Whitepaper

Why Deloitte,
Adobe, and Others
Replaced the Annual
Performance Review

Why Deloitte, Adobe, and

others replaced the annual
performance review
Contents

01 Introduction

02 Why traditional performance management systems

are outdated

a. Case study: Yahoo! How stack ranking

backfired for Marissa Meyer

06 Finding new and meaningful ways to evaluate

performance

a. Case study: Accenture

b. Case study: Deloitte

c. Case study: General Electric

d. Case study: Adobe

14 Changing your performance management system

Why Deloitte, Adobe, and

others replaced the annual
performance review
01

Introduction
The annual performance review has often been criticized for being
an ineffective and inefficient solution to developing and motivating
employees.1 Yet over the past few years, changes have started to occur
showing a shift away from these outdated practices.

In 2013, SHRM conducted a study of 6’000 HR professionals in

organisations with 500 or more employees, to understand what their
perceptions were of current performance management practices. More
than half of those interviewed said that the annual performance review
process was inefficient and detrimental to employee motivation.2 Yet
at the time of the study, 77% of the companies interviewed were still

77% conducting performance reviews on an annual basis rather than trying

new methods.

After an increasing amount of studies and articles demonstrated the

77% of the companies inefficiency of the annual review process and current performance
interviewed were still management practices, several large and well-known companies started
conducting performance
leading the way to change.
reviews on an annual basis
rather than trying new
methods. In 2015, a number of Fortune 500 companies announced that they would
be replacing their annual performance reviews with continuous feedback
or other types of evaluation. This was backed by research indicating that
people preferred frequent and helpful conversations that would assist
them in their professional development.

In this White Paper, we take a closer look at the problems these companies
were facing and how, by removing their annual performance reviews, they
were able to overcome them. We will explore the need for continuous
development of professional skills in the workplace and understand how
companies such as Accenture, Deloitte, Adobe and General Electric,
successfully implemented the continuous flow of feedback at work.

Why Deloitte, Adobe, and

others replaced the annual
performance review
02

Why traditional
performance management
systems are outdated
Today, more than Traditionally, performance management systems have focused on “ratings”

70%
delivered by others, which is no longer believed to be an accurate way
of evaluating someone’s work. Research has shown that systems based on
ratings are actually damaging, creating a competitive work environment
and alienating top performers. These systems may have made sense in the
of all employees work in
service or knowledge- past during the era of industrial jobs, where people could be measured by
related jobs. their output in the production chain, but nowadays with a majority of jobs
being service or knowledge related,3 it seems necessary to re-think our
approach to evaluation.

Not only that, but if we want people to succeed in their jobs, shouldn’t we
be encouraging regular moments for them to get feedback about their
work, so they can adjust as they go along? Many of us have been in a
situation where we have no idea whether we are performing well or badly
in our jobs. And if you’ve been in this situation before, you’ll know that it’s
destabilizing and concerning to the point where you may doubt yourself.

Research has shown that systems based on ratings

are actually damaging, creating a competitive work
environment and alienating top performers.

Furthermore, studies have shown that giving people any sort of numerical
ranking generates an overwhelming “fight or flight” response in their brain,
meaning that this type of review becomes dreaded and is not something
people look forward to.4 If we want people to stay in their jobs, we should
think of a more meaningful way to evaluate their performance.

Why Deloitte, Adobe, and

others replaced the annual
performance review
03
Why traditional performance
management systems are outdated

Last but not least, another issue with the traditional method of
performance reviews is the idiosyncratic rater bias, discovered in

95%
research as far back as 1998.5 The premise is that any rating you give
of someone else, is based on your own definition of the trait you’re
asked to review. So if, for example, you’re asked to rate someone on
their creativity, you will do that based on your own definition of creativity,
|which in itself is problematic.
95% of managers are
dissatisfied with their
performance management.6
Case study: Yahoo! How stack ranking backfired
for Marissa Mayer.

