More and more companies are beginning to question the wisdom of the annual performance review, finding faults such as:

• They’re a time and money sink. Deloitte estimated that its managers spent two million hours on reviews per year, while Gap estimated that reviews cost three million dollars every year.
• They’re focused on the past, not the future. By their nature, reviews look back on what happened over the past 12 months—which can’t be changed— instead of focusing on what needs to be improved in the next 12 months.
• 12 months is too long a timeframe. With business demands changing faster than ever, goals set in January are outdated by March. Plus, it’s hard to remember everything that’s occurred over the span of a year, so managers tend to focus on performance over the few weeks leading up to the review, providing an inaccurate snapshot of performance.
• They enforce existing biases. A study of 250 performance reviews from the tech industry revealed that two-thirds of women were criticized for their personality, whereas only two of the men’s reviews criticized their personality.
• They position managers as the bad guys. No one likes to be the bearer of bad news, so managers can feel pressured to pad reviews, or only focus on the positives.
• And they can even make employees less receptive to feedback. The head of HR of Germany at SAP noted that, “Grading workers did not work. People are open to feedback, also to harsh criticism, until the moment you start giving scores. Then the shutters go down.”

As a result, major companies from diverse industries, including GE, SAP, Microsoft, Accenture, ConAgra, Gap, and Sears are reinventing the performance review:

• Adobe launched a “Check In” program. In this informal system, managers and employees meet at least once a quarter to discuss expectations, feedback, and growth and development. It’s focused on the future: employees talk about their career plans, and managers recommend skills that they’ll need to learn in order to progress. This revamped format has led to a 30% reduction in the number of employees who quit, and the company estimates it has reclaimed the almost 80,000 hours that used to be spent on performance reviews.
• Deloitte’s managers ask four simple questions. Rather than using a calendar to schedule reviews, managers evaluate employees after each project, using four questions:
  • How Strongly They Agree: “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.”
  • How Strongly They Agree: “Given what I know of this person’s performance, I would always want him or her on my team.”
  • Yes or No: “This person is at risk for low performance.”
  • Yes or No: “This person is ready for a promotion today.”
• IBM’s Checkpoint sets new criteria for performance. In addition to holding quarterly feedback sessions, once a year, IBM grades employees on five specific criteria: business results, impact on client success, innovation, personal responsibility to others, and skills. Managers determine whether employees have met or exceeded their goals in each area, or if they need to improve.

Before you completely abandon the dreaded annual performance review, though, a word of warning: overall, companies that have gotten rid of performance reviews have gotten worse. According to a survey by CEB, companies that have moved away from ratings have seen employee performance decrease by 10%, and engagement decrease by 6%. This is because without a dedicated schedule for feedback, it’s skipped, and without a clear framework for discussion, people don’t don’t know where they need to improve.

So how do you implement a system that actually leads to employee growth with minimal frustration?

1. Ask your team how they want to be evaluated. IBM, for instance, discovered that its employees had no interest in self-assessment, but did want more frequent check-ins. Adobe “took an iterative approach” and used internal marketing to educate their teams and get feedback on the changes to the review process.
2. Set up frequent check-ins. Whether you call them check-ins, touchpoints, or feedback sessions, it’s essential to for managers and employees to meet on a regular basis, somewhere between every two weeks and every quarter. Put it on your calendar and hold those times as sacred—it’s easy for these sessions to be put on a backburner when client projects are due, but they’re critical for ongoing development.
3. Set up a framework for the conversation. Experiment with the right balance between general conversation starters like “How are projects going?” and rating or assessment questions.
4. Track progress over time. This could be something as simple as a Trello Board or Google Doc, or it could use performance review software. What’s most important is that you actually use it—refer to it during your regular check-ins and update your progress towards goals.