Performance Ratings - Keep or Drop?
Over the last several years, there have been many articles that discuss certain high-profile organizations "getting rid" of performance ratings. We wanted to publish this article because we saw a lot of confusion on what was really going on (for ourselves as well).
What's the big deal?
As we all know, performance management has been going through significant changes in the last several years. There are many aspects to performance management - frequency of conversations (e.g., ongoing vs. annual), content of conversations (results vs. development areas, ratings vs. no ratings, etc.), how it's used for compensation, etc. From what we see, most organizations have implemented two big changes:
1. Frequency of conversations: moving from annual reviews to ongoing feedback conversations. Side note: while we think that ongoing feedback conversations are better than annual reviews for employee development, retention, and engagement, we do not think they always replace formal reviews. Organizations have other cycles that they want to conduct in parallel, such as promotions and compensation decisions. We think ongoing feedback conversations and formal reviews are complementary to each other in most cases.
2. How performance management is used in progression/compensation decisions: getting rid of forced ranking to determine people's progression/compensation decisions.
This is the first thing we wanted to highlight: these two changes do not necessarily mean that organizations are rating/evaluating their employees. Reviews are not the same as ratings. Rankings are not the same as ratings. We need to stop thinking they are all one and the same.
What about organizations that "actually got rid" of performance ratings?
Once we read past the big headlines, what we see is that most organizations are not truly getting rid of performance ratings. Our view is that it does not matter whether the rating is numerical, short-description, or answers to questions like "would you award the employee the highest possible compensation?", if you are differentiating employee progression or compensation in any way, you are, by definition, rating them.
Interestingly, for those organizations that actually got rid of performance ratings (mostly because employees only obsess over the ratings and neglect the feedback), they suffered reduction in employee productivity and engagement.
Employee performance dropped by 10 percent at the companies that abandoned a rating system - CEB Survey
Some of the main reasons include:
Many managers are not able to give proper feedback without ratings
Compensation becomes even more difficult to understand
Expectations become harder to specify
What should we do?
We think the concern around employees obsessing over the rating and neglecting feedback is a very valid one. However, we don't think getting rid of ratings is necessarily the silver bullet answer. We think there are four important questions you can think about to determine whether you need any type of rating:
What is your overall people strategy?
Who is your target talent pool?
What does your target talent pool care about?
Do you need to differentiate compensation or progression in any way based on the answers to the questions above?
Based on your answers, you may decide that you need some type of performance ratings. Here are some tactical tips you could consider:
Making ratings private. I have heard of organizations that have successfully implemented a private rating system (i.e., management and HR know individual employees' ratings, but employee themselves do not receive the ratings). They clearly communicate this to the employees.
Separating feedback and rating discussions. You can provide feedback first, then provide ratings at the end of the conversation. Or, you can even separate the meetings.
Defining ratings more clearly. Your ratings should be clearly defined and communicated to the employees.
Hope this is a helpful way of thinking about performance ratings. Let us know what you think!