The annual performance review is ‘straight-up dead.’ But what comes next?

LAS VEGAS — Back in the day, the standard — and often dreaded — annual employee performance review revolved around workers ranking themselves and supervisors rating them to determine compensation and promotions.

That “antiquated” model from the 1960s is “straight-up dead,” and yet aspects still remain throughout corporate America, Doug Dennerline, CEO of HR software firm Betterworks, said during the Society for Human Resource Management’s annual conference.

“The annual performance review is absolutely broken. It doesn’t work,” he told Employee Benefit News Sunday. “How do you know where your stars are if you talk to them once a year?”

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Dennerline estimates that only 20% of employers have moved to what he said is a more progressive continuous performance review process that better matches a more collaborative, and less hierarchical, workforce. The hierarchical organizational chart no longer exists, and has been replaced by a flatter model better suited for the new economy, he said.

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“Progressive HR leaders and CEOs know that thing doesn’t work anymore and are figuring out ways to do it differently,” he said. “Telling 75% of your organization, ‘You’re mediocre,’ 15% of them, ‘You are great’ and 10%, ‘We’re going to fire you,’ that’s old school. It has the opposite effect of what you want.”

Dennerline was referring to the old model popularized by the former General Electric CEO Jack Welch’s “rank-and-yank” model, in which supervisors would rank employees, stack them in groups and fire the lowest performers.

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“The annual review process no longer works because once a year is a really long time between reviews, and no one gets anything out of it,” said Betterworks CHRO Diane Strohfus.
“So when you think about changing the dynamic where you're having a continuous flow of conversations that happen, that makes perfect sense, right? Because you’re actually helping people navigate the workplace.”

Instead of annual reviews, it may be better to help employees set achievable goals, she added.

“If you actually move everybody to top company goals or goal achievement at the highest level, and move away from that individual paradigm, what’ll happen is people will set really aspirational goals” that benefit the entire company and better engage employees, she said.

What do you think? Is the annual performance review really dead, and what should HR leaders do to better evaluate and engage employees? For more coverage of SHRM, follow @waldensiew @Ottografs and @chroncich1 on Twitter and LinkedIn. For story ideas or other feedback, please email walden.siew@sourcemedia.com.

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