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  • Writer's pictureNua Team

Annual performance reviews are on the way out

Updated: Mar 20, 2019

The conventional annual performance review is on its way out. Employees and managers alike dread the conversation, which has evolved for many into an annual rehash of performance over the previous year that has little relevance to current work or skill development. The review process typically takes too much time for all involved and adds not enough value to the organization.

As in many new business trends, Millennials are pushing a change in performance management. Research has shown that this generation looks to receive feedback on their work over 70 times a year. But it’s not just Millennials. According to a BambooHR survey, only 16 percent of employees prefer to receive feedback in a formal performance review. The same study cites that 3 of 4 HR professionals are critical of annual performance reviews, claiming they ultimately hurt engagement and innovation. In a time when organizations are focused on employee talent to drive their success, engagement is critical. So should you scrap performance reviews altogether, just like Adobe, GE, Deloitte, and Microsoft did?

The rise of real-time feedback

If the annual review isn’t working, what will? Change is not easy, especially when it seems like a daunting road ahead. Changing the performance review process means re-training managers, communicating to employees and updating internal systems.

When transitioning away from the annual performance reviews, it helps to keep the goal in mind: the main reason companies conduct them has changed from holding employees accountable for past performance to retaining, engaging and developing high-quality talent to achieve business objectives. Understanding that your employees are critical to a company’s success, and that their needs are evolving just as business needs are, is key to developing a review system that works for you.

It’s becoming clear that one annual conversation isn’t enough to engage and develop your employees. It’s in your company’s best interest to focus more on real-time feedback than waiting for the year to be over before talking to employees about performance. With a more frequent feedback system, employees will be more engaged, managers will be less burdened by the process, and the organization will benefit from retaining employees who are focused on improvement and aligned with achieving overall business goals.

Pace yourself when making dramatic changes

Millennials may be driving the change towards more frequent feedback, but keep in mind, you may have many generations and employees in various life stages to consider. Try not to go too far too fast, and gradually make the shift. One large firm, for example, recently replaced its annual review process with a system of quarterly formal reviews supplemented by small awards given for achieving milestones on a regular basis. This change may appeal to Millennials, but disregarded the values of long-tenured employees (many Baby Boomers or Gen X-ers), who are less likely to need that constant feedback or respond well to competition or small rewards.

Take time to understand the drivers behind what motivates each of your workforce populations and start making small tweaks on the way to major overhaul.

Approaches to replace the annual review

There are various ways to eliminate the formal annual review process or to phase it out for employees who are used to the status quo. When making the change, consider your culture and employee demographics to decide what works best for you:

  • Hold frequent, informal conversations to touch base with employees about development needs and constructive feedback.

  • Focus feedback conversations around specific projects. Look back as a team to discuss what worked and what could be improved moving forward.

  • Change the focus from dwelling on the past to a conversation about improving future performance. This re-focus supports both employee development and the future needs of the company.

  • Support your approach with new technology. Gamifying performance management is one way to go, but there are many ways to incorporate tools that help provide real-time feedback.

As for the pay decisions, they can continue to be linked to performance, even without formal reviews. Managers can gather the input they need through a variety of channels to make defendable merit pay decisions.

Embrace the change and lead the transformation

Performance reviews are not an opportunity to punish employees for their past mistakes, but an opportunity to cultivate employee growth and develop your culture. They are a chance to empower employees to be the best version of themselves while achieving your business goals. As workplaces evolve, embrace the change and lead the transformation towards focusing on the real needs of employees and those of your organization.

About the author:

Laura Muldoon is an HR Consultant at Nua Group, a San Francisco-based human resource consulting firm specializing in total rewards. Laura spent 10 years helping companies in various industries develop innovative compensation and performance management programs.


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