When Marissa Mayer joined Yahoo as CEO in 2012, she faced the difficult
task of both downsizing and reinvigorating a stagnating company. Her
main focus was to find a way to identify and retain top talent, while
phasing out ineffective workers. In her first year of office, she instituted
a new performance review system, saying that she planned to trim the
Yahoo workforce very surgically and very carefully.

In September 2012, she introduced a system known as QPRs (Quarterly

Performance Reviews). Through this popular technique, managers would
set and communicate goals and results to departments, teams and
individual people. People would then get a score every quarter from one to
five. One meant the person was consistently missing their goals, while
a five meant that they were greatly exceeding their goals.

Forcing employees into buckets

In essence, the system was very similar to stack ranking. The target
distribution system put employees in five buckets: 10% of high performing
employees would go into “greatly exceeds,” 25% in “exceeds,” 50% into
“achieves,” 10% into “occasionally misses,” and 5% into “misses.”

The problem was, that it resulted in a forced curve. Seventy-five percent

of the entire company ended up in the top three buckets, while 25% of

Why Deloitte, Adobe, and

others replaced the annual
performance review
04
Why traditional performance
management systems are outdated

every team had to go into the bottom two. This resulted in an incredibly
competitive work environment, where teammates directly competed
with each other so as not to end up in the bottom 25%.

Yahoo staff assessment graph

missing goals

occasionally missing goals

achieves goals

exceeds goals

greatly exceeds goals

0% 50%
percentage of employees

By forcing a bell curve, it meant managers were involuntarily forced

to categorize employees into one of these buckets. One manager
reportedly said:

“I was forced to give an employee an ‘occasionally misses,’ [and] was very

uncomfortable with it. Now I have to have a discussion about it when I
have my QPR meetings. I feel so uncomfortable because in order to meet
the bell curve, I have to tell the employee that they missed when I truly
don’t believe it to be the case. I understand we want to weed out mis-hires
or people not meeting their goals, but this practice is concerning. I don’t
want to lose the person mentally. How do we justify it?”

Why Deloitte, Adobe, and

others replaced the annual
performance review
05
Why traditional performance
management systems are outdated

“I feel so uncomfortable because in order to meet the

bell curve, I have to tell the employee that they missed
when I truly don’t believe it to be the case.”
Anonymous, Manager, Yahoo.

Report after report surfaced about the negative implications stack ranking
has on employees, yet Yahoo, under Marissa Mayer, decided to implement
this method. Marissa Mayer was certainly faced with a difficult task when
she joined a dwindling company, but was applying stack ranking really the
best way to make people work more effectively?

Why Deloitte, Adobe, and

others replaced the annual
performance review
06

Finding new and

meaningful ways to
evaluate performance
Research has been suggesting that we focus on more of a coaching
approach to professional development, which would separate feedback
given to people from compensation decisions, amongst other things. In
fact, 79% of executives rate redesigning the performance review process

79% as a top priority.7

A coaching approach in the workplace places value on the individual

79% of executives rate
redesigning the performance
review process as a top priority.
and encourages them to develop the skills they already have. It also
encourages a person to grow as a professional, by being open to feedback
and constructive criticism. It helps to place a shared responsibility
between manager and direct report, as opposed to placing all the onus
on managers or the HR department. By doing so, the HR department and
managers can feel more relieved of having all the responsibility, but most
importantly it helps create a greater sense of ownership for people with
regards to their careers.

It helps to place a shared responsibility between

manager and direct report, as opposed to placing all
the onus on managers or the HR department.

How do you implement this kind of mindset, and what does that mean
when it comes to performance reviews? Let’s look at 4 large companies
that famously decided to shake things up.

