Every organisation has developed its own performance appraisal criteria of standards, thresholds and strategies. Annual performance reviews have traditionally served as an essential cornerstone for employees’ professional development. There are certainly advantages with annual reviews, but their effectiveness has consistently been questioned. According to the Society for Human Resource Management, up to 95% of employees were dissatisfied with their organisation’s performance review system; 90% don’t even believe it clearly reflects their performance.

This article will discuss the shortcomings of annual reviews, why organisations are changing their attitudes towards them and what are the alternatives, with a specific focus towards software developers.

The 5 Major Drawbacks Of Annual Performance Reviews:

1) There is no offer of regular feedback: The changes companies have implemented show today’s employees need frequent open conversations, feedback, and transparent relationships with management.

2) Lack of constant encouragement: Optimal productivity and morale require continuous motivation and guidance from supervisors.

3) Fosters an overly competitive environment: While a consistent approach to evaluation, appraising each employee in a standardised manner implies direct comparison and potentially an internal ranking system. This approach has been proven to be bad for morale and costly ($3,000 an employee in the USA). It fails to factor in team members delivering value through contribution of their individual strengths and being able to collaborate with colleagues well.

4) Outdated focus on employee performance: Annual performance reviews focus on employees’ past year – arguably to hold them accountable for their behaviour – rather than the ever-present concern of how to interweave the future development goals of employee and company as well as solving current problems. McKinsey partner Bryan Hancock, who actively works with companies that are using A.I. to measure performance instead, declared annual reviews are “too subjective, too bureaucratic, and too backward-looking.”  

5) Subjective performance rating system: Consistent and quantitative scoring of employees require objective metrics. Managers evaluate their staffs’ contribution to the organisation based on inherently limited knowledge; also, employees may be part of various work groups with different managers. This structure is framed by a manager’s liking for each employee is subject to cycles of confirmation bias and how well the employee promotes their work.

‘Vitality Curve’: The Rise and Fall of A Controversial Performance Review Practice

The ‘vitality curve’, ‘stack ranking’ or, more informally, the ‘rank and yank’ practice was a controversial performance appraisal system pioneered by former General Electric CEO Jack Welch in the 1980s. It represents a more stringent performance review system. Predicated on an annual performance review where employee performance was reduced to a number used for comparison purposes; the top 20% were viewed as most productive, next 70% as vital, and bottom 10% were to be fired

This practice’s popularity among major organisations greatly increased during Welch’s tenure at General Electric between 1981 and 2001, coinciding with the company’s emergence as the most valuable organisation in the world in 2000. By the time Welch stepped down as CEO, it was estimated that at least a fifth of Fortune 1000 companies adopted the vitality curve principle. By 2009, research by the Institute for Corporate Productivity pointed o ut that 42% of companies used the system. 

However, over the past decade, this system has been abandoned by many household name industry leaders, including Microsoft, Amazon and even General Electric (by Jeff Immelt, Welch’s successor), who replaced it with more frequent feedback via an app. Organisations’ abandonment of the system was attributed to claims of discrimination, high costs and insufficient evidence it delivers value.

Jack ‘Neutron Jack’ Welch – CEO of General Electric (1981-2001) and pioneer of the ‘Vitality Curve’ or ‘stack-ranking’ practice

What Is The Trend Regarding Employee Performance Review? 

According to research firm World AtWork’s 2019 survey, 10% of firms have completely eliminated their performance reviews and internal rating system in 2018, compared to 6% in 2016. During the same timeframe, the share of companies that utilised both reviews and rating system declined from 84% to 74%. This was very much aligned with SMRH’s survey that found 87% of employees and managers found conventional performance reviews to be ineffective. 

For this reason, technology orientated companies have led the way in replacing conventional performance reviews with methods aligned with internal organisational needs. These companies include:

Accenture: Adopted a new system of ongoing feedback since 2016. Former CEO Pierre Nanterme, in defence of this move, remarked: “People want to know on an ongoing basis, am I doing right? […] Nobody’s going to wait for an annual cycle to get that feedback. Now it’s all about instant performance management.” 

Adobe: In 2017 chose a new “check-in” approach based on real-time constructive comments in order to spur improvements. Senior V.P. Donna Morris declared that “This is an opportunity for us not just to say that our people are our most important asset, but to actually live those words.” 

Deloitte: Started using a system of regular and informal meetings which employees can freely schedule in 2014. Discussing about this new setup,then Chief Learning Officer Jeff Orlando stated “It’s not about someone telling you what you did right or wrong […]It’s about looking forward and setting yourself up for success.”

4 Alternatives To Annual Performance Reviews 

Although annual performance reviews are still the norm, organisations can follow the lead of the above-mentioned companies and find alternative methods that are suited to internal organisational needs. Here are four alternatives that should be considered: 

  • Quarterly performance reviews: Assessing performance more regularly allows for greater employee input and enables supervisors to formulate improvement plans more efficiently. Reflektive’s 2018 ‘Growth Survey’, which interviewed 2,000 office professionals in the United States, revealed that 81% of employees preferred quarterly performance reviews.
  • Weekly one-to-ones: In this system, managers discuss employees’ work, project challenges every week, work to be done before the next review, including touching on issues of performance, engagement and culture as appropriate. This is comparable to Agile sprint retrospectives (typically fortnightly), rapidly identifying problems and solving them, assigning and checking individual contribution to projects ensures they keep moving forwards consistently quickly with no tasks forgotten, as staff develop their skills.
  • Continuous evaluation: Managers would ideally identify and discuss problems as they arise, but this is impracticable. In 2018, Netflix for example adopted a continuous informal 360 degree review system, where employees were simply asked “to identify things that colleagues should stop, start, or continue.”
  • Adopting performance testing software: SaaS providers such as Pluralsight Flow, Seerene, BlueOptima and Semmle tools that enable organisations to measure developers’ performance. With such a platform running in the background, managers and employees can better assess individual performance and better define.

These performance review changes used by the world’s leading companies are proven to bring tangible benefits to the workforce. However, it does not mean their adoption will work for every organisation as each is a unique institution. Nevertheless, lessons can still be drawn from the implementation of new practices, the push behind its adoption and internal resistance to these changes.

It’s vital that organisations establish clear goals behind the implementation of a new system because this allows them to explore further improvements. Different approaches, which factor in changes in resources (i.e. time/cost) required, will best suit various organisations individually. 

The goal of annual reviews at the superficial level is to assess employees’ contribution to your organisation. But the purpose is really to optimise the value being delivered, which is enhanced through support and motivation, in the form of personal development and ensuring employees are happy at work. These connected goals are the essence of day-to-day management. 

Concluding Thoughts 

The evidence suggests that although annual performance reviews are increasingly out-dated and ineffective, supervisors still require a means to determine employees’ performance. The alternative methods outlined in this article were previously deemed impractical because of insufficient technology or the disruptiveness of a more continuous review approach.

The alternatives to the existing annual performance review means enjoying the direct benefit of time and effort saved. For example Deloitte saved two million hours per year by stopping annual reviews, without any negative repercussion. Instead supervisors will now have a constant, accurate view of software developers’ performance.

Finding which developers’ hours of productivity (or proportion of good quality code) is low, is an ideal starting point for identifying training needs. In addition, identifying additional tasks software developers are carrying out besides writing code, which their managers aren’t aware about or taking too much time away from their primary task of programming is another important factor.