Why You Might Want to Say Goodbye to the Annual Performance Review

For decades, the annual performance review has induced both hope and dread from employees and managers alike—yet some business leaders are questioning whether this traditional evaluation tool still works.

In a two-part case study, Harvard Business School Professor Katherine Coffman explores a software company’s more agile alternative to the yearly gauntlet, aimed at providing frequent direction to employees to support their career growth while also helping businesses better retain talent.

“When a review is something that only happens once a year, it can feel very consequential and anxiety-inducing, but if it’s happening on a more regular basis, it makes the stakes for any one of these conversations feel a bit lower,” Coffman says.

Plus, many managers make the mistake of doing backward-looking assessments of an employee’s work during the previous year and fail to initiate forward-looking discussions about career advancement opportunities. What they should do instead, Coffman says, is clearly outline potential paths to promotions and provide advice for how to get there, since doing so can help to prevent employees from fleeing organizations in search of higher-level positions elsewhere.

The research comes as turnover has become a growing challenge for companies in the United States, with more employees seeking advancement by moving to new organizations rather than climbing the internal ladder. Over the last decade, the annual quit rate—a key indicator of voluntary turnover—has steadily increased, peaking during the “Great Resignation” period of 2021 to 2022.

Although quit rates moderated in 2023 and 2024, they remain higher than pre-pandemic levels, the US Bureau of Labor Statistics reports. The tech sector has struggled with one of the highest employee turnover rates—about 13 percent in 2017, with the average job tenure at the 10 biggest tech companies lasting less than two years, as competitors regularly woo employees with higher salaries and better roles, the researchers say.

“When people feel stuck in an organization and don’t know how to get to where they want to go, that’s a recipe for losing people,” Coffman says.

In the cases Making Progress at Progress Software (A) and (B), Coffman and her coauthors explore how the software maker took stock of its talent management processes and overhauled its performance evaluation and promotion approaches—with the goal of benefitting both the company and its employees. Coffman, the Piramal Associate Professor of Business Administration, cowrote the cases with Hannah Riley Bowles, the Roy E. Larsen Senior Lecturer in Public Policy and Management at Harvard Kennedy School, and Alexis Lefort, a case researcher at HBS.

The power of career conversations

Performance reviews started in the US military during World War I, and companies adopted the concept by the mid-20th century. Beginning in the 1970s, the review became standardized as an annual evaluation that determined raises and promotions. As employees became more mobile among businesses and skills less quantifiable, companies led by began pursuing more agile review processes in the mid-2010s, setting up organic check-ins throughout the year, tying performance to specific projects, and setting near-term goals.

, which has grown over the years by acquiring more than a dozen companies around the world, adopted a similar approach in 2015, partly as a way to build belonging among new employees coming from across the globe.

“You’ve got a lot of different possible career paths in an organization like Progress—on the technical side, on the business side, on the management side. And the folks you are developing bring a wide range of experiences and expertise, operating in offices across different continents. The challenge is how you can help everyone, particularly new joiners, to quickly get familiar with the organization and understand how they can succeed,” Coffman says.

The company’s program, called Amplify, encouraged (but didn’t require) a quarterly dialogue between managers and employees. Managers would fill in brief questionnaires called “snapshots” to identify performance issues, address retention concerns, and discuss an employee’s career development. Workers would fill out their own questionnaires, called “pulse checks,” to state whether they were discussing advancement opportunities with their managers and whether they felt they had what they needed to succeed.

At the same time, the company created a leveling structure to explain the different tiers of roles and help employees understand how to advance, as well as a promotion committee that could more accurately track people’s progress. Unlike old-school performance reviews, in which managers give feedback and employees wait to see whether they get raises or promotions, the new system encouraged feedback in both directions, with employees and managers charting a path together.

“It’s really about thinking about creating value for the future—saying to employees, how can we have you do your best work in a way that’s going to be valuable for both of us?” Coffman says. “You need the frequency and quality of conversation so that both employees and their managers can understand what career path they want to pursue. What types of assignments, tasks, and exposure will the employee need to advance along that path?”

A key goal of the new system is to provide growth opportunities to a more diverse group of employees, including promoting more women into technical and managerial roles, since women were under-represented in both the executive team and most technical tracks.

Coffman’s coauthor, Bowles, began working with the company as a consultant early in the process to help set up the system, along with Kathleen McGinn, Baker Foundation Professor and Cahners-Rabb Professor of Business Administration, Emerita, at HBS.

Learning from the Progress experience

The Harvard researchers found that Progress Software improved employee retention and job satisfaction rates among those who participated in the program.

Before adopting a more agile evaluation approach, talent leaders should ask themselves:

How can we define success more broadly?

Progress identified alternative career paths for some employees, for example, by giving promotions to those in technical roles who were not interested in becoming managers, potentially retaining them by providing satisfying new roles. “It was a real shift to recognize that they could continue to excel in more technical roles without stepping in to manage others,” Coffman says. “It was giving people permission to think creatively about what success looked like for them, as well as the tools to help them get there.”

How will we encourage participation?

Because the quarterly check-ins were not mandatory, the company found a wide disparity in how often managers and employees followed through on them. Even though snapshots were designed to be quick, over half were abandoned. Without a strong norm that these career conversations are not only appropriate but also expected, some employees may shy away from starting these important dialogues, Coffman says.

How can we ensure equity?

Despite its efforts, Progress continued to struggle with boosting gender representation. Coffman attributes that, in part, to the fact that men are more plugged into social networks that can more easily convey information. The company has also experienced disparities by geography, with those in offices farther than the core headquarters in the US having more difficulty advancing.

Encouraging greater adoption of the quarterly meetings between managers and employees can be one way to make sure information is shared more equally, Coffman says. Another important practice is ensuring that promotion committees reflect the diversity the organization is hoping to see.

“We all are prone to in-group bias, drawn to individuals who remind us of ourselves. Without diversity among the decision-makers, that in-group bias can perpetuate under-representation,” she says. “Diversifying review panels and establishing objective criteria can help.”

Ultimately, Coffman says, providing employees with clear-cut feedback and information so they can reach for future roles can only help people thrive and better contribute to the organization’s success. “Ambiguity can be our enemy,” she says. “When information is hard to access or is unclear, you run the risk that your employees end up confused, frustrated, or de-motivated, potentially costing you talent.”

Image by HBSWK with assets from AdobeStock.