The anxiety-inducing annual performance review, so dreaded by managers and employees alike, is still the feedback process of choice at the majority of companies. But why? An increasing number of employers say the traditional review — with its emphasis on past performance — isn't relevant in today's fast-paced, forward-thinking business environment. Others, however, say that with so many changes, it's still beneficial to set an anchor that looks at performance over a 12-month period.

Ye olde performance review

The road to performance reviews was reportedly first paved during the industrial age, introduced as a way to provide feedback.

As the annual reviews evolved, they incorporated employee ranking systems and pay decisions. Typically executed at the end of the year, they assessed how well employees accomplished the goals that were set the year prior. This is the model still used by many companies today, although some have added a smaller mid-term review. Despite its longevity, many employers and managers agree that the annual performance review isn't effective in its current form.

The list of complaints about it are lengthy. Managers already short on time must devote hours to reading the reports summarizing a whole year's performance for each employee they oversee. An Adobe study said managers spend an average of 17 hours per employee prepping for performance exams.

And the yearly assessment, by nature, looks back on past performance instead of focusing on future goals or opportunities. Sometimes, this means that feedback comes too late to allow for course correction. Additionally, in today's increasingly dynamic business world, performance goals can change quarterly or more often. An annual performance review won't reflect these changes.

Finally, employees who haven't had periodic performance conversations can be stunned by negative feedback, which can create quite a mess of problems.

Between the dissatisfaction traditional performance reviews generate, the overwhelming need for employee engagement, a generation's demand for more frequent feedback and a new mandate for team agility, the traditional performance review seems ready for a makeover.

Not your mother's performance review

The last three to five years has seen a definite shift in the performance review, according to Hawley Kane, head of organizational talent and leadership development at Saba Software. "Many companies will still do an annual review, but what they're understanding now is that it's not good enough. It needs to be more frequent," she told HR Dive. "One-and-done is not meeting their needs."

As organizations change, managers want to ensure employees are on the right track so conversations about performance need to be held frequently, she said. Employees also want these conversations more than once a year. "Employees want to know they're driving in the right direction, that what they're doing matters, and that it's connected to the organization," she said. Kane noted that having those conversations on a weekly or biweekly basis will provide that needed cadence.

While many businesses still do annual appraisals, that number has dropped and continues to do so, Scott Conklin, vice president of human resources for Paycor told HR Dive. Citing Paycor as an example of an organization that has changed its process, Conklin said the company moved from an annual review to a quarterly review two years ago. While the initial thought was that the increased feedback and communication would address the needs of millennial employees, Conklin said that everyone benefited.

"We moved away from saying we're doing this for millennials. We're doing this for associates," he said. "At the end of the day, how the company performs and how we retain and move our talent through the system helps with retention." That gives engagement a boost, too, he added.

As companies consider revamping their performance appraisal methods — even to the extent of eliminating the entire process (as 12% of U.S. companies were estimated to have done in 2014) — some still see the relevance of an annual review.

Benefits of a yearly anchor

Still, there's an argument to be made for some kind of yearly check-in. Communications firm Infinite Global revisited its performance review process, examined case studies, did research and decided that an annual review, with an intermediate mid-year review, was the right plan for its workforce.

"There's a case still for annual performance reviews," Sophie Cikovsky, associate vice president there, told HR Dive. The performance review process is something the company is committed to doing well, she said. "Reviews can have pretty significant implications for people’s time and success at our company."

While many companies reject the annual review because of the speed at which business can change, Cikovsky said that's exactly why an annual review is beneficial. A solid annual review gives a needed foundation and a sense of permanence, she said. "If you're only looking back on the last conversation, you have less sense of what you've accomplished and [...] it's hard to say 'what do I still want to accomplish.'" Cikovsky added, however, that ongoing conversations between the manager and employee should still take place outside of reviews.

Creating an ideal performance process

Regardless of the frequency of an employer's review process, the HR experts seem to agree that communication between a manager and an employee can't and shouldn't wait until a specific date. Manager-employee communication should occur regularly and perpetually, covering not only the specifics of a project, but also the employee’s development, Kane said.

In addition to frequent informal conversations, the experts said that an effective performance feedback system should:

• build forward-focused goals;
• allow for changes in goals;
• develop and incorporate conversations about the employee's continued growth, interests and opportunities;
• expect both employees and managers to come to the meeting prepared for an interactive discussion;
• address potential problems quickly to allow for course correction;
• forge a relationship between the manager and the employee through conversations that tie work to overall purpose;
• create an awareness that the system facilitating the review (whether paper, software, etc.) provides a focus, but the conversations provide the change;
• ensure managers are coached on what ongoing conversations should look like, and emphasis is given not just to the frequency but the quality of the conversations.

If your annual performance review process doesn't yield the improved performance you need, a new approach may be just what your workforce needs. But, in the end, Cikovsky said, each company has to determine what process fits its own individual needs: "My approach is that it has to be right for our HR and our business."