Why GE is changing a decades-old management practice that could affect 300,000 employees

It's official - the company once known for its intense employee review process is completely re-hauling how it assesses its people.

In an announcement made to 300,000 General Electric employees Tuesday, which she shared on her LinkedIn page, Susan Peters, senior vice president of human resources at GE, said the company would ditch its annual employee performance rating system in exchange for of its pilot performance development program, which encourages real-time feedback from managers and employees.

The Wall Street Journal reports that employees and bosses can exchange feedback whenever they want using a mobile app called PD@GE, or they can provide feedback by phone or in person. At the end of the year, all of that feedback gets compiled into a performance summary.

As Peters explains on LinkedIn:

"Bottom line: after running pilots with 30,000 employees and getting tons of helpful, detailed input from employees around the world, we are adopting GE's performance development approach - without an annual static individual rating - as our company standard. We think this newest evolution of PD@GE provides a contemporary, powerful way to accelerate your growth in real-time, strengthen our culture of meritocracy and customer intensity, and secure our position as the world's premier digital industrial."

For decades, GE has formally rated its employees on an annual basis. It used a five-point scale where employees could be labeled as "role model," "excellent," "strong contributor," "development needed," or "unsatisfactory."

And until 10 years ago, a target percentage of employees was distributed into each category. The practice of firing the lowest rung of employees became known as "rank and yank" - though previous GE CEO Jack Welch prefers to call it "differentiation." Many other large corporations - including IBM, Microsoft, and Accenture - have done away with the controversial practice in the past several years, though not all.

Now, by relying on frequent feedback rather than an annual rating, GE executives believe bosses and employees have "a much richer set of data regarding an employee's unique contributions and impact throughout the year."

"As a result, the year-end discussions are more meaningful and future-focused - and less fraught with expectations because they are simply part of an ongoing dialogue," write GE engineering executive Leonardo Baldassarre and operations executive Brian Finken on HBR.

After testing out rating-free reviews over the past couple of years, GE bosses reported that they were still able to promote and compensate employees effectively, WSJ reports. And, according to Bloomberg, employees who tested the pilot program reported feeling more motivated with the rating-free system.

This lines up with performance review research conducted by employee recognition firm, Globoforce, which found 71% of the workers it surveyed would prefer to get feedback as soon as possible, as opposed to 17% of survey respondents, who said they wanted to receive feedback on an annual basis.

Janice Semper, a GE human-resources executive, told WSJ that rating-free reviews "led to more meaningful, richer conversations that were not getting distracted by ... a label."

Bloomberg reports GE is also debating doing away with its annual raises in favor of more flexible compensation practices.

"We may not always be perfect - but we will always make progress," Peters tells employees.