One bad move and they give your job to somebody else.

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The Age of the Never-Ending Performance Review

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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The annual performance review seems to be on its way out at U.S. corporations. Prominent companies have been ending the practice of numerically ranking employees as well.

Sounds great! Performance reviews are a pain, right?

If you think getting rid of them might betoken a kinder, gentler, mellower approach to human resources, though, you might want to check out Lauren Weber’s story in Monday’s Wall Street Journal about household-products maker Kimberly-Clark:

One of the company’s goals now is “managing out dead wood,” aided by performance-management software that helps track and evaluate salaried workers’ progress and quickly expose laggards. Turnover is now about twice as high it was a decade ago, with approximately 10% of U.S. employees leaving annually, voluntarily or not, the company said.

The performance-management software that Kimberly-Clark uses is from Workday, the cloud-based HR-software company started by a couple of top PeopleSoft executives in 2005 after the latter was acquired in a hostile takeover by Oracle. Oracle and fellow software giant SAP are also big players in this space, and there are lots of upstarts that aim to make the process less clunky and, well, HR-y.

Andreessen Horowitz-backed Reflektive, for example, offers an evaluation platform developed by former Disney Interactive game designers. Bloomberg’s Rebecca Greenfield described last year how it was being put to use at grocery-delivery startup Instacart:

Instacart uses a "real-time feedback" tool called Reflektive, which lets anyone working at the San Francisco startup leave real-time messages about any colleague's accomplishments. Feedback can be entered into a discrete website or proffered on the fly using a special e-mail plug-in. "It's very of the moment," said Shelby Wolpa, who is Instacart's human resource director. "Things that happened yesterday, as opposed to a traditional performance review, where you're assessing a year's worth of work and the manager can't remember what you did two weeks ago."

That actually makes … sense. Among the complaints about periodic performance reviews are that they’re often perfunctory and almost always backward-looking. Real-time feedback is more likely to be substantive, and some organizations are taking steps to make it more future-oriented, too. At consulting and accounting firm Deloitte, Marcus Buckingham and Ashley Goodall wrote in the Harvard Business Review last year, team leaders are asked a set of forward-looking questions at the end of every project (or every quarter for continuing projects):

In effect, we are asking our team leaders what they would do with each team member rather than what they think of that individual.

That makes sense, too! These are moves that seem aimed at actually helping employees perform better, rather than just checking off some compliance boxes.

There’s also a pretty good chance that these new performance-management practices will have the desired effect, at some companies at least. For the past decade, Stanford economist Nicholas Bloom and a rotating crew of co-authors (most consistently MIT’s John van Reenen) have been documenting that the management best practices developed at high-performing companies and consulting firms and taught at business schools really do make companies more productive and profitable -- and that HR practices that effectively identify and reward the most-productive workers are a big part of what separates successful companies from the rest.

So what’s not to like? Well, the sheer relentlessness of it does seem a little daunting. As the headline to the Rebecca Greenfield piece that I cite above menacingly put it, “What's After Annual Performance Reviews? Never-Ending Performance Reviews.” In theory, frequent substantive feedback ought to be less fraught and more helpful than annual reviews and ratings. But coupled with other tools that enable employers to keep an ever-closer watch on how workers spend every second of their days, it’s easy to see how some workplaces could turn pretty dystopian pretty quickly.

Of course, companies that turn themselves into unpleasant places to work will presumably drive away the best workers. But let’s say large swaths of corporate America really do get much better at both measuring performance and finding, keeping and promoting the most valuable employees. Maybe it’s because I’m still under the influence of Michael Young’s “The Rise of the Meritocracy,” the classic 1958 satire that I read and wrote about last month, but that feels like it could have its dystopian side, too. The very best companies will hire the very best people and pay them the most money, and everybody else will be left by the wayside.

Whaddya know: This is already happening. As HBR’s Walter Frick wrote in May:

The best-performing companies seem to be pulling away from the rest, according to a growing body of research, and that fact explains a large part of the growth in inequality between individuals. The result, at least in developed nations, is a highly unequal corporate landscape, where some firms are incredibly productive and the amount of money a person makes is tied to the company they work for, not just the job that they do.

That is both a fascinating and a worrying phenomenon -- and maybe it’s only just getting started.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
Stacey Shick at sshick@bloomberg.net