Annual Evaluations Can No Longer Drive People

Every year-end, countless organizations worldwide repeat the same routine. Managers spend days filling out stacked evaluation forms on their desks, and employees sigh as they receive scorecards compressing a year of performance onto a single page. These scores then serve as the basis for compensation and promotions. Does this familiar routine actually drive people to work harder and lead organizations in a better direction? Many leaders hesitate before this question because they merely operate the system simply because it exists, rarely stopping to seriously consider whether it actually works.

Data answers coldly. According to Gallup surveys, only 2 in 10 employees strongly agree that their performance is managed in a way that motivates them to do outstanding work, and just 14% strongly agree that the performance reviews they receive inspire them to improve. Furthermore, only 29% strongly agree that their performance evaluations are fair, and a mere 26% strongly agree they are accurate. If evaluations are neither fair nor accurate, and fail to develop people, what on earth does the system exist for? What remains are only formal justifications for determining compensation and promotions, and when even that loses trust, the reason for the system's existence inevitably begins to crumble.

The problem is not felt by employees alone. Even those who administer the evaluations are skeptical. In Deloitte's 2025 Global Human Capital Trends survey, 61% of managers and 72% of employees failed to express trust in their organization's performance management processes. In a Gallup survey cited in the same report, a mere 2% of Chief Human Resources Officers felt their performance management systems worked well. In other words, we repeatedly spend massive amounts of time and money every year on a system that even those who design and operate it do not believe works. This survey covered approximately 10,000 business and HR leaders across 93 countries, demonstrating that this is not a phenomenon restricted to a specific industry or region, but a globally shared structural problem.

The cost is by no means small. One Gallup report cited by Deloitte estimated that performance evaluations can cost organizations huge sums annually in lost working hours. A more fundamental problem is that strategies focused solely on activities and outputs trap employees in busywork designed to prove their own value, which actually hinders them from delivering true results. Evaluations for the sake of evaluations and show-for-show work pile up across organizations. The fact that managers spend only 13% of their total time developing people in the Deloitte survey plainly shows that evaluation systems are crowding out the most important work.

Successful Companies Focus on Development, Not Evaluation

So, what sets companies that approach performance management differently apart? The core is simple. They develop performance rather than evaluate it. Instead of looking back once a year to assign scores, they continuously look ahead and coach within daily routines. If evaluation is an act of judging the past, development is an act of designing the future together. This difference in perspective changes every detail of the system.

Adobe is the company that most symbolically demonstrated this shift. In 2012, Adobe made a decision that was radical for its time: it completely abolished annual performance reviews and forced ranking systems. By late 2011, Adobe's business was rapidly shifting toward delivering real-time products, but its methods for evaluating performance and supporting employee growth failed to keep pace. Thus, they made the bold decision to eliminate annual performance evaluations, ratings, rankings, and the associated paperwork. This change originated from the critical awareness of a single executive and was publicly proposed to all employees via the internal intranet. Interestingly, hundreds of comments poured in, with employees showing immediate support and enthusiasm.

Replacing it was what they called "Check-ins." Light, flexible, and transparent, this approach requires minimal structure, involves no tracking or paperwork, and focuses on three areas: quarterly goals and expectations, regular feedback, and career development and growth. Interestingly, the initiative for these conversations lies with the employee, not the manager. Check-in sessions are convened directly by staff members and are separate from compensation. There are no set forms and no fixed agendas. It is designed so that managers and employees can meet at their convenience to talk more frequently about goals and performance. Adobe compared this approach to a pit stop in auto racing. Just as a vehicle is serviced intermittently so it can run at its best, employees resolve issues on the fly and maintain optimal performance.

The results were clear. Managers now hold continuous and candid conversations with team members, employees actively participate in feedback, the company saved approximately 80,000 managerial hours annually during the review process, and the voluntary turnover rate has continued on a downward trend. The figure of 80,000 hours is not abstract. Adobe estimated that annual reviews consumed 80,000 hours of managerial time each year, equivalent to nearly 40 full-time employees working year-round. They did not eliminate evaluations; rather, they reinvested that time into growing people. By simplifying the system, they secured the capacity to focus on more essential tasks.

As Adobe's experiment proved successful, other global companies followed suit. Corporations like Microsoft and Accenture also introduced continuous feedback models better suited to modern work cultures. Indeed, notable organizations including Adobe, Netflix, Microsoft, General Electric, and Eli Lilly have discarded traditional performance review methods—or at least significant portions of them—and begun rethinking their performance management systems. Of course, this transition was not smooth from the start. Managers accustomed to ratings and scores initially struggled with a method evaluated solely through qualitative feedback. Adobe resolved this through manager training, systematically teaching them the skills to have good conversations and deliver meaningful feedback. The lesson here is that changing the system alone is not enough; you must simultaneously develop the capabilities of the people who operate that system.

Three Principles That Make a Difference

Looking into the performance management practices of successful companies, a common set of principles flows beneath surface-level structural differences. Gallup summarizes these into three core principles. First, establish clear and collaborative expectations. Second, coach continuously through frequent, intensive, and forward-looking conversations. Third, maintain an unwavering managerial commitment to a strengths-based, engagement-focused development approach. Let us examine them one by one.

The first is clear and co-created expectations. Good performance is impossible if employees do not even know what they are striving toward. Yet the reality is grim. According to Gallup surveys cited in the Deloitte report, less than half—only 47%—of employees strongly agreed that they know what is expected of them. Successful companies do not hand down goals from above; they set them together with employees. The effect is confirmed by data. While only 3 in 10 employees strongly agree that their manager involves them in goal setting, those who do are four times more likely to be engaged than other employees. Co-creating goals is not merely a procedural step, but a psychological device that makes employees adopt those goals as their own.

