Goodbye to performance reviews, hello to -- what?

Firms like Deloitte and Accenture are making headlines with their decision to eliminate yearly performance reviews for their workforces. But in the absence of a yearly review, what will fill the gap?

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Imagine trying to learn to play golf using a single, dedicated session with a professional player each year. Sure, you can practice on your own, or ask others who play to help, but how effective is that approach going to be? Now imagine that your mastery of golf will be judged and graded during your next yearly coaching appointment, and your success or failure as a golfer will depend on how well you perform with little to no coaching. Think you'll win the Masters?

This is the current state of annual performance reviews, says Jim Barnett, CEO and co-founder of employee engagement platform Glint, and it's a major reason why IT employers are moving away from traditional annual reviews: Those outdated and ineffective processes based on a bell curve that may or may not paint an accurate picture of a worker's true value and contribution to their workplace.

Below expectations

The annual review process is inherently flawed, but it's not necessarily the reviews themselves, or even the timing that's the problem -- it's the fact that the outcome of these reviews is based on forced rankings instead of on overall development and growth. Popularized by Jack Welch in the 1980s, these "rank and yank" systems encouraged competition between employees and guaranteed that some workers would be labeled failures, regardless of their true performance and value, and then fired if they fell into the lower ranks of the assessment.

Getting rid of forced rankings is a step in the right direction, especially in an era where collaboration and engagement are important for business success and the IT skills gap can make hiring new talent difficult, not to mention expensive. There are a number of options for replacing outdated annual reviews and forced rankings, but they all rely on a simple concept -- more frequent and candid communication between employees and their direct managers.

Let's talk

"If you want to get rid of performance reviews, you have to change the habits of your entire workforce across the entire organizational ecosystem. That means supporting an environment that encourages frequent, consistent coaching and conversations," says Barnett.

Employees and managers don't need a formalized process to tell them what is usually obvious. As an employee, you always have a pretty good sense of whether you're doing well or doing poorly, and where your strengths and weaknesses lie. "The yearly review is an example of the minimum level of interaction you should be having with your employees if you want them to remain engaged, though I don't know that I've ever heard of a company where employees aren't constantly in contact with their managers, updating them on project status, talking about new work, discussing obstacles and successes," says Chris Byers, CEO of online form builder and data collection firm Formstack. "There's still value, though, in formalizing a process to record data about that employees' performance to track their progress and their potential," Byers says.

Moving ahead

In a tight labor market where IT companies struggle to fill positions and close the skills gap, it's important to identify and monitor workers' current status and determine where they might rise up the ladder to leadership roles.

Employees want to know, too, what their future might look like within the company -- and often than just once a year. "People want to know where and how they can improve, how they can get better, and the steps they need to take to move up the ladder. But that's harder to do in a company where an annual review is focused on what happened during the previous year instead of what goals and opportunities they're focused on in the future. What are they measured against? What are the expectations? Are they meeting those or not? How can they do better?" says Glen Wilson, director of talent at Salesforce.com/CRM consultancy Internet Creations.

Of course, removing yearly reviews and forced rankings puts more responsibility and accountability onto direct managers and team leaders -- but doing so is much more accurate than putting promotion and firing responsibility in the hands of executive management who may or may not have any direct contact with the employees they're assessing. "With responsibility comes accountability, and getting rid of an annual review process does ask managers to have a lot more input and control over the process. But that's also empowering for the employees and the managers, who know each other best and can deal with shoring up the weaknesses they see and building the skills that are needed," says Barnett.

Error: bad data

The process also highlight one of the biggest issues with annual reviews: a reliance on bad data. "Everyone knows and understands that, to some extent, they're graded on a curve. And they don't trust the reviews and the ratings, the rankings. So many factors are at play; how many people have been reviewed favorably before you? What are they being ranked against? Not to mention the harshness or leniency of the person doing the rating. We've been putting these skewed ratings into our promotion and reward systems based on a completely subjective system -- we don't actually leave it at subjective, we turn our biases and our own preferences into an objective rating system that doesn't measure the person being rated as much as it measures the rater," says Marcus Buckingham, founder and chairman of The Marcus Buckingham Company, a performance management, leadership and coaching solutions firm.

A more reliable way to evaluate performance is to ask team leaders four simple questions about their employees, designed to focus on what they can and will accomplish, not based on a reviewers' feelings about the employee. "The most reliable way to see the performance of talent is through the eyes of their team leaders. But the caveat is that team leaders aren't reliable raters of anything except their own intentions with regard to the employee -- so that's where we focus," Buckingham says.

Ask and answer

The four questions are the following:

1. Given what I know of this person's performance, and if it were my money, I would award this person the highest possible compensation increase and bonus. This measures overall performance and unique value to the organization on a five-point scale from "strongly agree" to "strongly disagree."

2. Given what I know of this person's performance, I would always want him or her on my team. This measures ability to work well with others on the same five-point scale.

3. This person is at risk for low performance. This question identifies problems that might harm the customer or the rest of the team on a "yes or no" basis.

4. This person is ready for promotion today. This question measures potential on a "yes or no" basis.

"We are asking our team leaders what they would do with each team member rather than what they think of that individual. When we aggregate these data points over a year, weighting each according to the duration of a given project, we produce a rich stream of information for leaders' discussions of what they, in turn, will do -- whether it's a question of succession planning, development paths, or performance-pattern analysis," Buckingham writer in this Harvard Business Review piece, based on his work with Deloitte to overhaul their performance review process.

This data, though simple, is much more reliable, and is an elegant solution to the problem, and is used quarterly to assess specific subsets of employees with an eye toward action. "Who's eligible for a promotion? Who has specific, critical skills we need? Then, we shift from talking about rankings to talking about people and considering how best to capitalize on the strengths you find," Buckingham says.