Why businesses like Apple and Block are nixing annual performance reviews—and what they should do instead
Jack Dorsey, the CEO of Block, and Novak Djokovic, the world’s No.1-ranked male tennis player, share something in common: They both understand the value of agility.
Djokovic recently told 60 Minutes that even though he’s not the fastest or the strongest, he can often outmaneuver his opponents on the court because of his extreme flexibility, something he achieves through continual workouts.
Similarly, Dorsey, former CEO of Twitter (now X), understands that building a culture of excellence requires flexibility—which he believes is achieved by ongoing conversations between managers and employees. In order for an organization to remain agile, these ongoing conversations should enable continuous evaluations of individual performance and by in-the-moment feedback that allows employees to quickly course correct while also reinforcing the most effective approaches and behaviors. This is why Dorsey recently announced that Block will no longer use annual performance reviews. Critics say performance reviews are worse than ineffective: They’re harmful. They hold people back—managers and employees—extracting a tremendous toll in time and effort
Dorsey also ended performance improvement plans (PIPs), another outdated concept that has been a staple of HR departments, at Block. Contrary to the conventional wisdom, PIPs often stigmatize and further undermine underperforming employees. Many believe PIPs don’t actually help employees, but instead shame recipients. I believe PIPs often represent more of a failure on an organization’s part than on the employees themselves. Plus, PIPs are reactive rather than proactive. They typically yield the opposite of the intended effect. Dorsey argued that PIPs are a “lazy” approach that should instead be replaced by continual coaching and feedback.
The unfortunate reality is that companies often use PIPs as a form of insurance against lawsuits for unlawful termination. Companies, however, can reduce their reliance on annual performance reviews and PIPs by addressing underlying issues that lead to poor performance and providing more coaching from managers.
Here’s why organizations should make a shift away from these outdated practices—and how they can do it, step-by-step.
Agility requires continuous improvement
Many organizational leaders don’t seem to make the connection between agility and how they enable and evaluate the performance of their employees, who are the driving force behind business agility. About 50% of organizations still rely on annual or semi-annual review processes.
Performance management is a command-and-control concept designed by the U.S. military during World War I and World War II to determine efficiency and yank poor performers. Although it has had many makeovers over the decades, it is no longer fit for duty in a business environment characterized by AI, rapid change, and the evolving expectations of employees around empowerment, transparency, and fairness.
This is why today, practices like performance review are dying out at innovative companies like Apple and Microsoft.
As opposed to performance reviews, performance enablement moves away from outdated concepts of hierarchy and control, and instead adopts a framework that places employees’ needs at the center. It gives employees the opportunity to create meaningful goals and equips managers to frequently coach and enable employees—rather than dictate and evaluate. Rather than being backward-looking and occasional, it is forward-looking and continuous.
Whether employees work remotely, are hybrid, or in the office, the approach works equally well in producing high-performing, engaged, and empowered employees. Performance enablement provides managers with the tools and resources they need to lead and instills confidence in employees that they’ll receive the support they need. The result is a virtuous cycle of better business results and employees who are more satisfied, productive, and engaged. It’s everything the traditional approach to performance management fails to be.
Now, many organizations have deployed performance enablement approaches that helped them positively transform their cultures, strengthen manager-employee relationships, and deliver better business results.
My organization, Betterworks, has found that performance enablement impacts far more than performance. It affects engagement, productivity, belonging, inclusion, trust, and a host of other soft sentiments. Data from our 2023 benchmark report shows that employees who think their performance reviews are fair and equitable are more engaged (82% vs. 60%) and productive (71% vs. 57%) than employees who see reviews as unfair. Employees who like their performance management solution have two to four times higher trust in their organization’s leaders, HR, and managers than employees who do not like it.
Breaking out of outdated mindsets
Too many organizational leaders seem to be trapped by complacency or outdated or wishful thinking. They are either too comfortable with business as usual, satisfied with “good enough” performance management, or too distracted by other demands. However, performance is a strategic business issue and one that deserves the C-suite’s focus.
Many HR leaders are also complacent, feeling that their company’s current approach to performance management is either sufficient or at least better than what preceded it because it’s digitized. Digitizing a bad process won’t change outcomes. The entire approach needs to be reimagined.
The cost of not adapting is that high performers will depart your organization. The development of promising employees remains unrealized as businesses focus nearly all their attention on high-performers. Market opportunities can also be missed because the organization is focused on continually recruiting and onboarding new employees—or because current employees lack the skills to meet new opportunities.
I would argue that companies simply can’t afford not to change their performance review processes. Unhappy employees don’t wait for their companies to figure out what’s wrong. The cost of finding new employees is a trillion-dollar problem in the United States, but it’s the tip of the iceberg compared to the slow melt of existing employee potential.
How to adjust
There are several steps organizations can take to re-engineer the employee experience with performance enablement. Here are some actionable steps leaders can take:
Most employees want to do their best, but they need the right resources and support to perform at their best.A continuous, lightweight performance enablement process, fueled by ongoing conversations and check-ins will give employees the tools and resources to live up to expectations.