Business.com aims to help business owners make informed decisions to support and grow their companies. We research and recommend products and services suitable for various business types, investing thousands of hours each year in this process.
As a business, we need to generate revenue to sustain our content. We have financial relationships with some companies we cover, earning commissions when readers purchase from our partners or share information about their needs. These relationships do not dictate our advice and recommendations. Our editorial team independently evaluates and recommends products and services based on their research and expertise. Learn more about our process and partners here.
Break Free From Performance Management Shackles: Companies That Are Paving the Way
Traditional performance management techniques aren't always effective, so consider these alternatives.
Table of Contents
Employers typically set and monitor employee performance goals to ensure the team and its objectives stay on track. If someone isn’t achieving their goals satisfactorily, corrective measures must be taken; such actions include providing more training, redirecting them or — as a last resort — letting them go. Traditionally, this assessment includes an annual performance review, during which management sits with employees to review the previous year’s achievements, setbacks and complaints.
However, some experts believe this approach isn’t always effective. We’ll outline reasons why a traditional performance management strategy can fail and look at companies leading the way toward a new approach called continuous performance management.
11 reasons why traditional performance management can fail
Traditional performance management methods are falling out of favor for the following reasons.
1. Annual performance reviews are too rigid.
Standard performance reviews, delivered once a year, are irrelevant to how most organizations work today. There are two primary reasons for this:
- Shorter goal cycles are more common. Performance management systems that rely on a 12-month review process are often out of sync with what’s happening in a company on a day-to-day basis. Twelve-month goals have largely been replaced by shorter-term goals. In fact, some workers need goal cycles of a month or even a week.
- Annual assessments are harder when employees work in teams. Additionally, team collaboration is commonplace, and employees can be involved in multiple teams across different locations. Few managers can gauge a team member’s performance accurately when the employee is entrenched in multiple teams, often doing work the manager doesn’t see — and may not fully understand.
2. Annual reviews create competition.
When you study companies that have changed their performance metrics, you’ll see a clear performance management trend: Conventional rating systems inhibit collaboration. This drawback makes a business less customer-focused and agile. While top ratings can lead to high status, promotions and raises, it’s not like school, where everyone can get an “A” if they work hard enough.
With a forced curve, a manager with a hardworking team of 10 may be allowed to give only one or two employees a top rating. As a result, people compete directly with each other for rewards; this practice creates an unhealthy amount of workplace competition that hurts team collaboration.
3. Yearly reviews may cause employee turnover.
Companies are removing the rating systems commonly associated with annual reviews because they want managers to talk to employees about their development more than once a year. When management is out of touch with employees’ feelings, activities and needs, employees are less engaged. Thus, employee turnover is higher.
To illustrate this concept, the Deloitte Insights 2025 Global Human Capital Trends report cited a case study. It revolved around a software company that wanted to understand how its employees were feeling during the annual performance review season. Using data from wearables, it found extremely high stress levels and poor well-being during this period. These factors led to more absenteeism and employee attrition.
When the company switched to a more continuous feedback and communication approach, the situation improved: Revenue growth increased by 7 percent, attrition dropped by 36 percent and employees took 19 percent less sick leave.
In other words, more frequent communication promotes employee engagement, reduces absenteeism and improves results. This all happens because managers better understand how their people are doing.
4. Yearly reviews stagnate employee development.
Removing yearly ratings can help develop employees more quickly and efficiently. This is likely because more frequent, honest and open dialogues occur between managers and team members when no one worries about justifying a rating.
5. Traditional reviews are bad for morale.
According to the Betterworks 2024 State of Performance Enablement report, employees are 10 times more optimistic when their company has an effective, continuous performance management process. In contrast, traditional annual reviews are seen as stressful, dreaded and detrimental to morale.
“Removing annual performance reviews can be a great boost for morale, where employees no longer feel they are working toward one day that can affect their future in a company,” explained Brad Cummins, CEO of Insurance Geek.
Cummins noted that these meetings can adversely affect an employee’s mental health, given the productivity-killing stress of such a significant event.
Arvind Rongala, CEO of Edstellar, agreed that stress and high morale don’t mix. “Delayed reviews also create anxiety, recency bias and a ‘check-the-box’ mentality rather than meaningful development,” Rongala cautioned.
