Adobe Systems took a bold, almost unthinkable step in 2012. It scrapped its traditional annual performance reviews, including its ratings and rankings of employees.

The company realised it was losing too many valuable employees because of the way it was providing feedback and labelling them with ratings.

“Ratings and rankings can be very subjective and critical,” said Donna Morris, Adobe’s senior vice president, people and places. “It’s really hard to hear you’re only rated a solid performer when you believe you did your very best. If you’re not feeling valued and aren’t being treated as a star performer, you might leave.”

Now, employees and their supervisors exchange feedback on a regular basis through a system called Check-in. “The annual review was a rear-view mirror of past performance,” Morris said. “With Check-in, people feel they know where they stand all the time, which takes down the anxiety level.”

Since the change, she said, the attrition rate for employees Adobe wants to retain has dropped by 50%.

Both employees and supervisors have long dreaded annual evaluations, which tend to be uncomfortable and largely ineffective in improving performance. Often, feedback isn’t constructive — whether it’s positive or negative — and employee evaluations aren’t linked to an organisation’s strategy or an individual’s career development goals. In a 2013 survey of employers in 53 countries, consulting firm Mercer found that only 3% believe their performance management systems provide exceptional value.

Although the annual ritual has been under attack for years, major employers have only recently moved to replace it with new methods for evaluating workers. A small but growing number of companies are dropping ratings and bell curve rankings, providing feedback much more often than once a year and giving appraisals a more positive, forward looking spin.

Companies say they want to change the dynamic from a scolding parent-child type of interaction to a coaching and learning experience. They generally attribute the changes to their overall business strategies and increased focus on collaboration in the workplace rather than competition among employees.

So long ratings game

Microsoft eliminated ratings last year, increased the frequency of management feedback and made teamwork a more significant factor in performance evaluations. With a shift in business strategy to devices and services and related organizational changes, “we needed people to work differently and more collaboratively,” said J Ritchie, Microsoft’s corporate vice president, compensation, benefits and HR operations. “What is most important in an individual’s performance is how you contribute to team results and leverage the success of other people to make the team successful.”

One of the most significant changes to performance appraisals is the elimination of ratings and rankings that peg employees as unsatisfactory, average or above average and are used to weed out those at the bottom.

By eliminating ratings, “we shifted the conversation to something more positive rather than harsh criticism,” Ritchie said. “In the past, we found some managers looking for comments to give to justify where an employee landed in the distribution of ratings. But it’s more important to give people feedback to help them learn and grow.”

Employers also find that debate about rankings and ratings dominate performance reviews, with workers often objecting to the number or the label they receive. “We were spending huge amounts of time discussing the ratings rather than giving rich feedback about goals and ways to improve,” said Anita McGraw, a human resources executive at Expedia, which has eliminated ratings and made other changes to its performance appraisal system.

The switch to more positive and more frequent appraisals comes as members of the millennial generation, born in the 1980s and 1990s, flood into the workplace. Raised on a steady diet of praise from parents, teachers and coaches, millennials have been shocked by less than laudatory performance reviews, sometimes breaking down in tears or even resigning on the spot. As a result, managers at companies such as General Electric say they have softened their feedback for this generation.

Even so, about two-thirds of millennials say they actually prefer “some helpful, corrective feedback” to mere praise and recognition, according to a worldwide employee survey this year by leadership development firm Zenger Folkman. “But the feedback should be given in an uplifting way,” cautioned Joe Folkman, president of the Utah firm. Millennials “need reassurance they’re doing okay so they don’t overreact and crumble. They need to know their life isn’t over.”

Science of feedback

While companies say millennials aren’t driving the switch to more upbeat and more regular performance appraisals, they acknowledge that the changes will help them attract and keep young workers. “Our younger workers especially like the frequency of feedback at Adobe, even if they might respond ‘Ouch!’ to it sometimes,” Morris said. “They want feedback that is in real time and specific enough that they can take action right away to improve their performance.”

Some companies, including Microsoft, are interested in neuroscience research on the impact of feedback. David Rock, cofounder and director of the NeuroLeadership Institute, believes performance reviews usually activate a threat response in the brain and prompt people to become defensive. “When feeling threatened, people are less willing to be honest and think of ways to develop and improve,” he said.

To prevent such a defensive reaction, he suggests that managers ask employees what they are doing to improve their performance rather than simply critique their shortcomings and rate them on a numerical scale. “Employees will be more likely to share their feelings and ideas,” he said. “People are fundamentally their own worst critics and have blind spots only because they feel threatened.”

But negative evaluations shouldn’t be ruled out entirely. A research study on negative feedback found that its impact depends on a person’s level of experience and expertise. For new employees, “negative feedback, even if it’s constructive, could be insulting and undermine motivation by suggesting that they aren’t very good and can’t do the job,” said Ayelet Fishbach, professor of behavioural science and marketing at the University of Chicago’s Booth School of Business and co-author of the study.

“But if you’re ambitious and believe in your abilities, negative feedback tells you what you need to conquer next, not that you can’t do it,” she said.

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