Ditch Annual Performance Reviews. Here's How Netflix Did It.
We continue the search for pioneering workplace practices. We visit companies. We talk to academics. We interview CEOs, entrepreneurs and employees. Our aim is to learn how to make work more fun. The results are on our ever expanding Bucket List.
One place we haven’t yet visited in person is Netflix. However, we are inspired by the book “Powerful”, written by Patty McCord, their former Chief Talent Officer. And one key reason is because of how they give feedback—including how they ditched the frustrating annual performance reviews.
Before returning to Netflix, let’s step back and take a look at….
The annual misery
These are common. Once a year, a manager sits down with subordinates to rate their performance. And these sessions usually trigger stress, frustration, or resentment. Here’s why:
They are late - by definition
It doesn’t make sense to wait months to give feedback. It’s most effective when it’s timely. Why should you delay supporting the growth of a colleague? Why not support their improvement, now?
They are meaningless
When review time comes, you first check the goals that were set. This may be the first time anyone looked at them in a year.
Worse, you likely realize a few other things:
- You haven’t reviewed your goals for a year.
- They are not relevant any more. Things have changed.
- You may be assessed on things that now make no sense.
- It’s like waiting a year before reviewing your New Year resolutions.
Annual performance reviews are always late. It doesn’t make any sense to wait months to give feedback. Why should you delay supporting the growth of a colleague? Why not support their improvement, now?
They waste time
Managers spend too much time on reviews that have little or no effect. Why not spend that time supporting employees, and removing the barriers in their way?
They annoy everyone
Let’s be honest: nobody likes annual performance reviews.
- Managers dislike the bureaucracy and, especially, the discomfort of choosing one digit to describe a team member’s performance.
- Employees hate them because it’s largely a one-way street. They are there to hear how their manager assesses their “performance”.
Is it any wonder it’s rare for annual reviews to work well? Isn’t there a simpler, better way to give feedback?
A simpler better way to give feedback
Which brings us back to Netflix. They chose to ditch the annual review. Now they give feedback in a much simpler way.
Patty McCord said in an HBR article: “When we stopped doing formal performance reviews, we instituted informal 360-degree reviews. We kept them fairly simple: People were asked to identify things that colleagues should stop, start, or continue.”
Netflix now uses regular, but informal, reviews in which people hear what they should stop, start, or continue—from their colleagues.
It’s simple. It’s actionable. And it includes something often overlooked, which is praise for stuff they do well. Now, via this simple practice, it gets the attention it deserves. We’ve seen similarly simple practices at other organizations.
Many started doing these reviews anonymously. They felt people might be uncomfortable with full transparency. Netflix did, too.
Why do we still waste so many hours on horrible and ineffective annual performance reviews?
But after a while, almost all opt for transparency. As Patty McCord said: “In the beginning we used an anonymous software system, but over time we shifted to signed feedback, and many teams hold their 360s face-to-face.”
Stop, start, continue
So, here are 3 questions for you, dear reader, about your performance review process:
- What should you stop?
- What should you start?
- What should you continue?
Challenge yourself. You might just end up agreeing with Netflix: do without the annual performance review completely!
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There is one major compelling reason for ditching annual reviews which is not included here - they have a negative effect on motivation, and leave many people feeling undervalued and under appreciated. Many traditional systems use a 1-5 rating scale where 3 is classed as "good solid performance". The bulk of people will get between a 3 and a 4 (that's the reality of normal distribution curves), however the experience of being told you are a 3 performer when you feel you have performed well all year is highly demotivating. So a typical review ends with the employee feeling under appreciated, and the manager feeling crap as well because (like most people) they hate conflict and emotional discomfort. So a classic lose-lose scenario. In my experience ditching the annual review system predominantly does good, although only if it is superceded by something that builds strong connection between leader and employee, or employee and other employees. Netflix are an early adopter of doing this, but there are some really interesting case studies emerging as more and more organisations bring a more enlightened approach to their people practices. Great article and thanks!
I worked in an org that also used start/stop/continue. It was equally as useless and one-way (but now coming from multiple sources). Colleagues often don't have clear visibility of goals/full range of performance/deliverables so respond based on their one-dimensional/subjective view of how the individual being assessed had helped them achieve THEIR goals. This system became equally redundant and demotivating when colleagues used it as a chance to assassinate an individual - who then had no way of responding back to comments, creating ill-feeling. So it still requires a process and feedback mechanism and a link back to goals and a "line manager" input.
Why ditching performance reviws is a stupid idea:
Annual appraisals do have a place, however I have found that they are often used incorrectly especially if you are led by an authoritarian person who does not take kindly to knowledgeable, open minded individuals.
Some use it as a means of getting back at employees knowing that there is such a long and tedious process of resolving the nonsensical / inaccurate assessments they make of others based on their personal insecurities and lack of the world view.
I am all for stop, start and continue type of discussions and these should also include some substantiation because it is all very well for you telling others to stop /start / continue but if they are not told why then this exercise will be as redundant as the traditional non-productive performance reviews many a companies still hold on to.
As is often the case, it's not the concept of annual reviews that's bad - just the application of them !
Nice article, I wouldn't completely agree that we must get rid of the Annual Performance Appraisal System. I completely agree that the way it is currently done is most organizations is counter-productive and does more harm than good.
I believe we still need a tool or a process to measure employees performance, give them timely constructive feedback, make the process is transparent and record this data for future use. How we do this depends from organization to organization.
Thanks for sharing the article. However, I think it completely misses the point. It says that you need the annual performance review to decide on compensation (there are many other ways to do that) and it says "...unless employees are provided with feedback, they will have no idea of how to get better." Of course, but nobody ever said that we should ditch feedback. The point here is that there are better and much more effective ways to deal with feedback.
Earlier this year, I wrote about VkusVill, the Russian supermarket chain that is reinventing the retail industry. The Russian pioneer proves that you can rapidly scale a profitable chain of retail shops by letting frontline employees make all the important decisions. They do this with impressive results; the company is not only growing rapidly (CAGR 40%), it also manages to keep bureaucracy and hierarchy to a minimum, as upper management accounts for less than 10% of the total payroll.
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