Performance appraisals have been around almost as long as business itself, but smart executives are beginning to realize that this dated process is actually hindering employees performance, even as it attempts to evaluate it. Many, like Adobe, are beginning to ditch it entirely.
In March 2012, Donna Morris, then senior vice president of human resources at Adobe Systems, had just arrived in India to spend time at the company's offices there when she agreed to an interview with India's Economic Times. During the interview, Morris was asked what she could do to disrupt HR.
Sleep-deprived from the long flight, Morris answered back quickly, "We plan to abolish the annual performance review format." Although she had already been pondering this idea Morris had yet to discuss anything with Adobe's CEO. However, the reporter ran with the quote, and the next day Morris's comments were on the front page in an article headlined "Adobe Systems Set to Scrap Annual Appraisals, to Rely on Regular Feedback to Reward Staff."
Up to that point, Adobe's annual review was pretty standard. Once a year, managers would collect examples of past performance, conduct 360-degree evaluations, and draw up a report on each employee's yearly performance. Then the manager would assign an overall rating from four categories: high performer, strong performer, solid performer or low performer.
These ratings followed what is often called a 'stack ranking' system: employee ratings had to fit into a fixed ranking distribution. 'High performer,' for example, could be assigned to no more than 15 percent of a manager's team. Doing these rankings properly was a costly process. Adobe estimated that approximately 80,000 hours of its managers' time was required each year to conduct all of the reviews. In addition, Adobe saw a spike in voluntary attrition every year in the months following the review, which could only be attributed to disappointed employees leaving after receiving ratings below their expectations. As Morris began interacting with employees and collecting feedback, one thing became clear: the annual performance review was getting a failing grade.
By the fall of 2012, Adobe had totally redesigned its performance management system to eliminate the yearly performance review and replace it with a more frequent and less formal 'check-in' process. Employees examine their current role and their desired career path and then receive advice from managers on the knowledge, skills, and abilities they need to improve in their current role and to move closer to the future they envision for themselves. In contrast to the rearview-mirror perspective provided by most annual reviews, discussing employees' growth and development allows both groups to brainstorm on staff goals and how they align with Adobe's strategy. Most of all, this part of the check-in helps employees own their career and development plan and feel more empowered to grow.
Two years after the death of the old annual review, Morris has found that morale among employees and managers has increased significantly, largely owing to the more frequent feedback.
The increase in morale has led to quantifiable improvements as well. Adobe has seen a 30 percent decrease in the number of employees quitting and a 50 percent increase in involuntary departures -- people who weren't meeting expectations are now dealt with more directly and quickly. Most importantly, the company has gotten back most of the 80,000 hours spent by managers annually on annual reviews.
Adobe's results suggest that other companies could benefit from giving the performance evaluation itself a thorough performance review. Keep the parts that employees and managers rate as useful, and as for the parts of the process that aren't making the grade -- show them the door.