Why Deloitte, Adobe, and

others replaced the annual
performance review
07
Finding new and meaningful ways to
evaluate performance

a. Accenture

Bureaucracy hampers performance

In September 2015, Accenture announced that it would be replacing

its annual performance reviews with an ongoing process. CEO Pierre
Nanterme, realised that spending time and resources on a system that
did not yield the desired outcomes, was detrimental to his workforce.
Bureaucracy and the complex nature of the performance review
actually prevented people from developing their skills and talents,
rather than enabling them.8

When asked about his decision, Nanterme said:

“People want to know on an ongoing basis, am I doing

right? Am I moving in the right direction? Do you think
I’m progressing? Nobody’s going to wait for an annual
cycle to get that feedback. Now it’s all about instant
performance management.”

The new model they chose to apply allowed people to receive

timely feedback from their managers on an ongoing basis following
assignments. This enabled them to have a better idea of how they
were doing and also creates an opportunity to improve and re-apply
learnings for each new project.

Developing a culture of trust

Accenture also learnt that trusting its people would yield much
greater results in the long term. Nanterme understood that the
art of leadership was not about spending time measuring individuals
and dividing them into “rankings”, but rather giving people the
freedom to innovate and lead.

The performance review model that Accenture adopted centrally

focuses on the individual. How they could personally improve, as

Why Deloitte, Adobe, and

others replaced the annual
performance review
08
Finding new and meaningful ways to
evaluate performance
58%
58% of managers thought
the traditional performance
review process did not
serve its purpose.
Approximately two million hours a year were spent on
the review cycle - filling in forms, holding meetings and
carrying out the actual rating.
Why Deloitte, Adobe, and
others replaced the annual
performance review
opposed to comparing them with their co-workers and managers.
Accenture is treating company talent as a “workforce of one”.
More than anything, Nanterme understood that in order to adapt to
the needs of our time and continue being a leading consultancy, Accenture
first need to initiate the change from within. He also understood that
meant adapting to the modern workforce which is increasingly made
up of millennials, for whom the traditional performance management
systems didn’t work.
b. Deloitte
Creating a nimble performance review
Known as the employer of choice for innovative human resource
programs, Deloitte announced in April 2015 that it would be revamping
its annual performance review process after conducting a public survey
to find out what managers thought of it. Results showed that 58% of
them felt it wasn’t serving its purpose.9 What’s more, approximately
two million hours a year were spent on the review cycle - filling in forms,
holding meetings and carrying out the actual rating - which had a huge
impact on overall productivity.
The survey also found that the majority of time was spent discussing
ratings, rather than having constructive conversations with people around
the work they had actually done. Finally, it brought to light the possibility
of subjective ratings taking place within the organisation, or idiosyncratic
bias (as introduced earlier on).
09
Finding new and meaningful ways to
evaluate performance

To effectively serve the needs of the people within the organisation,

Deloitte realised they needed a performance management system that was
nimble, individualized and based in real time. It needed to focus on fueling
performance in the future rather than assessing past results.

Deloitte identified three ways they wanted to review

performances moving forward: recognizing, seeing
and fueling.

Addressing employee performance

Deloitte identified three ways they wanted to review performances moving

forward: recognizing, seeing and fueling.10 Recognizing performance, in
effect meant understanding the individual in question. In order to do that,
Deloitte got leaders to ask future based questions about each person so
as to evaluate their performance. For example: “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”. This allowed
them to measure overall performance and unique value to the organization
on a five-point scale from “strongly agree” to “strongly disagree”. Once
these data points had been gathered and weighted according to the
duration of each project, each manager was able to determine and review
how to move forward with each individual.

This new approach turned reviews away from conversations about ratings
to conversations about the individual. Not only that, but at Deloitte the
best team leaders had regular check-ins and conversations with their team
members, which allowed them to set expectations for the upcoming week,
review priorities, comment on recent work, provide course correction,
coaching, or convey important new information.

