biggest limitation, the authors argue, is its emphasis on holding employees accountable for what they did last year, at the expense of improving performance now and in the future. That’s why many organizations are moving to more-frequent, development-focused conversations between managers and employees.
The authors explain how performance management has evolved over the decades and why current thinking has shifted: (1) Today’s tight labor market creates pressure to keep employees happy and groom them for advancement. (2) The rapidly changing business environment requires agility, which argues for regular check-ins with employees. (3) Prioritizing improvement over accountability promotes teamwork.
Some companies worry that going numberless may make it harder to align individual and organizational goals, award merit raises, identify poor performers, and counter claims of discrimination—though traditional appraisals haven’t solved those problems, either. Other firms are trying hybrid approaches—for example, giving employees performance ratings on multiple dimensions, coupled with regular development feedback.
Buy CopiesBy emphasizing individual accountability for past results, traditional appraisals give short shrift to improving current performance and developing talent for the future. That can hinder long-term competitiveness.
To better support employee development, many organizations are dropping or radically changing their annual review systems in favor of giving people less formal, more frequent feedback that follows the natural cycle of work.
This shift isn’t just a fad—real business needs are driving it. Support at the top is critical, though. Some firms that have struggled to go entirely without ratings are trying a “third way”: assigning multiple ratings several times a year to encourage employees’ growth.
When Brian Jensen told his audience of HR executives that Colorcon wasn’t bothering with annual reviews anymore, they were appalled. This was in 2002, during his tenure as the drugmaker’s head of global human resources. In his presentation at the Wharton School, Jensen explained that Colorcon had found a more effective way of reinforcing desired behaviors and managing performance: Supervisors were giving people instant feedback, tying it to individuals’ own goals, and handing out small weekly bonuses to employees they saw doing good things.
A version of this article appeared in the October 2016 issue of Harvard Business Review.Peter Cappelli is the George W. Taylor Professor of Management at the Wharton School and the director of its Center for Human Resources. He is the author of several books, including Our Least Important Asset: Why the Relentless Focus on Finance and Accounting Is Bad for Business and Employees (Oxford University Press, 2023).
Anna Tavis is a clinical associate professor of human capital management at New York University and the Perspectives editor at People + Strategy, a journal for HR executives.
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