Business experts have been predicting the death of the annual performance review for year and many companies in the United States have already dropped it but the numbers are expected to soar with the growing influence of millennials in the workforce.
About 12 percent of U.S. firms have switched from the numerical ranking scheme that has been described as outdated, dysfunctional and morale destroying, according to a survey of Fortune 1,000 companies by the management research firm CEB. Many more are considering it.
“Just about every company is questioning it right now,” said David Rock, the director of the NeuroLeadership Institute, a global research group that has studied the trend.
Rock, the author of “Your Brain at Work,” believes that in two to three years more than half of U.S. companies will have switched to another system.
“Millennials and the changing nature of work, both factors, are really driving the changes,” he added.
Earlier this month technology giant IBM Corp became the latest firm to announce it was changing its performance reviews for more frequent feedback. It is among the more than 50 major companies, including Microsoft Corp, General Electric Co, Accenture PLC and Adobe Systems Inc, that have dumped it.
“Today millennials are already having an impact and as we move into the next four or five years you are going to see a lot of companies adopt this,” said Rob Hernandez, of the human resources services company TriNet, about the trend away from annual reviews.
BLINDSIDED, UNFAIR OR INACCURATE
With a workforce entrenched in technology and accustomed to instant feedback, Hernandez said the stack ranking system, in which managers grade employees on a bell curve based on annual or semi-annual reviews is not working.
Most millennials agree.
In a 2015 TriNet survey of 1,000 people 18-34 year olds, 62 percent said they felt blindsided by their review. Nearly 60 percent said it was unfair or inaccurate and 28 percent started looking for another job afterwards.
Rock, who has studied 33 companies that have dumped the scheme, said setting goals and debriefing a year later is ridiculous. Working for the same boss for a year is also increasingly less common.
A strengthening job market, backed by figures showing the number of Americans who voluntarily quit their jobs hit a nine-year high in December, is another consideration for companies eager to attract talent.
Rock found that firms that have made the change are more agile, with increased collaboration and faster promotions, which he believes is an attraction for millennials.
Companies that have been slow to drop the annual review, he added, are hesitant because they do not know what to do without it.
“What is replacing it is an architecture for conversation,” he explained.
Most companies that have stopped performance reviews have moved to a minimum of quarterly conversations with a focus on growth and development rather than evaluations, and with pay still linked to performance, Rock added.
“Millennials are picking up on something that everyone accesses, which is we want to interact with information immediately about anything that matter to us,” he said.