There are few corporate rituals more dreaded than the annual performance review—an experience that Jacob Palmer, a recruiter at online retailer Zappos.com, describes as “physical and mental” turmoil. “I don't think people realize that when you're about to go into one these review sessions, the heart rate goes up, the palms get sweaty, it's a physical reaction,” he says. Worse, he would walk away knowing what he did wrong but not how to improve. He wondered if there was a better way. Luckily for Palmer, a team of Zappos managers had been working on a solution—dumping the traditional performance review for a new approach based more on self-improvement. Last August, the company announced that employees would no longer be rated on how well they accomplish tasks, such as meeting deadlines or being punctual. Instead, success would be determined by how well employees embody Zappos' 10 core values, such as delivering “Wow” service or showing humility. The change makes sense for a company famous for its distinctive corporate culture. “We hire on our culture so why weren't we doing that from the beginning?” Palmer says. “We live and breathe the core values. Employees are more in tune with the process now. There are no surprises. Before, it was like, ‘Whoa, I didn't know you really think that about me.' ” Beyond the angst It's no corporate secret that managers hate giving performance reviews almost as much as employees hate getting them—prompting at least one expert to propose getting rid of them altogether. A new survey shows just how dissatisfied employees are with the performance review process. More than half (51 percent) of 631 respondents believe reviews don't provide accurate appraisals of their work, and nearly one-fourth dread them, according to the 2011 Globoforce Workforce Mood Tracker, a new semiannual online survey conducted by Globoforce, a business software developer with headquarters in Southborough, Massachusetts, and Dublin, Ireland. Such angst may become a thing of the past, however. Performance appraisals are evolving as employers seek better ways to evaluate and motivate workers. Sitting down with a manager once a year for a perfunctory review isn't enough for career-minded workers anymore. “Feedback needs to happen more than once or twice a year,” says Rebecca Henry, director of human resources at Zappos. “We thought that the traditional annual review was a crutch for managers to do just that and no more.” In order to facilitate continual feedback, the company also directed managers to provide employees with regular task-oriented status reports, such as the percentage of time spent on the telephone with customers. The manager decides how frequently to distribute the updates, which Henry says are informational only. Zappos' employees are no longer scored on a traditional 1 to 5 scale ranging from unsatisfactory to exceptional. Under the new values-based system, managers document how many times they notice an employee exhibiting certain behaviors, such as expressing their personality or acting humble. Henry says while the behaviors are open to interpretation, managers must cite specific examples of how an employee displays them. There are 22 questions on various behaviors on the evaluation form, each with an optimum score of 10. “We try not to script out what those things look like because they differ by person,” Henry explains. For example, she says that someone in her department who actively participates in discussions and isn't afraid to offer opinions would probably rate high on the personality measure. “This is a tool to help employees understand how they are being perceived,” Henry says. “It's saying, ‘We know you have personality—you wouldn't be here if you didn't—but here are some missed opportunities to express it.' ” Or in the case of humility, she says “it's not a judgment of how humble they are, but how humble they appear to others. It's like a mirror and employees can use the information as they see fit.” The assessments aren't used for disciplinary actions or promotions, she says, but if someone scores low on “be passionate and determined,” for example, they can take a free on-site class to improve. Zappos offers a course on each of its core values. The search for innovative ways to provide more meaningful feedback and improve performance is being driven both by technology and by the growing number of millennials entering the workforce—many of whom relish immediate and frequent feedback. “Over the past five to six years, I have found that the definition and expectations of reviews” have been shifting, says Sussane Bond, director of professional services for Halogen Software Inc., which is based in Ottawa, Canada. “It's no longer a sit-down once a year. Performance reviews mean timely feedback face to face with employees.” Companies such as Halogen, Rypple and SuccessFactors Inc., all developers of performance management software, are helping employers automate and streamline HR functions such as performance reviews as well as compensation, recruitment and training. Their focus is on helping managers do their jobs more efficiently, giving them more time to assist employees in developing their careers. What's more, these applications allow managers to collect and track data, giving them the tools to link individual and company performance. “A Word document writeup was not allowing employers to see the results across the company,” says Jeff Diana, chief people officer at SuccessFactors, based in San Mateo, California. “It's hard to look at a piece of paper without the analytics to explain what you're seeing. The real change in performance management is that we can now link these things in a transparent way. Employees want transparency. They want to know they've been treated fairly. They want to understand how their performance impacts results.” Especially the vocal and sometimes impatient millennial generation. In fact, Rypple had the younger set in mind when it designed its performance management platform, which resembles a Facebook page. Employees and managers can send each other colorful icons called “badges” to recognize a job well done. The badges feature images and slogans like “you rock” or “kicking butt.” The system not only provides ongoing manager feedback, but also allows employees to receive anonymous appraisals from peers. “We live in a real-time world,” says Daniel Debow, co-CEO and co-founder of the Toronto-based company, “so it's crazy to think people wouldn't want real-time feedback.” While Rypple was designed with an eye toward social media-savvy millennials, Debow says the company's products appeal to older generations, too. “We've heard that, to a boomer, feedback feels like judgment, while a younger person sees it as an opportunity to learn,” he adds. “We thought it was all demographic, but it's really psychographic. It's not just young people. It's the high performers who seek feedback, regardless of their age.” Kathy Anthony, 55, a partner with O'Sullivan Creel, a Pensacola, Florida-based accounting firm, concurs. O'Sullivan Creel adopted eAppraisal, Halogen's Web-based performance review system that enables instant feedback and helps employees and managers create professional development plans. “You would think a boomer wouldn't embrace this as much as younger people, but everyone loves it,” she says. “Before we had an automated process there wasn't any consistency. There wasn't even a direct link to our firm's goals. We