How to Know If You Should Use Performance Ratings

“I’d love to get rid of ratings, but it’ll never get past our senior management.”

This is a popular refrain among HR folks as industry leaders including Goldman Sachs and GE have stopped rating their employees in annual reviews. Research shows ratings are demotivating but HR and people operations departments often rely on ratings to determine compensation and avoid talent-related lawsuits.

In strategy+business’s “Kill Your Performance Ratings,” the authors say 90 percent of HR leads believe their performance processes are not accurate. The article is summarized in the following video.

We asked our HR Roundtable for thoughts on performance ratings. If you must have ratings as part of your performance management, here are some attributes to keep in check.

Are Your Ratings Fair?

Up to 10% of the Fortune 500 companies have thrown out the annual review for process that provide efficient real-time feedback that focus on driving higher degrees of engagement and productivity. Companies that currently score and rank employees, often have unrealistic expectations that the employee population should fit into a perfect bell curve. This is just not reality.

Managers know who their top performers are, and do not need a bell curve.

When you look at the compensation and bonus payouts of a perfectly-aligned, bell-shaped employee population, you will also see compensation inconsistencies. Managers know who their top performers are, and do not need a bell curve to know how to distribute merit increase or bonus funds.

– Lindsay Coobs, HR Consultant, Employers Advantage

Do Your Ratings Have Meaning?

I see a lot of organizations with rating scales in their performance evaluation systems and the ratings are virtually meaningless. No one can articulate the difference between a 3 and a 5, for example, and managers and employees lack clarity on what impact the ratings have on overall performance. There’s also not a strong correlation between the performance rating number and the compensation and accolades that go along with it.

There’s not a strong correlation between the performance rating number and compensation and accolades.

I recommend that organizations focus more on measurable, time-bound goals. What is the organization hoping to achieve and how does the employee fit into this equation? Employee goals need to have clear action steps and due dates so that the employee understands what needs to be achieved in order to have acceptable performance.

Instead of circling numbers on a rating scale, the performance evaluation conversation shifts to something more substantive. This type of conversation can also help with engagement. The employee feels more empowered to talk about what’s going well, as well as areas where they may need some guidance or additional training.

– Amanda Haddaway, Managing Director, HR Answerbox

Are Your Ratings Effective?

As a coach, I am positive the rating systems used by many organizations do more damage than intended good. Too often clients feel unappreciated, judged, and sometimes wounded by ratings. It takes several sessions to get rid of those negative feelings to get down to performance growth and job satisfaction.

Until organizations are willing to forego efficiency for effectiveness, the problems will continue.

Yes, some people say it is not the ratings system itself, but the person (manager) who delivers the results, or the scarce amount of time spent examining results, outcomes, and a path forward. What I see that works is simple conceptually, but challenging to implement: Manager and employee come to a 1×1 session having answered a few questions that they discuss using a well-defined model based upon the balance of advocacy and inquiry. But, until organizations are willing to forego efficiency for effectiveness, the problems will continue.

– Marian Thier, Coach, Expanding Thought

Are You Communicating Feedback?

Before an organization asks the question of “Should we use performance ratings?” they need to ask some crucial questions:

  • Why do we utilize a performance assessment?
  • What do we hope to accomplish from using them?
  • Are we gaining the results that we need with the current system?
  • Does our current performance assessment support our culture?

Take the word performance out of the equation and look at what is supposed to happen.

Most organizations use the performance assessment and ratings as a determining factor for compensation. It is important to look at the performance assessment from a different perspective. Take the word performance out of the equation and look at what is supposed to happen during this process: coaching, development, feedback, a clarification of next year’s direction, a dialogue and exchange around events, issues, opportunities and results that occurred during the year, and a sharing of ideas to take the department and organization to the next level.

When looking at it from that perspective, the next question would be: “How do you put a rating on communication, the fundamental aspect of the performance assessment?” Yes, there are goals in most performance assessments but no one ever said that they needed to be attached to the assessment.

How do you put a rating on communication, the fundamental aspect of the performance assessment? Click To Tweet

If the organization’s goal is to advance internal communications between managers and team members AND improve results, then an option I would encourage is to separate the two conversations.

One critical conversation is built around a discussion that reviews the entire year and prepares the team members for the upcoming year, and another conversation discusses the results of the established goals. The review of the goals can have ratings attached if that is what makes sense with your culture, your compensation structure, and your values.

There is no one right answer to the questions surrounding performance assessments and ratings. What does matter is whether there is a system in place that is promoting proper communication avenues that will ultimately drive employee engagement, create a mindset of accountability, and ensure organizational results.

– Dawn Cacciotti, Engage HR Now

Want to join the HR Roundtable and contribute insight to a monthly hot topic in HR innovation? Email dani@reflektive.com for more information.

banners2_2highres-04

Strengthen your whole team with
Real-Time Feedback

Get Started Today