When I’ve shared my vision of a world without yearly performance appraisals with colleagues, especially those in HR, they have looked at me like I was from a different planet. In my utopian corporate world, the annual performance review wouldn’t be necessary because everyone would ask for and receive feedback on a daily basis. And, all leaders would have a coach and use coaching skills to develop their team members. Fantasy? Maybe not.

First, let me explain why I dislike annual performance reviews and ratings. In a word, they are subjective. During my corporate career, I had managers who told me they never give anyone the top rating (after all, they said, no one is perfect). I had other managers who heaped praise and high ratings upon me. And, of course, there were the managers who just blew off the whole thing. If you’ve ever worked in corporate America, you’ve probably experienced something similar.

Need some data to show just how subjective performance ratings can be? Personnel Decisions International conducted a study of almost 6,000 employees who reported to two managers. Employees who were rated outstanding by one manager were rated lower by their other manager 62 percent of the time. Yes, 62 percent of the time!

Recently, I’ve come across a couple of articles that have given me a glimmer of hope that formal performance evaluations and ratings could possibly become a thing of the past.

The January 26, 2008 issue of Business Week ran a special report about the global workforce. One of the stories was about how ITT, a multinational engineering and manufacturing company, made the decision three years ago to stop using performance ratings. The company made this decision after determining that the rating system was contributing to high employee turnover, especially in China and parts of Europe. In countries with collective cultures, the idea of being singled out from the group is uncomfortable. And, being singled out as an average or below average performer is demoralizing.

Josh Bersin, the principle and founder of Bersin & Associates, takes aim at performance ratings in an article published in December 2007, saying:

“Spurred by changing workforce demographics and emerging technologies, talent managers are re-examining performance management processes. Some organizations are ditching the competitive performance appraisal and targeting coaching and development in order to hit the high-performance bulls-eye.”

The research conducted by Bersin and Associates shows “that high-performing organizations create processes that encourage managers to take on the role of coach, rather than the traditional valuator role.”

I realize that making the switch from grading employees to coaching them for development (not for performance management) can’t and won’t happen overnight. Managers must learn to coach and be rewarded for developing their employees. I agree with Josh Bersin when he says:

“To really make a difference, coaching must be instilled as a management value in the company. Management-by-coaching is a concept well understood by many HR professionals, but it is often tough to institute when the business is focused on the bottom line. It takes a level of maturity and out-of-the-box thinking for an organization to value coaching and make such a shift.”