These conversations helped to provide greater clarity regarding what was

expected of each team member and why, what great work looked like, and

Why Deloitte, Adobe, and

others replaced the annual
performance review
10
Finding new and meaningful ways to
evaluate performance

how each team member could do his or her best work in the following
days. This provided the nurturing needed to talk about future development
and encouraged team engagement.

c. General Electric

Creating a nimble performance review

General Electric has long been at the forefront of innovative companies,

leading the way in business. It is a case study constantly used in business
schools, and in many instances has shown how it is game changer with
Thomas Edison as one its the founders, or during Jack Welsh’s tenure as
CEO, or showing how it has successfully embraced digital transformation.
GE has also tried to lead the way when it comes to company culture and
management and has experimented with varying degrees of performance
management systems since its inception in 1892. But in 2015, GE
announced that it too would be removing the annual performance review
and replacing it with a performance management system that favored
more frequently occurring feedback.

In 2015, GE announced that it too would be removing

the annual performance review and replacing it with a
performance management system that favored more
frequently occurring feedback.

Stack ranking is an outdated process

As in Yahoo’s case, GE used stack ranking for a long time. This process was
pioneered by GE’s former CEO Jack Welsh, but unfortunately it resulted in
employees being boiled down to a ‘performance number’. Managers would
set goals for their team members to reach over a twelve month period,
after which they were given feedback on how well they were meeting

Why Deloitte, Adobe, and

others replaced the annual
performance review
11
Finding new and meaningful ways to
evaluate performance
10%
10% of the “under-performers”
were fired based on an annual
‘Stack Ranking’.
“It’s the way millennials are used to working and
getting feedback, which is more frequent, faster
and mobile-enabled.”
Susan Peters, Head of HR, manager, GE.
Why Deloitte, Adobe, and
others replaced the annual
performance review
them, and received a rating on a scale of 1-5. The worst performers were
then fired, which at GE was approximately 10% of the ‘underperformers’.
One of the biggest difficulties was managers being required to use the
ratings of 1 to 5. Eventually they became indifferent and developed a
habit of giving most of their employees a 3, which indicated average
performance, and gave no real insight into the health of the organisation.
GE realised that it was time to change this outdated process in order to
better reflect their outlook and stay current.
In particular just like Accenture, as the number of millennials in the
workforce increased, they realised the old method was no longer working
for them. Susan Peters, GE’s head of HR said “It’s the way millennials are
used to working and getting feedback, which is more frequent, faster and
mobile-enabled [...].”
The growth mindset
GE particularly wanted to encourage a growth mindset within the
organisation, rather than a culture of “up or out”. According to research
conducted by Carol Dweck, professor of psychology at Stanford University,
employees typically have two approaches to learning. The fixed mindset,
which was reinforced by the stack ranking system, argues that people
have an inherent capacity that remains the same throughout their life. In a
performance management environment, in which the bottom performers
get fired, the fixed mindset is naturally nurtured.
On the other hand the growth mindset represents the ability to continually
learn new skills and competencies. By setting up short term goals
12
Finding new and meaningful ways to
evaluate performance

and having ongoing development conversations that are not tied to

compensation, General Electric reinforced the notion that any employee
can rise to the occasion and become a successful professional. GE
developed their own app called “PD@GE” in which people are able to
set priorities, organize discussions with managers, and share insights
on a daily basis.11

d. Adobe

A precursor to the change, Adobe announced in 2012 that it would replace

its performance review process with something more agile and continuous.
Managers were encouraged to meet regularly with their direct reports to
have conversations about how things were going and how far they were on
track to complete their yearly goals.

“Our goal should be to inspire people to do their best.”

Ellie Gates, Director of Management Effectiveness, Adobe.

The road to change

Prior to 2012, Adobe evaluated peoples’ performance over a 12 month

period. Donna Morris, Senior Vice President of HR, joined in 2002 and
soon realised that the process was not beneficial to those it served. At
the same time, the company was using stack ranking to determine
compensation. It was not only a process that didn’t provide any added
value for people to understand how they were performing, it was also
incredibly time consuming. “At one point, the planning alone took nine
months,” said Donna Morris, “It was like preparing to give birth to a child.
People wondered, “why does this take so long? Does this really drive the
business return?”12

Morris realised that the performance management system they were using
wasn’t helping managers mold effective and productive teams. Even worse,

Why Deloitte, Adobe, and

others replaced the annual
performance review
13
Finding new and meaningful ways to
evaluate performance

in the months following the annual performance review Morris noticed

that there were more resignations than any other month throughout the
year. Adobe’s core value of being genuine simply did not resonate with the
performance management system used at the time.

