The Annual Review Is Dying. Most Companies Are Replacing It With the Wrong Thing.
Only 54% of companies still run annual reviews, down from 82% a decade ago. Tam Koo on why the shift is real — and where most replacements go wrong.
WHITEPAPERS & GUIDES
Tam Koo
8/4/20263 min read
For about fifteen of my twenty-five years in People Operations, I defended the annual review. Not because I loved the process — nobody loves the process — but because I believed the alternative was chaos. No formal cycle, I thought, meant no accountability, no paper trail, no defensible basis for a comp decision when someone challenged it. I was wrong about that, and it took me longer than I'd like to admit to change my mind.
Here's the number that finally moved me: research now shows only about 54% of companies still run a traditional annual review, down from roughly 82% a decade ago. That's not a niche experiment anymore. That's a majority shift, happening across companies a lot more risk-averse than the trendy startups people assume are driving it.
The Case Against the Annual Review Was Never About Feelings
I want to be precise about this, because the annual review didn't die because employees found it unpleasant. Plenty of unpleasant HR processes survive for decades because they're operationally useful. This one is dying because it stopped being useful, and the data backs that up plainly. One widely cited estimate puts the administrative cost of the traditional review cycle at roughly 1.8 million management hours a year for every 10,000 employees — time spent writing, calibrating, and delivering feedback that, by the time it arrives, is describing something that happened nine months ago. And after all that time, only about 14% of employees say the review actually motivates them to improve.
That's the part that should bother any CHRO or CFO looking at the line item. You're not choosing between "structured feedback" and "no feedback." You're choosing between an enormous, slow, expensive process and a leaner one — and the expensive one isn't even doing its job.
Where I've Watched Companies Get the Replacement Wrong
Here's the mistake I've seen most often, including one I made myself around 2015: treating "continuous feedback" as a slogan instead of a system. A company announces it's "ending annual reviews," managers get a memo, and what actually happens is nothing — no annual review, and also no consistent feedback mechanism to replace it. Six months later, employees have less structured input than before, not more, and leadership is confused about why engagement scores didn't move.
Continuous feedback only works if it's actually continuous, which means it has to be built into the operating rhythm, not left to manager discretion. The organizations doing this well have a few things in common:
1. A fixed cadence for developmental check-ins — typically monthly or quarterly, short, and focused on "what's in your way right now," not a formal write-up.
2. A separate, honest process for compensation and documentation. This is the part that gets lost. Most organizations that have moved successfully away from the annual review haven't eliminated a formal cycle entirely — they've split it. Ongoing conversations handle development. A structured, less frequent review still exists to anchor pay decisions and create a documented record. Pretending you don't need the second part is how you end up with comp decisions nobody can explain and a legal team that's furious with you.
3. Manager accountability for actually doing it. A cadence that exists on paper but doesn't happen in practice is worse than the annual review it replaced, because now there's no fallback. If you're going to ask managers to give feedback continuously, you have to actually track whether they are, the same way you'd track any other operational metric that matters.
What I'd Tell Myself in 2015
I spent years assuming the annual review's rigor was the point. What I've come to believe instead is that rigor and frequency aren't the same thing, and I had them confused. A once-a-year conversation, no matter how carefully calibrated, cannot carry the weight of an entire year's worth of performance. It was never going to work as well as we needed it to. The data just took a while to catch up to what most managers already suspected.
If you're planning to retire your annual review cycle, retire it deliberately. Build the cadence before you cancel the ceremony. Otherwise you haven't modernized your performance management — you've just quietly stopped doing it, and your employees will notice the difference before your dashboards do.
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