Hated by bosses and subordinates alike, traditional performance appraisals have been abandoned by more than a third of U. Other firms are trying hybrid approaches—for example, giving employees performance ratings on multiple dimensions, coupled with regular development feedback. By 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. Support at the top is critical, though. Back then the idea of abandoning the traditional appraisal process—and all that followed from it—seemed heretical. But now, by some estimates, more than one-third of U. From Silicon Valley to New York, and in offices across the world, firms are replacing annual reviews with frequent, informal check-ins between managers and employees. Many factors. Others have described annual reviews as a last-century practice and blamed them for a lack of collaboration and innovation. Employers are also finally acknowledging that both supervisors and subordinates despise the appraisal process—a perennial problem that feels more urgent now that the labor market is picking up and concerns about retention have returned. In contrast, regular conversations about performance and development change the focus to building the workforce your organization needs to be competitive both today and years from now. Should you focus mainly on motivating the strong ones with money and getting rid of the weak ones? Or are employees malleable? Can you change the way they perform through effective coaching and management and intrinsic rewards such as personal growth and a sense of progress on the job? With traditional appraisals, the pendulum had swung too far toward the former, more transactional view of performance, which became hard to support in an era of low inflation and tiny merit-pay budgets. Those who still hold that view are railing against the recent emphasis on improvement and growth over accountability. But the new perspective is unlikely to be a flash in the pan because, as we will discuss, it is being driven by business needs, not imposed by HR. Historical and economic context has played a large role in the evolution of performance management over the decades. When human capital was plentiful, the focus was on which people to let go, which to keep, and which to reward—and for those purposes, traditional appraisals with their emphasis on individual accountability worked pretty well. But when talent was in shorter supply, as it is now, developing people became a greater concern—and organizations had to find new ways of meeting that need. Social psychologist Douglas McGregor argued for engaging employees in assessments and goal setting. Led by General Electric, companies began splitting appraisals into separate discussions about accountability and growth, to give development its due. Inflation rates shot up, and organizations felt pressure to award merit pay more objectively, so accountability again became the priority in the appraisal process. Jack Welch championed forced ranking at GE to reward top performers, accommodate those in the middle, and get rid of those at the bottom. Organizations got flatter, which dramatically increased the number of direct reports each manager had, making it harder to invest time in developing them. Kelly Services was the first big professional services firm to drop appraisals, and other major firms followed suit, emphasizing frequent, informal feedback. Deloitte, PwC, and others that tried going numberless are reinstating performance ratings but using more than one number and keeping the new emphasis on developmental feedback. Appraisals can be traced back to the U. Though seniority rules determined pay increases and promotions for unionized workers, strong merit scores meant good advancement prospects for managers.
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