Why it could be time for companies to stop end-of-year performance reviews

Many companies have abandoned traditional year-end performance reviews in favor of more frequent, less formal check-ins, and while there is not much data on how this technique has affected performance, a new study found that it has a very positive effect on employee engagement, according to strategy + business.

A research group at the New York City-based NeuroLeadership Institute studied 27 companies that have gotten rid of their formal ratings and were between two and five years into the new performance management framework. Twenty-two of those firms tracked employee engagement in that time, and all those firms found their rates of employee engagement had increased after they implemented the less formal system.

An important step in making this framework effective is creating a regular template to follow for the informal conversations. Just because they aren't formal reviews  doesn't mean there shouldn't be structure. Leaders should make sure to not only discuss past performance but also focus on the future and establish goals to check in on during the next meeting.

This informal system does not just improve employee engagement, it also helps employees move from a fixed mindset to a growth mindset. Giving workers a numbered performance rating encourages them to feel static in that ranking, but conversations about the future foster a growth mindset that keeps employees thriving.

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