A few days ago, German software giant SAP announced it was abandoning its annual performance review system. Turns out, the company that made software to help companies evaluate millions of workers was finding that the entire system needed a major upgrade.
SAP joins a multitude of companies lately who have said "bye bye" to annual performance reviews: IBM, Gap, Adobe, even General Electric whose legendary review system, developed by Jack Welch, served as a model for many Fortune 500 companies.
The trend is refreshing. I've never heard of anyone--anyone--liking their performance review, even glowing ones. The problem isn't that people don't like negative feedback. In fact, the opposite is true. A Gallup study in 2009 found that employees who predominantly got negative feedback from their bosses were 20 times more likely to be engaged in their work than those who got little or no feedback. Twenty times!
Why is this?
It goes back to the annual review system. Despite the good intentions of the system, in practice companies have found that a system designed to encourage feedback often results in little or no feedback to employees. People often wait for their annual or semi-annual review to talk to their bosses. How many times have you heard from someone: "My annual review is the only time I air my problems to my manager" or worse: "My annual review is the only time I sit down with my manager."
As numerous studies have shown, constant feedback is a must when it comes to engaging your employees. That same Gallup study found that managers who gave little or no feedback to their team failed to engage 98% of them. SAP, among other companies, has now begun testing a process to encourage more constant engagement and check-ins.
Still, abandoning the entire performance process altogether is not exactly the right thing to do either. Some aspects of it--including giving employees metrics and goals to achieve--are still very valid to help motivate them. It's just that doing this once a year isn't exactly going to help your staff accomplish them. Christmas comes only once a year--but your reviews shouldn't.
And for added context, watch Jack Welch talk about giving people feedback so that when they're fired, it's not a surprise. There's a right and wrong way to fire people--and Jack and other CEOs tell you how below.