Continuous check-ins

Check-ins, Adobe’s new approach revolved around clear expectations,

frequent employee manager conversations and continuous feedback
(both positive and constructive). The new performance management
system allowed managers to determine how often they would have
check-ins with their team members. Eliminating endless forms and
questionnaires meant managers had the opportunity to convey what
they expected, and in turn people had the opportunity to give and
receive feedback, as well as develop their professional and personal skills.

Eliminating endless forms and questionnaires meant

managers had the opportunity to convey what they
expected, and in turn people had the opportunity to
give and receive feedback.

What’s more, people were compensated against how well they

accomplished their development goals rather than basing it on rankings.
Instead of providing each manager with guidelines on how to compensate
their employees, each manager was given a budget and given the freedom
to decide how to distribute it.

Adobe successfully implemented the change over time, with an overall

reaction of enthusiasm and relief.

Why Deloitte, Adobe, and

others replaced the annual
performance review
14

Changing your performance

management system
It may seem daunting to reimagine your performance management system,
and rightly so as it’s no small feat. Not only do you need to consider how
you would do it or what changes you want to make, but it also requires
having a sound change management process in place so that your people
are onboard and do not resist the change.

–– Identify the gaps:

What is it about your current performance management system that
isn’t working? What would you like to change? You could do this by
sending out a company-wide engagement survey to test the waters.

–– Identify the tools and choose your partner:

Nowadays there are many tools out there to support a reinvented
performance management process, and Impraise is one of them.
At Impraise we believe in the power of people, and we want our
platform to support them in energizing performance management,
fostering career development, and seizing all the moments that
happen in between.

–– Find your champions:

Find the people within your organisation who already believe in a
different way of doing things. Those who would be really excited to
test a new tool, implement something new, and would be able to
drive this kind of project.

–– Leverage them as your champions within the organization:

Run a pilot. Before you decide to roll-out a new process to the entire
company, you may want to consider running a pilot with a smaller
group of people. Like that, you can assess the different impact it has
and gather their feedback about the new process.

Why Deloitte, Adobe, and

others replaced the annual
performance review
15

Resources
1 New York Times, “Why employee ranking can backfire”, July 2015

2 Society for Human Resource management Survey: “HR professionals perceptions about performance management
effectiveness”, October 2014

3 Deloitte, “Performance management is broken”, March 2014

4 Strategy & Business, “Kill your performance ratings”, August 2014

5 Michael K Mount, Timothy A. Judge, Steve E. Scullen, “Trait, Rater and Level Effects in 360 Degree Performance Ratings”,
Personnel Psychologoy, 1998

6 CEB, “Performance management can be fixed. Driving lasting behaviour change through experiential learning”. 2016.

7 Deloitte, “Performance management: playing a winning hand”, February 2017

8 Lillian Cunningham, ‘In big move, Accenture will get rid of annual performance reviews and rankings’, The Washington Post,
July 2015

9 Deloitte, “Performance management is broken”, March 2014

10 Marcus Buckingham, Ashley Goodall, “Reinventing performance management”, HBR, April 2015

11 Fast Company, “Performance Development, PD@GE”

12 Drake Baer, “Why Adobe abolished the annual performance review, and you should too”, Business Insider, April 2014

Why Deloitte, Adobe, and

others replaced the annual
performance review
 Thank you

Ready to make the first step and forge a culture

where individuals and leaders feel valued,
motivated and empowered?

Contact us to start the conversation.

www.impraise.com
info@impraise.com

Why Deloitte, Adobe, and

others replaced the annual
performance review