The second is frequent and forward-looking coaching. The core is frequency. Employees who receive meaningful feedback from their managers on a daily basis are 3.5 times more likely to be engaged than those who receive feedback once a year or less. This is a stark number showing why cramming a whole year's evaluation into the year-end fails. People do not change based on feedback about behavior from six months or a year ago. Change happens in the conversation of the present moment. The later feedback arrives, the more its utility drops rapidly, and sometimes it becomes the spark for conflict. Conversely, timely feedback prevents major problems through minor corrections.

The third is managerial commitment to strengths-based development. When managers develop employees based on their strengths, employees are more than twice as likely to be engaged. Instead of spending energy pointing out and correcting weaknesses, the focus should be on discovering and cultivating strengths. This is not just a humanistic slogan, but a strategy directly tied to performance. People achieve their highest performance and stay engaged the longest when doing what they do best. Development centered on strengths is the most efficient way to translate that natural drive into organizational performance.

Everything Ultimately Converges on the Manager

All efforts to redesign performance management converge on one decisive variable: the manager. Gallup estimates that managers account for at least 70% of the variance in employee engagement scores across business units. This means that 70% of the reason why some teams are vibrant while others are lethargic within the same system, the same compensation structure, and the same company comes down to the manager. No matter how sophisticated a system is designed, if the managers operating it are not prepared, the system remains an empty shell.

Yet here lies an uncomfortable truth. According to Gallup research, only about 1 in 10 people possesses high talent for managing others. Good managers are rare. That is why organizational-level investment is all the more necessary. As the Deloitte survey shows, 36% of managers feel insufficiently prepared for the people-management aspect of their roles, and many managers spend so much time on routine problems and paperwork that they have almost no time to support their teams. Ultimately, the role of the manager itself must change. A shift is required from simply supervising work to coaching, motivating, and developing people. And this shift cannot happen through individual willpower alone. Organizations must guarantee managers time to coach, train them in the necessary skills, and evaluate and reward the work of growing people.

This is precisely what successful global companies are actually doing. They have redefined managers as coaches rather than evaluators. The very first thing Adobe did when introducing check-ins was manager training. After forced rankings were abolished, Adobe employees were evaluated based on how well they achieved their goals, and managers were trained in the delicate skills of giving and receiving feedback. Because they changed both the system and the people together, the change could be sustained.

The AI Era Puts Performance Management to the Test Once Again

As of 2026, performance management is facing another major inflection point: artificial intelligence. However, data clearly shows that technology adoption alone solves nothing. According to Gallup's 2026 report, only 12% of employees in organizations that adopted AI strongly agreed that AI transformed their work methods. On an individual level, 65% of U.S. workers in organizations adopting AI reported that AI had a positive impact on their productivity, but this effect has failed to translate into overall organizational performance. This gap—where individuals became faster but organizations did not improve correspondingly—is the core challenge performance management must solve in the AI era.

What is the reason? The diagnosis in the Gallup report is sharp. An organization is a system, and if that system is broken—if tools are scattered everywhere, processes are unclear, and communication is inconsistent—AI merely accelerates the chaos. In other words, introducing AI to an organization with a broken basic performance management structure only makes problems grow faster. Good tools deliver their true value only on top of good systems.

And here too, the decisive variable is once again the manager. In Gallup's Q1 2026 U.S. workforce survey, the top two drivers of frequent AI use within organizations were AI integration with existing systems and manager-led AI adoption. Specifically, when managers actively supported their team's use of AI, the proportion of employees using AI frequently soared to 79%, far higher than the 46% when they did not. Yet the reality is that less than a third of U.S. employees in organizations initiating AI adoption strongly agreed that their managers actively supported their team's use of technology. Technology has been introduced, but the role of the manager to weave it into the team's daily routine remains vacant.

Ultimately, the essence of performance management in the AI era remains the same. People, especially managers, are key, not tools. AI can instead become a powerful assistant supporting good performance management. Gallup believes AI tools have the potential to deliver real-time, customized management advice grounded in the best management science. Given the reality that few are born with the talent to manage people, AI can function as a tool that supplements a manager's coaching capabilities. In other words, AI does not replace managers; it yields its greatest value when functioning as an auxiliary device that turns subpar managers into better coaches.

Questions Korean Companies Must Take Away

The performance management of successful global companies differs because the questions they ask are ultimately different. They do not ask how to assign scores more accurately. Instead, they ask how to make our employees grow further, engage deeper, and achieve better performance. When the question changes, the answer changes, and when the answer changes, the system changes.

This is the moment when many executives and leaders in Korean companies need the same questions. Is our performance management meant to evaluate people, or to grow them? Are our managers judges who assign scores, or coaches running alongside them? Are we truly using that massive amount of time spent filling out annual review forms to cultivate people? If we cannot answer these questions with confidence, change has arrived at the exact time it should already begin.

The direction pointed to by data is clear. Co-creating clear expectations, coaching through frequent and forward-looking conversations, and developing people based on their strengths—while placing well-trained managers at the center of it all. The reason performance management differs in successful companies does not lie in flashy systems or cutting-edge tools. It begins with a difference in perspective on human beings. The transition from evaluation to development, from judge to coach. That simple yet fundamental shift in mindset creates the difference in performance. There is no need to change the entire system all at once. You can start with small steps like regular one-on-one conversations in small teams, teaching managers coaching skills, and setting goals together. The important thing is direction. As long as the direction of moving away from ranking people by scores and focusing on growing people remains clear, half the battle of transformation is already won.