What's the real purpose of annual performance reviews for employees?

Everyone hates performance reviews. The traditional annual performance review has been a standard management practice since World War II. Over this time, it was seen as a necessary evil, viewed by some as the gold standard of accountability, and in some cases, it was the first step of the "rank and yank "the practice of ranking employees and dismissing the lowest -- something GE was known for in its Jack Welch Days.
In the past few years, however, many companies, including GE, have reconsidered the annual review, citing administrative burden and potential legal risks -- corporate-centric reasons.
What should be the real purpose of an annual review? Should it be motivated by a corporate-centric or employee-centric perspective? Those are the questions that led to a discovery journey for a team of executives at the University Of Virginia Darden School Of Business.

What's the point?

In March 2015, a group of cross-functional leaders gathered to evaluate staff performance ratings. The conclusion was that the purpose of employee reviews should be "to help staff learn, resulting in improved performance and personal development in furtherance of the Darden mission and its values."
The team of leaders also stated that the current process did not support this objective and asked, "Is there a better way?"

Some of the issues for managers included:

• Managers feared providing feedback because of the difficult conversations that could occur and the inauthentic atmosphere of the meeting

• Employees feared being labelled and the consequences to their pay

• There was more attention to the Review Form than to the substance of the conversation because of the complexity of the system and the scale

• Inflated or unconstructive feedback did not help performance or development

• The managers did not have good feedback skills

How do we do it?

The team considered the latest science about how people best learn, which can be understood from Professor Ed Hess' book Learn or Die: Using Science to Build a Leading-Edge Learning Organization: "Learning occurs best when we are not fearful and we are not defensive."
Based on the issues the managers had observed in the current ratings system, they developed a hypothesis that more frequent, future-focused employee-feedback conversations would be less threatening and motivate learning.
The team decided to test this hypothesis by using a design-thinking methodology, which is an approach to problem-solving that spurs innovation, demands a candid look at a problem to dig down to what really matters.
The team focused on the customer -- the employee, in this case -- and performed ethnographic interviews to develop personas and staff development prototypes.

An iterative process

The team launched a pilot program in 2016 with several Darden business units, wherein the participating managers would:

• Meet monthly to share what was working or what was not

• Engage employees in the co-creation of the format and the frequency of the feedback in their respective areas, resulting in many different potential prototypes

• Scrap the current annual review system, perceived as a distraction and an obstacle instead of an enabling tool

Another essential piece of the puzzle emerged at one of the monthly meetings: the pilot team decided to provide training for managers to develop feedback skills. All managers were invited to a series of workshops on listening, goal setting, one-on-one meetings, providing feedback and coaching.

One size doesn't fit all

Co-creation between managers and direct reports led to several different prototypes that fit the unique needs of each team. For example:
Prototype 1: Weekly meetings, where three out of four weeks, they discuss the status and content of the work. The fourth week, they discuss the how of the work: what could be done differently, the employee's development and feedback for the manager.
Prototype 2: Quarterly meetings to both discuss the status of projects and consider what development opportunities may be appropriate.
Prototype 3: Monthly meetings to reflect, put progress in context and celebrate it. They discuss how the employee has advanced in areas that showed opportunities for improvement.

Feedback on the feedback system

As an educational organization, this fostered conversations about Darden staff members' learning. It really helped leaders see the growth each member of the team is making. Members of the pilot team believed that they were empowered to develop a performance enhancement and professional development approach that was both meaningful and practically useful for each person, regardless of their roles or areas of responsibility.
People who dreaded the whole evaluation process because it was time consuming and there was little clarity in what HR was requesting, felt that now the process was much more comfortable, open and provide suggestions in a two way manner, in a relevant context.

Continual learning

Based on initial positive results, the team decided to continue the pilot by expanding to additional managers and employees across the enterprise, who continue to iterate on the experiment and create additional prototypes.
The new team is focusing on coaching skills for managers, which require humility, rather than a top-down "do what I say" approach. Themes in Hess' latest book, Humility is the New Smart: Rethinking Human Excellence in the Smart Machine Age, resonate with this new perspective of enablement and human development, versus the traditional processes and programs of human resources.
Eighteen months into the experiment, the results show that changing the focus and purpose of feedback from a corporate-centric purpose to an employee-learner-centric purpose can have positive cultural, developmental, engagement and performance ramifications  No employee included in the pilot asked to go back to the traditional once-a-year format.