Performance review

The formal performance appraisal as a workplace practice traces to World War I, when the U.S. military created a merit rating system to identify soldiers who should be promoted, transferred, or discharged based on their performance.¹ The idea migrated to corporate America after the war. By the 1940s, roughly 60 percent of U.S. employers had adopted some form of appraisal system to evaluate workers.²

In 1950, the U.S. Congress passed the Performance Rating Act, requiring the federal government to create formal appraisal systems for its employees. The Act established a three-tier rating scale of "outstanding, satisfactory, and unsatisfactory."³ By the 1960s, nearly 90 percent of American companies used some form of annual review.⁴

90%, Of American companies using annual performance reviews by the 1960s

The system drew persistent criticism. A 2015 analysis found that Deloitte was spending 1.8 million hours annually on performance reviews across the firm. Adobe calculated that its 2,000 managers collectively invested 80,000 hours per year in the process.⁵

Kelly Services became one of the first large companies to abandon annual reviews in 2011, followed by Adobe in 2012 and Deloitte and PwC by 2016.⁶ A 2022 survey by the consulting firm WTW found that only 26 percent of global employers considered their performance review strategy effective. The practice that originated as a military sorting mechanism remains one of the most widely used and widely disliked features of corporate employment.

Timeline

• 1910s, The U.S. military created merit ratings during World War I to evaluate soldiers.
• 1950, Congress passed the Performance Rating Act, requiring formal appraisal systems for federal employees.
• 1960s, Nearly 90 percent of American companies used some form of annual performance review.
• 2016, Deloitte and PwC replaced traditional annual reviews with more frequent feedback models.

Endnotes

1. Peter Cappelli and Anna Tavis, "The Performance Management Revolution," Harvard Business Review, October 2016.
2. Cappelli and Tavis, "The Performance Management Revolution."
3. U.S. Office of Personnel Management, "Performance Rating Act of 1950," opm.gov.
4. Cappelli and Tavis, "The Performance Management Revolution."
5. Marcus Buckingham and Ashley Goodall, "Reinventing Performance Management," Harvard Business Review, April 2015.
6. "HR 101: The History of Performance Reviews," HR Brew, April 12, 2024.