If your company is like most, it tries to drive high performance by dangling money in front of employees’ noses. To implement this concept, you sit down with your direct reports every once in a while, assess them on their performance, and give them ratings, which help determine their bonuses or raises.

What a terrible system.

Performance reviews that are tied to compensation create a blame-oriented culture. It’s well known that they reinforce hierarchy, undermine collegiality, work against cooperative problem solving, discourage straight talk, and too easily become politicized. They’re self-defeating and demoralizing for all concerned. Even high performers suffer, because when their pay bumps up against the top of the salary range, their supervisors have to stop giving them raises, regardless of achievement.

So at Lear, a Fortune 500 company, we tried something different.

In 2010, we replaced annual performance reviews with quarterly sessions in which employees talk to their supervisors about their past and future work, with a focus on gaining new skills and mitigating weaknesses. We rolled out the change to our 115,000 employees across 36 countries, some of which had cultures far different from that of our American base.

The quarterly review sessions have no connection to decisions on pay. None. Employees might have been skeptical at first, so to drive the point home, we dropped annual individual raises. Instead we adjust pay only according to changing local markets.

Wait wait wait, you say. What about the role of compensation-linked reviews in stamping out mediocrity, motivating employees, and boosting performance? What about the legal necessity of creating paper trails of negative reviews to justify dismissals of poor performers?

We believe that traditional performance reviews do little to motivate people. The way to drive high performance is through honest feedback that employees and managers really hear. Think back to the last performance reviews you received and conducted: Does anyone really hear anything except whether they’ve met their goals and are eligible for their full bonuses? Does anyone feel free to say anything about the boss’s shortcomings?

We’ve found that our new system greatly improves the feedback process. Supervisors and employees say the sessions are less stressful and more productive than the old performance reviews. Managers are more comfortable giving feedback without fear of backbiting from employees, and discussions tend to focus less on specific accomplishments and more on people skills, which are so critical to overall company performance. By taking away concerns about money and status, we’ve freed employees to relax and hear what their managers have to say, and vice versa. Although it’s too soon to see any impact on the income statement, there has been a noticeable increase in collegiality.

True, some of our managers tell us they wonder whether they’re doing enough to motivate high performers. But we think the prospect of promotion is enough—and we do give special stock awards to a few people every year for extraordinary technical accomplishment.

As for legal concerns related to dismissals, we’ve confirmed the experience of many HR managers that formal paper trails of evaluation usually do more harm than good to a company’s case.

When I urge other companies to do what we’ve done, I don’t make the recommendation lightly. I know that the performance-review culture is deeply entrenched. A recent survey found that only 1% of American companies have rejected traditional reviews, and most of those seem to be start-ups or nonprofits. We couldn’t find a single other big company that had done it.

The reason companies hang on to this tradition, of course, is their anxiety about high performance. I know at least one executive who tried to junk pay-driven reviews in his organization. The leadership team squashed the idea, lest Wall Street think the senior managers weren’t serious about being a “high-performance company.”

In some cases, HR executives are the staunchest advocates of maintaining the old system. Formal employee processes, after all, are HR’s bread-and-butter, and the idea of junking them is almost unthinkable. Even if executives acknowledge performance reviews’ shortcomings, they often believe that the solution is simply to design better evaluation forms.

But the forms aren’t the problem. What turns reviews into a blame game is the link to compensation. Sever that link, and you’re on the way to creating a review system that can open up the channels for real feedback throughout the organization.