At the 2015 Annual NeuroLeadership Summit, when audience members were asked whose companies had given up ratings, a few raised their hands. When asked, “Who wishes you could get rid of appraisals?” a lot more hands shot up.

Managers and employees alike may dislike ratings, but companies aren’t always sure how to get by without them—and are often even less sure how to build a system that replaces them. Organizations increasingly recognize the demoralizing effects on engagement after annual ratings—effects that can last up to six months. Even the performance of  top-ranking employees dips in the period immediately following yearly appraisals. 

Beth Jones, Lead Consultant and Head of the NeuroLeadership Institute’s Performance Management Practice, described the experience of 33 companies that NLI interviewed in-depth over the past year about their experience in getting rid of ratings.

She reported that these companies are busting myths. Companies that are still considering dropping ratings often worry that, without formal appraisals, they’ll be unable to identify top performers or manage low performance, and that compensation decisions will become complicated.

In fact, said Jones, structures for assessment, feedback, development, and compensation don’t disappear. Every company that had abandoned ratings that NLI interviewed has found ways to identify top performers and manage low performance, and both pay differentiation and pay-for-performance are alive and well. What changed dramatically is the focus of performance conversations (from assessment, to goals, growth and development) and the frequency of performance dialogues (from once yearly, to constant and ongoing, as needed—with as much as 68% of companies recommending quarterly conversations or more.

Panelist Dr. Anika Gakovic, a leadership and organizational effectiveness expert, was clear about why it might be time for companies to “kill” performance ratings“Good talent is a competitive differentiator. That’s the business case for change.”

Co-panelist Lisa Dodge of Microsoft summarized, “Top performers were happier when ratings went away.”