had employees writing goals who didn't know where they were supposed to be headed. This system has helped us tremendously.” But before a company starts investing in the latest technology, some experts caution that an appraisal system—no matter how sophisticated—is only as good as the process and the manager using it. “The heart of performance management lies with that manager,” says Lori Holsinger, a principal at Mercer, a New York-based consulting firm. “If you look at what drives overall performance management systems, it's leadership at the top and the ability to differentiate performance. But few companies have confidence that their managers are doing it well.” According to a 2008 Mercer survey of 350 major U.S. companies, nearly one-fourth of respondents said their managers are “marginally skilled” at doing performance evaluations, and only 12 percent rated their managers as “highly skilled.” When asked how their managers fared in “having candid dialogue with their direct reports about their performance,” 38 percent of the respondents deemed them “marginally skilled” and only 2 percent found them to be “highly skilled.” Because of such responses, Mercer consultants encourage employers to examine and redesign their performance appraisal process before considering a technology-based solution, Holsinger says. “This may sound crass, but if you put junk in, you get junk out.” It's also critical for employers to provide managers with the training they need to give meaningful feedback. Such training is mandatory at Lubrizol Corp. a chemical manufacturer that recently launched a two-day training course to help supervisors become better coaches. “We talk about how do you question and help people reframe things, how do you give feedback, who do people need help from, and how can they hold themselves accountable,” says Dean Noble, director of talent planning, development and systems at the Wickliffe, Ohio-based company. The company's goal, he adds, is to become “the best developer of people in the business.” Scrap 'em? Indeed, strong leadership is critical to managing performance, according to HR consultant Dan Walker, former chief talent officer at Apple Inc. “Great leaders talk to their people all the time,” he says. Filling out a performance appraisal form once a year “doesn't make someone a good manager.” That's why Walker believes companies should go even further and scrap traditional annual reviews. Like Zappos, Apple did away with reviews in 2000 after Walker persuaded leaders that the evaluations were unnecessary. “No one could convince me that there was any value to it,” he says. “You've got to be able to explain the process to a 10-year-old. You want to talk to me once a year about what I did for the whole year? What if I told my kids that I was going to give them a once-a-year discussion on their behavior? Sometimes we do stupid things.” Apple left it up to managers to assess performance anyway they saw fit, or not at all, Walker says. “I believe in performance management when you can measure it, like if you're in a call center or work in sales. If it's something you can measure, like how much someone sells, great. If not, performance reviews are a total waste of time.” Samuel Culbert, a professor at the Anderson School of Management at the University of California at Los Angeles, agrees. Reviews are a source of torment and not in the best interests of employees or companies, he says. They cause “people to knuckle under and make it a personality contest and not an accomplishment.” Culbert, author of Get Rid of the Performance Review: How Companies Can Stop Intimidating, Start Managing—and Focus on What Really Matters, advocates what he calls “performance previews.” Previews are designed to provide feedback before a problem develops, unlike reviews, which he describes as a “stockpiling of bad results.” Previews require employees and managers to set goals together and hold supervisors accountable for the success of their workforce. “Why are managers so terrified of having to stand as a partner with employees and losing the power they get from intimidating others?” Culbert says. “You'd think managers would want to hear what employees have to say and do everything in their power to make it possible to hear it—if only to set it straight, if only to get rid of erroneous thinking. It's managers that cause this problem, not employees.” When Paul Colichman, a former student of Culbert's and CEO of Here Media Inc., acquired the gay magazines Advocate and Out in 2008, he adopted the preview model to help him create a more collaborative and less hierarchical culture. Instead of a traditional score card review, managers and employees meet twice a year to discuss goals and ways to meet them. For example, one employee's goal was “staying committed to good attendance” by making sure her “desk will be covered at 9:00 every day.” “A punitive system helps no one,” Colichman says. “Instead of talking with someone about an incident after it happened, we do semiannual ‘previews' to catch situations before they happen. Our corporate culture is much better because people feel more empowered.” Yet, most companies still opt for the highly judgmental approach of a manager sitting across the table telling an employee what he or she did wrong, says Jeffrey Pfeffer, professor of organizational behavior at Stanford University's Graduate School of Business. “It's true that younger generations have different expectations, but I don't think companies have responded.” He says he still reads surveys about the “abominable levels of employee engagement and dissatisfaction. Some things have changed but companies haven't.” The reason, Pfeffer says, is because “fundamentally organizations are more interested in control than improvement. You give most senior managers a choice between control over their employees and improvement of performance and they will choose control.” A controlling boss who does a poor job of providing feedback can drive away good employees, even from good companies, he says, citing the HR axiom that “People don't quit companies; they quit managers.” For proof, look no further than Denise Tucker, a former training supervisor who fled a job she loved because of a capricious boss and what, in her opinion, was a mishandled performance review. She was a top performer with a bright future at a North Carolina educational supply company—until she got a new manager. He wasn't as collegial as his predecessor, but even so, she wasn't worried when it came time for her performance review. She had always received glowing feedback. At first glance, everything looked fine—most of her scores exceeded expectations. But her final rating was below expectations. “I was stunned,” she recalls. She says she asked her boss to explain and “he gave me a smug look and said that he was hard on performance evaluations and that I shouldn't take it personally.” She refused to sign the review. “It was his turn to be stunned,” she says. “He stammered, ‘But you have to. I've never had anyone refuse to sign their review.' I said that I'd be his first.” She quit six months later. That was four years ago, but she still remembers the experience vividly. “I still miss” the job, says Tucker, who is now a freelance writer. “But I don't miss corporate America.” Or the performance review process. “I haven't had one since,” she says, “and I hope I never do.” Workforce Management, May 2011, pgs. 20-22, 24-25 -- Subscribe Now!