The move is particularly significant because the German company actually creates software used to grade the performance of millions of employees around the world.
SAP's HR head Wolfgang Fassnacht said he found the annual review process was “counterproductive to the goal of constructive dialogue”.
One of the reasons he cited was its focus on separating top-performers from under-performers.
"Grading workers did not work,” Fassnacht was quoted as saying by Reuters.
“People are open to feedback, also to harsh criticism, until the moment you start giving scores. Then the shutters go down.
"The old system is too static. It no longer reflects the dynamic circumstances we are operating in."
Moreover, SAP argues that performance reviews are demotivating, time-consuming and expensive.
Instead, SAP is testing a new process on about 8,000 of its workers which includes more regular check-in talks.
The company hopes to implement it for their entire 80,000-odd workforce next year.
SAP joins the likes of Adobe, Accenture, Microsoft and Deloitte who have also eliminated performance reviews.
Kris Duggan, CEO of BetterWorks, told L&D Professional that moving from annual performance ratings to frequent conversations is a good thing for business in terms of engagement, development and employee satisfaction.
“If you’re a leading company you will actually think about eliminating performance ratings,” he said.
“If you’re more of a transitional company then you might keep the ratings and just add the frequent conversations.”
Duggan added that if you don’t have tools in place to track the conversations then you are at risk of not actually having them.
“It’s important to have some technology or system to track that these things are happening and to be able to report on them,” he said.
SAP has become the latest corporation to abandon performance reviews.