In the news today we’re constantly seeing major companies announce they’re dumping their old performance management systems for more agile solutions. Accenture, Adobe, Deloitte, Gap and Microsoft are just a few of the big names that have upgraded their people management processes based on real-time feedback.
You may be asking yourself what the reasons are for this major shift in HR and how it will affect your company? Here are six reasons companies are moving away from the annual review.
1. Stack ranking is out
Stack ranking does not work. Despite its popularity during the 80s, 90s and early 2000s, companies began to realize that it actually works to tear down teamwork by pitting employees against each other and encouraging office politics. Though mounting evidence has been building against the system, it was when founding company GE decided to move away from stack ranking that the evidence became clear. According to the Institute for Corporate Productivity, the number of companies practicing stack ranking plummeted from 49% in 2009 to 14% in 2011.
Editor’s note: For a different perspective on the value of stack rankings, see “Why Employee Rankings Aren’t Evil.”
2. Once a year feedback isn’t enough
Similarly the annual performance review is already becoming a thing of the past. In today’s rapidly changing work environment employees need advice and training more than once a year. 95% of managers are unhappy with the way performance reviews are conducted in their companies. Furthermore, evidence has proven that the stress caused by annual performance reviews triggers our body’s natural ‘fight or flight’ reaction.
3. Too much bias in ratings and rankings
Basing assessments solely on annual performance reviews and stack ranking is not only ineffective, but also inaccurate. 90% of HR leaders question the accuracy of the information received. Research shows that two-thirds of performance management systems actually misidentify top performers regardless of forced rankings. The reason for this is that they’re highly subjective. When someone rates you the rating often says more about them than about you.
Motivation for example is an abstract concept. If your manager rates you on how motivated you are at work it’s based on what they consider to be high and low amounts of motivation. Business consultant Marcus Buckingham calls this the idiosyncratic rater effect. Studies show this can also result in bias against women and minorities, resulting in low performance reviews and ultimately unequal promotions and pay.
4. Coaching and learning can’t wait a year
The skills that companies are looking for in an employee have changed. In the fast paced changes of the modern business world, especially in the tech industry, professional skills have an average life of 2½ to 5 years. This means that employees must constantly be learning to keep up with new trends. Even more than technical ability, companies are looking for creative young talent that has a high learning capacity. However, even with the ability to learn quickly, these employees also need managers who will spend more time (more than once a year) on coaching in order to keep up to date with the latest trends.
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5. Millennials want regular feedback
The new generation of workers have the reputation of being disloyal and impatient. This is not necessarily a bad thing. Millennials are smart and tech savvy. This generation is more likely than others to have advanced degrees and, growing up in the social media age, they are always hungry for more information. However, they’re also used to getting answers instantly in real-time. What millennials want is more training and opportunities for development and they have no qualms about job hopping until they find it. In a survey by TriNet and Wakefield Research, 85% of millennials reported they would feel more confident if they could have more frequent performance conversations with their manager.
6. Recognition is more motivating
Employees want to be recognized for their efforts. Showing appreciation for a job well done goes a long way. In a survey 83% of employees found recognition for contributions to be more fulfilling than rewards or gifts. Furthermore, a number of HR experts are now finding that focusing on improving an employee’s strengths, rather than weaknesses, boosts motivation. However, to make strengths based training work managers must have more frequent discussions with employees to help them pinpoint and develop these skills. Managers who know their employees’ strengths are 71% more likely to have employees who are energized and engaged.