It's that time of year again: Many workers and managers are preparing for the dreaded performance review.
But some companies are deciding not to do them.
While most continue to perform the awkward rite of passage once or twice a year, a few companies—about 1%—are scrapping the formality altogether, according to the Corporate Executive Board. The thinking is that performance reviews are angst-provoking and even ineffective in actually motivating workers.
Performance reviews have long received poor grades, even from those who conduct them. Nearly 60% of human-resources executives graded their own performance-management systems a C or below, according to a 2010 survey by Sibson Consulting Inc. and WorldatWork, a professional association. And one academic review of more than 600 employee-feedback studies found that two-thirds of appraisals had zero or even negative effects on employee performance after the feedback was given.
Last year, Atlassian Inc., a software company based in Sydney, Australia, embarked on a publicly blogged experiment, still in place today, in which it got rid of traditional performance reviews for its 450 workers.
Previously, employees were reviewed twice a year on a five-point scale, plotted on a distribution curve, which determined workers' bonuses. But "instead of discussion about how to enhance people's performance, the reviews caused disruptions, anxiety and demotivated team members and managers," says Joris Luijke, the company's vice president of talent.
In place of reviews, the company asked managers and subordinates to discuss performance and goals at pre-existing weekly one-on-one meetings. Feedback now goes both ways.
As a springboard for discussion, participants, using an online app, are asked to drag a dot along an axis to answer questions like, "How often have you stretched yourself?" Instead of writing up lengthy assessments, they note a few pointers on why they dragged the dot to a certain place.
The company also got rid of the distribution curve and individual performance bonuses, instead giving everyone an 8% salary bump, as well as group performance bonuses and stock options.
Traditional top-down performance reviews can also cause intimidation among employees and make them fearful of acknowledging weaknesses, says Samuel A. Culbert, a management professor at the University of California, Los Angeles and co-author of the book "Get Rid of the Performance Review!"
Still, some experts caution that scrapped performance reviews must be replaced with some form of feedback mechanism.
Without required, documented reviews, some employees may be able to slack off without repercussion. Others may fail to be recognized for their achievements.
Additionally, companies that bypass reviews say it places a lot of responsibility on both managers and employees to have those difficult conversations that can fall through the cracks when not mandated.
Other companies worry that failing to officially document performance can pose problems if an employee is let go.
For the University of Wisconsin Credit Union, giving up performance reviews didn't work. When the company eliminated formal reviews in the 1990s, it didn't replace them with another clear-cut feedback system. "There was a void," says Lee Wiersma, chief human resources officer, who joined the Madison, Wis., company in 2000.
Since then, the company has gradually instituted semiannual performance reviews that are tied to pay and promotions. The performance criteria are based on the requirements found in a job description, which are updated regularly to stay current and realistic.
But other companies that have given up reviews have had more positive experiences. A yet-to-be published study, by researchers Vicki M. Scherwin, Jean-Francois Coget and Randall J. Kirner, examined 17 firms without formal performance appraisal systems. Those organizations all reported low turnover, high employee morale and strong relationships between managers and employees, among other benefits, found the study.
When feedback is "not going to be used to judge you or your fate in the company, you are more likely to be open about where you need to grow and it's going to be far more effective," says Dr. Coget of California Polytechnic State University, San Luis Obispo.
Glenroy Inc., a Menomonee Falls, Wis., packaging-film manufacturer with 178 employees, has successfully operated without formal performance reviews for about 20 years.
"No one liked giving them. No one liked receiving them. We looked at each other and said, 'Why are we doing this?' " says Nancy Seeger, Glenroy's director of human resources.
Rich Buss, the company's president, acknowledges that the informal appraisal system places a lot of responsibility on workers to be proactive about offering advice.
But the company has implemented management training sessions to help workers become more comfortable with giving and receiving feedback.
The company uses an outside salary consultant to determine pay based on the duties of the job and years of service. If managers and employees think they are ready for new responsibilities, workers are promoted to new positions at higher pay.
This story originally appeared on WSJ.com.
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