6. Annual reviews don’t help employees improve.
Most of the criticism around annual performance reviews lies in the fact that they happen only once a year. If the fundamental goal of this type of performance management is to help keep employees on the right track, then discussing progress once a year doesn’t seem helpful. An employee could have been off track for the last four months of the year without knowing it because there was no regular oversight or communication.
7. Yearly reviews aren’t goal-focused.
In many companies, work is very project-based, with specific goals for each project and step. Project goals tend to be precise, while annual performance reviews typically use a numerical ranking system and are more general. They focus on whether an employee completes work on time and works well with others.
However, these questions don’t often provide the necessary information about whether an employee is achieving the company’s goals for their role.
8. Infrequent feedback misses opportunities for positive reinforcement.
When employees are doing something right — especially if it’s above and beyond normal expectations — they should be acknowledged and recognized for it within a short timeframe. If they’re not, their accomplishments tend to get forgotten by management, fostering employee resentment.
Timely shout-outs for great work, results and effort go a long way toward making employees feel appreciated and valued. Such feelings boost morale and improve employee retention.
9. Lack of engagement with employees leads to more errors.
If managers take a hands-off approach until the end of the year, they risk letting employees make mistakes all year long. An employee could be doing things incorrectly or inefficiently and not find out what they’re doing wrong until months later.
From the employee’s point of view, this late correction is frustrating because a habit has now been created. From the manager’s perspective, a lot of dissatisfaction with the employee has accumulated; they may now want to fire the employee for doing a poor job. Neither of these outcomes is in the best interest of the company, the manager or the employee.
10. Yearly reviews are time-consuming and inaccurate.
Imagine having to remember and write down everything you did and achieved over the past year. Let’s say that exercise takes several hours. Now, multiply that by the number of employees in a company. Employees aren’t producing anything during those hours — they’re just reporting. Then, add the time each manager needs to read every report and meet with each employee to discuss it. That’s even more time pulled away from running the business.
On top of that, it’s hard for employees and managers to remember every task they completed, every person they met with and every goal they accomplished over an entire year. Both positive and negative moments are bound to be left out by employees and managers alike — especially things that happened earlier in the year. When performance assessments are inaccurate, everyone loses: the company and the employees.
11. Traditional annual performance reviews are subject to bias.
When one person — usually the direct supervisor — handles a performance review, the results are likely to be biased. Whether the manager likes the employee or not or how well the employee handles the review itself can have an outsized influence on the outcome.
For example, a manager might dislike an employee’s personality and give them a poor review, even if they’re a strong performer. Biases based on gender, race, ethnicity, religion, disability or sexual orientation can also unfairly impact assessments and hurt an employee’s career.
4 companies leading changes in performance management
The following businesses have implemented effective techniques that are helping to change the conversation surrounding performance management.
1. Microsoft focuses on growth and improvement.
Microsoft was an early adopter of more enlightened performance management methods; it got rid of ratings, forced rankings and grading on the bell curve way back in 2013. Microsoft’s performance evaluation model makes it easier for managers and leaders to allocate rewards that reflect the unique contributions of their employees and teams:
- No forced timelines: Through a process called “Connects,” Microsoft optimizes for more timely feedback based on the rhythm of each business segment rather than following one timeline for the whole company.
- No more curve: Microsoft invests in a generous reward budget but doesn’t have a predetermined target distribution. Managers and leaders can allocate rewards to best reflect the performance of teams and individuals (as long as they stay within their compensation budget).
- No more ratings: Without forced labels, no one feels demotivated. Instead, the focus is on opportunities to grow and improve.
2. Adobe’s transparency yields dividends.
Adobe’s Check-in is an informal system of ongoing, real-time feedback. There’s no prescribed timing or forms to fill out and submit to human resources. Managers decide how often and in what format to set goals and give feedback.
Rather than dwelling on workers’ shortcomings, managers focus on goals, objectives, career development and improvement strategies. Employees are evaluated based on what they achieve toward their goals rather than how they compare to their peers.
According to Donna Morris, former executive vice president of employee experience at Adobe, that facet is particularly important. Adobe’s previous stacked ranking system effectively discouraged people from working in teams by pitting individuals against each other, which creates an environment of competition rather than collaboration.
