We’re living through a huge shift in the way performance reviews are carried out. If you’re founding or running a business, you need to make an active choice about what route you want your company to take.
The performance review has changed. For decades, there was an easy, default structure: annual reviews and numeric rankings, tied to salaries. But the new millennium has brought challenges to the old theories, new ideas and a host of options for anyone running a business. This means that there’s no longer a “default” setting for doing performance reviews: you’ve got to understand the options and make the best choice for your company.
And if you want to understand the options, you’ve got to know the history. We’ll take you through some key examples of performance review systems, and run you through how and why performance reviews changed.
We’ve put together a huge database of resources for anyone who needs to be in-the-know on performance management. We’ve built it to answer all your questions, provide tips, templates, advice and turn you into a performance management expert.
General Electric may not have created performance reviews, but their famous “rank-and-yank” system undeniably set the tone for businesses across the US - and the rest of the world - for the second half of the 20th century.
Here’s how it worked:
- Employees were assessed in annual reviews
- From these reviews, each employee was assigned a numeric rating
- The best ratings were rewarded with better compensation,
- Anyone ranked in the bottom 10% was fired
While other companies didn’t always adopt this exact system, certain aspects of it became widely accepted. The annual review cadence, numeric rankings and the direct link to salaries became the default way of doing things.
Over time, a whole host of problems with this system started to emerge. It could have a crushing effect on morale and the mental health of employees (you can read our advice on combining performance management with progressive mental health policies here). It allowed for extremely worrying biases to influence employee rankings. Most ridiculously of all, it could actually reduce the likelihood of employees learning and improving.
After 2000, a handful of companies started challenging the established ways. Organisations like IBM, Intel, Adobe and Google developed alternative ways of tackling performance reviews.
Realising their traditional system was unwieldy, time-consuming and failed to promote high performance consistently, Adobe rolled out “Adobe Check-in” in 2012, a system designed to be agile and free from bureaucracy. They swapped traditional performance reviews for informal, regular dialogue between employees and their managers. Pay was now decided individually by managers, rather than being based on numeric rankings and ratings.
Meanwhile, Google embraced 360° feedback, making peer-review a core part of assessing an employee. They also pushed to separate semi-annual reviews from salary discussions, to help employees focus on personal development during reviews, rather than obsessing over changes to their salary.
There was no uniform agreement on exactly what changes should be made to the traditional system, but as more and more companies began to develop alternatives, some themes began to emerge:
- Regular feedback instead of annual reviews
- In-depth, more informal feedback, rather than numeric rankings
- 360° reviews, where employees receive feedback from their peers, subordinates and superiors, rather than just their manager.
The first companies to challenge the old-school annual review system may have been predominantly young, fast-growing tech companies, but it didn’t take long for other industries to follow on.
In the 2010s, Accenture, PwC, Goldman Sachs and Cargill all made significant movements away from annual reviews or numeric rankings, and towards regular, in-depth feedback. However, it was in 2015 that the biggest domino fell: General Electric, the behemoth which all-but defined the annual review system, announced that they would switching to a system where employees received regular, 360° feedback through an app.
These high-profile shifts in strategy from giants like GE and household-name tech companies like Adobe or Google make it easy to assume that regular, in-depth, non-numeric feedback is the new normal.
It’s not. Annual reviews and numeric ranking systems are, in fact, very much alive: a 2016 study found that over 75% of HR leaders had no plans to eliminate rating systems.
Meanwhile, some of the companies which publicly announced that they were abandoning ratings or annual reviews have reintroduced them. One fascinating example is Buffer, which initially operated without performance reviews, but later decided to introduce annual reviews and ranking systems. They have a great blog post explaining their reasoning here.
If there’s one thing the history of performance reviews has taught us it’s that anyone who tells you any specific system is “dead” is probably talking rubbish. Despite the disruptors, the traditional annual review system is very much still alive - and despite the backlash, the push for continuous feedback and ratings-free systems is still going strong.
This means that if you’re running a business, you’ve got a choice to make. There’s no longer a “default” option: you’ve got to assess a wide range of performance review systems and make a deliberate choice.
That may sound daunting, but it’s also a fantastic opportunity. You get to pick the system that will fit your business’ culture and operations… and luckily for you, we’ve put together some great resources walking you through how to pick or design the performance review system that’s perfect for you.