Why the annual performance review is dead

Why the annual performance review is dead

Businesses that still evaluate employees using the “rank and yank” method are likely to lose against organizations with a modern approach to appraisals, industry analysts said.

According to McKinsey, companies whose performance review systems resonate with their employees are almost three times more likely to outperform their peers.

There exists a divide between those who have kept up with the times and those who remain in the Dark Ages of annual performance reviews.

Old vs new
The outdated “rank and yank” method used a competitive evaluation model in which employees were scored and ranked once or twice a year; often, those at the bottom were dismissed.

The modern approach, however, shifts the manager’s attention to coaching and development – helping all team members grow.

“Ten years ago, about 75% of companies were in the former model,” said Josh Bersin, principal and founder of Bersin by Deloitte. “Today, 75% are in the latter.”

In the old “industrial” method, management saw the employee as a replaceable “little production machine,” he said. In contrast, managers in today’s knowledge economy are the ones who serve the employees, who are prized for their intellectual output.

Continuous conversations
This radical shift has given rise to continuous performance management. The approach entails regular, focused conversations between managers and employees, and aligns the worker’s individual goals with overall business goals. What makes the process so radical?

  1. Feedback doesn’t only come from the top down. Managers don’t have a monopoly of the review system, but colleagues and customers can also weigh in on one’s performance.
  2. Performance data is collected frequently and relayed in bite-sized form during check-ins as opposed to the old employee review that unloads a year’s (or half a year’s) worth of performance data in one sitting.
  3. Employees have a say on how they want to grow or which career track (management versus specialist roles) they want to take. Managers then help carve out a growth path.