It was the companies who removed ratings and made the review process less formal that ran into trouble. When the process was stripped of all formality, managers just skipped it. Leaving employees in the dark about how they’re doing.
Here's some interesting research insight into the perils of abandoning performance ratings.
The thinking tends to be that imposing performance ratings will be counterproductive, reinforce stereotypes, encourage the idea that managers only have to have performance conversations once a year and that the annual performance appraisal system is so time consuming. The obvious answer, abandon it. Hmmm, seems that may not be the answer. Too often, and perhaps not surprisingly, the result is that, instead of encouraging a continuing discussion about performance, no discussion takes place at all or, if it does, the employee does not understand what s/he is being told.
Sadly, the report concludes, most managers are not skilled enough to deliver clear, meaningful messages, without some structure.
Maybe an answer is to keep some structure but also give those managers some training in providing effective feedback - it is, arguably, the most important part of their job after all.