Are annual reviews going away? What this means for the workforce

With the U.S. job market still robust and unemployment low, more companies are moving away from formal annual performance reviews and performance improvement plans (PIPs) in an effort to reduce manager criticism and share feedback in a more constructive way, according to experts. 

Smaller employers in particular have become more focused on motivating employees rather than micromanaging. 

“Some have built them in and others have done away with them, especially as there has been a fair amount of reporting that annual performance reviews are not terribly effective and employees don’t value them,” Steve Saah, executive director for finance and accounting at Robert Half, told FOX Business.

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Overall, he says, performance reviews are more commonly conducted at larger or publicly traded companies. 

“For those organizations, it has become part of their regular process, and although the process itself can change over time, the reviews are still firmly a part of their business structure,” Saah said, adding the policies regarding performance reviews at smaller companies tend to fluctuate. 

Why some companies are shying away from annual reviews

The annual review tends to be a very formal process that can have a negative connotation. 

“Many organizations, especially smaller firms, have surveyed their employee base and found that many employees don’t find the review process all that effective,” Saah added. “Given that feedback, many companies have adapted their processes.” 

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In addition, workers today have unprecedented choice despite a recent slight cooling of the once white-hot job market, said Joe Galvin, chief research officer with Vistage in Stamford, Connecticut. 

“The notion of ‘performance evaluation’ needs to be more than an annual HR exercise, but rather an ongoing dialogue about objectives, performance accountability and development,” said Galvin. 

The rise of remote and hybrid work models accentuates the necessity of this continuous performance connection with every worker, ensuring engagement and growth regardless of location, he said. 

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An alternative to performance improvement plans (PIP)

Employers can share a plan for improvement and success with employees, even without the formal structure of a performance improvement plan in place. 

“Business leaders must outline opportunities for skill development, career advancement and how the employee aligns with the company’s overall mission, vision and values,” Galvin told FOX Business. “Collaborate on setting clear, achievable goals and regularly revisit these goals to track progress and offer support or resources as needed.” 

Also, business leaders must reimagine performance management as a tool for engagement rather than a mere grading system, Galvin continued.  

“Employees seek coaching from their employers that empowers their success, rather than just critiques,” Galvin noted. “Effective feedback should focus on pathways for improvement and provide actionable insights and support.”

Effective manager feedback without formal assessments

Experts say there are many ways a manager can choose to share feedback outside of a formal annual review.

“Managers can arrange formal weekly, biweekly or monthly check-ins, but ongoing informal communication is an equally important part of the process,” said Bob McIntyre, director of service operations with Chicago-based Insperity.

He also believes praising employees builds confidence and motivates employees to be productive.  

“Even a ‘good job’ via email is a form of feedback that can leave employees feeling appreciated and confirm they are on the right path,” McIntyre told FOX Business. 

And if there are some points that warrant employee improvement, a private meeting works best. 

“For constructive criticism, many employees appreciate a more private setting such as a one-on-one meeting via video call or in their manager’s office,” he said.