Blog: Many Companies Are Changing Their Use of Performance Reviews

Many Companies Are Changing Their Use of Performance Reviews

A recent survey of over 250 companies found that 16% of the respondents had recently eliminated their use of a rating scale for reviews. This shift matches a trend that's been seen within a number of companies over the last few years. As part of the process for creating and defining their culture, some companies have made the decision to do away with annual performance reviews.

More Details About Performance Review Changes

There are several different ways that companies are changing performance reviews. One of the changes made by companies like Microsoft and Accenture is to end the forced rankings that utilize a bell curve to distribute employee performance. Other companies including General Electric and Adobe have adjusted this process by getting rid of the rating scale that labels an employee's' performance with a number or phrase like meets expectations.

What's the Impact of These Changes?

Other news has recently come out about Morgan Stanley and Goldman Sachs making changes to their rating and reviewing of employees. Because there are so many review changes taking place across a wide variety of companies, it begs the question of what kind of impact the shifts are having. Although it will take some time to see the full impact at these companies, there is historical data about companies which eliminate ratings.

Advisory firms have found that even though employees may be enthusiastic about the elimination of performance reviews, that enthusiasm doesn't tend to last. A survey of over 9,000 employees and managers in eighteen different countries found that when reviews were eliminated, employees rated managers 14% lower when they did have conversations about performance.

Another finding of this study was that employees who had previously received a top rating experienced the largest satisfaction drops. It's also common for managers to feel that the lack of an objective rating makes it harder for them to provide employees with a clear message.

The other notable takeaway from the study is doing away with performance reviews makes it harder for employees to see the link between pay raises and performance. Without a clear link between a performance review score and the size of a merit increase, researchers found that employees' perceptions of pay differentiation fell.

What Companies Should Consider

Although the data covered above doesn't support the elimination of performance reviews, it's still possible for companies to benefit from making changes to their method of conducting reviews. Specifically, the research found that it is beneficial to revamp reviews so they get more input from employees' peers, focus on the future over the past and provide feedback on a monthly or quarterly basis. Making these changes can help ensure that a company's review process is in line with the speed at which work changes.

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