Don't Wave Goodbye to Performance Reviews Just Yet

When it comes to performance reviews, most people either hate them or despise them—there doesn't seem to be any middle ground. In i4cp's upcoming study, Performance Management in 2013: Still Waiting for Real Change, less than 30% of respondents said that their employees found the performance management process fair.

This is not a new phenomenon, but it has been worsening over time. When this same question was asked in 2010 ("Do your employees find your performance management process fair?"), 38% of respondents answered in the affirmative. Some of this perception is no doubt colored by cutbacks in compensation budgets brought on by the recession, but regardless of the reason, companies have taken note.

There has been an increase in discussions and literature related to abolishing performance reviews altogether, and success stories such as REI and IM Flash have proven that getting rid of performance reviews does not mean getting rid of performance. Despite these companies and others who have also made this bold move, there are actually surprisingly few organizations that have removed a system that so many employees do not seem to like, or at least find fair.

In this recent study, fewer than 3% had dropped formal performance appraisals in the last year, and about the same percentage are planning on dropping their system next year. So if everyone agrees the system is broken, why are so few companies willing to tear it down? The answer, as always, is money. There is a high cost in terms of employee hours associated with company-wide changes to a performance management system, and the benefits of removing the system are much harder to pin down than the costs of maintaining the status quo.

Much of the current research does indicate that—for some types of jobs—there are diminishing returns for increased bonus amounts, indicating that the old philosophy of pay for performance doesn't always hold true. Many HR professionals are aware of this, but that doesn't necessarily mean changes are just around the corner. Even if a cost-benefit analysis points the way for the removal of performance appraisals in a company, the timing may be wrong, there may not be approval from the executive team, or there may just be a culture that does not accept change.

This is not an indictment of corporate America though—if 3% of companies are consistently switching to a more employee-friendly, less costly performance management system, that will add up quickly. There may also be a snowball effect, as more and more companies show that a ratingless system can work. Change may not be just around the corner—it may be closer to a few miles away—but that is still close enough to proceed with a steady pace.

If yes, tell us how it's been working out.