Adobe’s transparency paid unexpected dividends. For one thing, fewer valued staff members left the company after it implemented Check-in. “People who have turned down other offers tell us it’s partly because Check-in makes them feel like we’re helping them succeed,” Morris explained.
As managers began having more frequent conversations with underperforming employees, Adobe also saw an increase in necessary departures — team leaders were no longer avoiding difficult conversations. “It’s not just about retaining talent; it’s about retaining the right talent,” Morris emphasized.
3. Cigna focuses on goals, progress and career growth.
Connect for Growth, Cigna’s approach to performance management, seeks to improve productivity, boost motivation and retain top talent.
Cigna instituted performance management changes after employees responding to a 2014 survey raised concerns. When asked to describe the review process, both employees and managers most often used the words “frustrating,” “unfair,” “cumbersome,” “time-consuming,” “forced” and “inconsistent.”
Cigna dropped formal letter and numeric ratings. The overall performance indicator is “on track” or “off track,” with the expectation that the vast majority of employees will remain on track. Conversations about employee performance are called “check-ins,” and they can happen anytime during the year.
Check-ins focus on goals, progress, and career growth and are personalized for each employee. Quality discussions are more important than written documentation, which is kept to a minimum. Regular feedback from team members and colleagues beyond the direct manager is also encouraged. Pay-for-contribution is the standard for rewards.
4. Accenture’s digital tool is ideal for remote workers.
Multinational management consulting firm Accenture reimagined performance management with its Performance Achievement approach. It draws from the company’s different facets to create a custom digital tool.
The cloud-based Performance Achievement system lets employees worldwide follow a performance process that includes feedback, support, and communication from managers and team members.
“Performance Achievement is enabling the strengths and potential of our greatest asset ― our people ― to achieve greater performance for themselves, their teams and our clients,” said Maeve Lucas, former managing director and senior HR business partner at Accenture.
Best practices for modern-day performance management
Following these performance management best practices can help your business learn about your employees on a deeper level. You can then use that knowledge to improve communication, increase trust and exceed company goals.
Provide consistent reviews.
While traditional performance management consisted of a vague, once-a-year meeting, companies now recognize the need for frequent check-ins.
Adriana Cowdin, CEO of Be Bold Executive Coaching, has seen firsthand that consistent, ongoing feedback fuels employee growth much more effectively than once-a-year evaluations. “Annual performance reviews are like waiting until the championship game to coach your team — it’s too little, too late,” Cowdin cautioned.
The more consistently you engage with employee performance, the easier it becomes to improve productivity, exceed goals and develop influential leaders. “Regular check-ins (weekly or biweekly) and structured quarterly performance reviews are far more effective,” Cowdin explained. “Timely feedback allows [employees] to pivot and improve in real time.”
Consistent reviews also allow management to recognize and reward top performers, fueling their motivation. “[For] high performers, why delay recognition and rewards? Acknowledging contributions throughout the year strengthens engagement, loyalty and retention,” Cowdin noted.
Invest in performance management software.
Employee performance management tools can automate the tedious process of remembering to consistently check in with team members. Instead of relying on a vague questionnaire, the software can maintain performance journals, planning tools, anonymous peer reviews and frequency calendars. Performance management software is available for businesses of all sizes — whether you’re just getting off the ground or managing at the enterprise level.
Build relationships.
Use the time you save and the data you gather to build deeper relationships with each employee. The more you know about someone’s strengths and weaknesses, the better you can prepare them for future tasks and goals.
According to Quantum Workplace, 36 percent of employees prefer a weekly one-on-one performance meeting with their manager. When you actively engage with an employee one-on-one, you improve their work and boost the company’s overall performance.
Celebrate wins.
While individually completing a goal can be satisfying, being recognized for a job well done helps solidify relationships between managers and employees. Recognition shouldn’t be reserved for the end of a project. Celebrate wins publicly throughout the process to keep employees motivated and excited about reaching the finish line.
Employees who feel celebrated are more likely to share creative ideas, collaborate with peers and see the job through to completion.
Frequently revise the performance management process.
Once you’ve completed the first four steps, take time to analyze your specific performance management process and revise any areas that don’t meet the needs of your growing business.
Ask employees — through surveys, polls or brief interviews — how the process could be more effective. Adjusting the frequency of reviews or increasing transparency could help maximize both employee potential and overall company performance.
Jennifer Dublino contributed to this article.
