Much-hated annual performance reviews are being revamped, but are changes good?

There’s a revolution going on in corporate human resources departments, and the much-hated annual performance review is in the crossfire.

Over the past few years, a fast-growing number of high-profile companies have been blowing up this annual rite of corporate life, replacing the traditional yearly review with something more frequent, less formal and, they hope, less reviled.

According to a March survey of more than 250 companies by research and consulting firm Brandon Hall Group, about 16% said they recently had eliminated the use of a rating scale.

The rebellion is taking different forms. Some, such as Accenture and Microsoft, have ditched “forced rankings” that use a bell curve to distribute employee performance, among other things.

Others, such as Adobe and General Electric, have either dumped the rating scale that labels employees’ performance with, say, a “3” or “meets expectations,” or are testing the idea with groups of employees. Big banks like Goldman Sachs and Morgan Stanley also have made changes to the way they rate and review workers in recent weeks.

As the uprising gains steam, a big question remains: How good are the systems replacing them?

New survey data shared with the Washington Post by the advisory firm CEB reveals that one of the big changes employees have cheered may not remain so popular over time. It finds that companies that eliminate ratings altogether could be in for some complaints.

CEB surveyed more than 9,000 managers and employees across 18 countries and found that those who worked for organizations that had scrapped ratings from the review process actually scored the performance conversations they had with their managers 14% lower.

Employees who had gotten a top score under the old ratings system missed them most, with satisfaction scores dropping even further. And among the group that had no ratings, the number of employees who believe their organization differentiates pay by performance dropped 8%, the survey found.

“For organizations that have abandoned some sort of categorical rating-type feedback, what we actually find is that experience is pretty negative,” said Brian Kropp, CEB’s human resources practice leader. Without a rating to focus on in the conversation, Kropp said, managers may feel it’s harder for them to deliver a clear message.

Finally, employees appear to have a harder time seeing the link between pay raises and performance. When there wasn’t as clear of a link between a score they got on their performance review and the size of the merit increase they received, employees’ “perceptions of pay differentiation fell,” Kropp said.

Still, some companies that have dropped the ratings appear encouraged by the results. Microsoft’s director of global performance programs, for instance, told the Wall Street Journal in October that “the lack of rating, we have heard back from our people, mitigates the threat, distraction and internal competition.”

So what does seem to work? Kropp said their research shows that revamped reviews that get more input from employees’ peers, focus on the future rather than the past and give more frequent feedback — at least quarterly, if not monthly — seem to help the most. “The speed of work now just dramatically outpaces the speed of HR processes,” he said. “The idea of an annual performance review or a six-month performance review just doesn’t make sense anymore.”

Jena McGregor writes for the Washington Post.