WHY ANNUAL PERFORMANCE REVIEWS ARE BECOMING OBSOLETE
The annual employee review is dying, or at least severely wounded.
The most recent blow came in July when consulting giant Accenture announced it would stop requiring its 330,000 employees to undergo annual reviews. Prior to that, companies like Adobe, Deloitte, and Gap announced they would end the practice.
After the Accenture news, San Jose Mercury News business writer Patrick May interviewed TINYpulse CEO David Niu about new trends in employee reviews. Due to space, not all of David’s comments made it in the article. Here are some extras from the interview with David forecasting the future of employee reviews.
Patrick May: Is there a trend among companies to do away with or experiment with annual reviews?
David Niu: More and more companies are realizing that annual reviews are unreliable measures of employee performance. Employees are a company’s biggest expense, but most CEOs would say that their people are their biggest competitive advantage. So, does it make sense to measure your most important and expensive asset just once per year? You wouldn’t do that with any other aspect of the business, from finance to marketing, so you shouldn’t do it with your employees.
PM: What’s the motivation to get rid of annual reviews?
DN: It differs from company to company, but agility is part of the picture. Annual reviews take up time, both in reviewing employees and planning for the reviews. It’s also become a chore, something you do just because everyone else does it. No one is bothering to innovate, but we have to because we know that millennials — who will make up a majority of the workforce very soon — love to give and get feedback in small bites.
PM: What types of companies are doing this? Large or small? Any particular industries?
DN: In the news, we’ve seen many large companies do it. 6% of Fortune 500 companies have dropped reviews, according to the Corporate Executive Board. But there’s room for all sizes of companies to ditch annual reviews in favor of more frequent, fluid evaluations. It does seem like large, brand-name companies are leading the charge here, but I know there are scores of small companies out there changing their review process to be more nimble.
PM: What does the employer get out of doing away with reviews and how do you then track an employee’s performance?
DN: Think about driving a car. You look at the gauges on your dashboard while you’re driving. You have a goal of driving 60 MPH, and you adjust your behavior to reach that goal. You can do the same thing with employee reviews. You set goals over a span of time, and you track the progress of those goals in small bites: per week, per month, even per day. It’s now possible with technology to track how employees work very easily.
PM: Does the practice save a company money?
DN: Deloitte calculated that its employees spent 2 million hours per year on annual reviews, between holding meetings and creating benchmarks and so on. So, there can be tremendous savings in terms of work hours from changing your review process. Plus, keeping better track of employee goals can help a company be more productive, adding revenue on the other end of the equation.
PM: Will the trend continue?
DN: I think it definitely will, especially as more and more companies realize that they can do more than just an annual review. As technology improves, as millennials take over the workforce, companies have to be agile. If not, they’ll die. Willingness to change a practice as ingrained as annual reviews be slow at first, but I think it’s one aspect of the future of employee management.