The annual employee performance review is as ingrained in corporate culture as coffee breaks and weekly department meetings. But some observers see a big difference between job appraisals and those other corporate mainstays: the latter actually have some value.

A radical viewpoint? Perhaps. But when all is said and done, there’s little in the way of academic research that proves traditional performance appraisals do what they’re intended to do, says Ron Baker, the founder of the VeraSage Institute, a think tank devoted to educating business professionals (www.verasage.com). Yet studies show that 97 percent of American companies and organizations still use them as an evaluation tool that determines important things such as pay raises, career paths and promotions.

“Performance reviews are nothing more than a paper-shuffling ritual,” Baker asserts. “They’re about as effective as baking cookies and using a smoke alarm as a timer … they’re just a conversation about past history.”

To back up his assessment, Baker points to a thought-provoking book, Abolishing Performance Appraisals: Why They Backfire and What to Do Instead, by Tom Coens and Mary Jenkins. The authors scoured 50 years’ worth of academic studies of performance appraisals and found little compelling empirical evidence that they actually improve employee performance, Baker notes.

A major flaw is the structure of annual reviews. Initially designed by clinical and abnormal psychologists, reviews subsequently focus on employees’ weaknesses.

“Any National Football League coach knows that in order to succeed, you must play to peoples’ strengths,” Baker points out. “But performance reviews by design focus on weakness, which is why they’re so humiliating and inhumane. Organizations stick with them because their human resources departments are like the KGB – they like to have dossiers on people. That gives them control and power.”

Moreover, there’s little truth to the theory that performance reviews protect organizations against legal action from fired employees. Author Coens, who’s a labor lawyer, says appraisals offer no protection in court, Baker adds.

“In fact, an annual performance appraisal often can hang companies – hoist them on their own petards,” he says. “They actually offer minimal protection. I’m not against documenting the performance of underperforming employees for termination, but you don’t have to go through this annual agony because you’re going to fire a very small percentage of your employees every year.”

So what should companies use to replace annual reviews? Baker suggests three different processes: key predictive indicators, a manager’s letter or after-action reviews. Here is a brief run-down of each technique:

• Using key predictive indicators to evaluate employees is more effective because it relies on a manager’s judgment as opposed to rating employees’ performance on, say, a one-size-fits-all numerical scale (a three for meeting expectations, a four for exceeding expectations, and so forth). This is much more effective in analyzing the performance of so-called knowledge workers, Baker says.

“The big difference between knowledge workers and others is that knowledge workers own the means of production in their heads – people such as lawyers, accountants and architects,” he explains. “The World Bank estimates that in the developed world, 80 percent of wealth resides in human capital – the stuff between our ears, not in oil under the ground or natural resources or real estate. It’s all about mind power and a lot of organizations haven’t come to grips with that.”

With knowledge workers, effectiveness is much more important than efficiency (how many rivets a worker can produce per hour, for instance). As such, knowledge workers’ performance should be defined by a new paradigm that looks at things that predict their future performance – key factors that are relevant and pertinent to their jobs and the organization’s strategic goals.

Examples could include feedback from customers; interpersonal skills; ability to listen and communicate; how well they get ideas across, delegate work, persuade others and deal with change; their willingness to take risks and innovate; and so forth.

“All of these skills are really critical in today’s work environment,” Baker notes. “But most can’t be measured. It’s a judgment. And having managers make judgments scares organizations.

“The best analogy is that these factors determine which employees have the best bedside manners,” he adds. “That runs counter to HR people, who would rather be precisely wrong [using traditional review techniques] than approximately right.”

• The manager’s letter is a concept developed by renowned management guru Peter Drucker. Here’s how it works: A supervisor meets with each of his or her employees twice a year. The first thing the employee does is define the supervisor’s objectives, then his or hers. This includes determining what performance standards might apply, how they can be measured, what must be done to attain them, how the organization helps and hampers the employee from achieving them and what resources are needed (more training, an assistant, etc.).

“Then the boss and the employee both sign it and it becomes a covenant that’s reviewed twice a year and updated,” Baker explains. “Everything is tied to an organization’s strategy. It’s entirely focused on the future, which is why it’s so brilliant.

“Some people think I’m suggesting chaos, but this is hardly chaos,” he adds. “It requires more work and thought than mindlessly filling in a box on a performance appraisal.”

• The after-action review is a concept developed by the United States Army. It’s designed to help organizations and employees learn from mistakes, Baker says.

“In organizations, you sometimes don’t know the guy down the hall is about to do what you’re doing, so there’s a lot of reinventing the wheel,” Baker says. “Obtaining that tacit, sticky knowledge is where you really learn. The Army figured out that when a platoon goes out to build a bridge, they learn all kinds of things that aren’t in the bridge-building manual.”

When a project like building the aforementioned bridge is completed, everyone up and down the ranks does an after-action review that focuses on just four questions:

1. What was expected – what were the objectives?
2. What actually happened? (This is what the Army calls the “ground truth,” Baker notes.)
3. Why was there a gap between the two? And what are the positives and negatives about that gap?
4. How can we do better next time?

“The after-action review is a great tool because it’s not a blame game,” Baker explains. “In fact, it’s a learning tool, so everyone in on it, from privates to colonels, goes over how it can be improved. Then, when the next platoon builds a bridge, they’ll know the tricks of the trade.”

Baker warns that anyone interested in changing how an organization does performance reviews is likely in for resistance, noting that human resource departments typically are not catalysts for change. But by championing the issue and effecting change, you just might make annual performance appraisals worthwhile – or at the very least, more valuable than coffee breaks and weekly department meetings.