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The Real Impact of Removing Performance Ratings on Employee Performance

At most companies, employee performance drops by around 10% when ratings are removed because of breakdowns in managers' ability to manage and a fall in employee engagement

Faced with frustration and lack of results, more than four-fifths of companies (84%) are making big changes to their HR performance management systems.

What they’re changing differs but what’s certainly created the most buzz in the press has been the elimination of performance ratings, where companies grade employees’ past performance using numeric scores or qualitative labels and then usually rank them against colleagues.

While most commentary about these decisions is positive, it’s still too early to say whether eliminating ratings will do what managers want: improve employee, and so company, performance (there’s more on the topic here).

Managers Expect Removing Ratings to Improve Employee Performance

There is certainly a clear and steady disparity between what companies want from performance management systems and what they’re helping managers to do. The process is most often time-consuming, overly administrative, and disconnected from day-to-day work and the behaviors that actually improve employee performance (such as providing informal feedback as and when it’s needed).

And the focal point of many of these formal processes is the performance rating because deciding on and communicating the rating has become so important to both managers and employees. So it seems natural to assume that removing ratings will improve employee performance.

HR teams tend to think that removing ratings will do four things in particular.

  1. Improve manager conversations: Because managers will spend less time defending a rating and more discussing past and future performance.

  2. Give managers more time for informal feedback: Because the bureaucracy around deciding the right rating has been simplified.

  3. Help managers differentiate pay more accurately: Because they have the required discretion to differentiate pay on their teams without being tied to the ratings they use.

  4. Improve employee engagement and help learn on the job: Because the part of the performance management process that causes them the most anxiety is removed.

Why Removing Ratings Rarely Works

All these expectations about removing ratings make sense, and companies have received some positive feedback from employees after eliminating performance ratings. However, the initial positive reaction tends to fade after the first performance review cycle, according to CEB data.

What’s more, the improvements in measures of employee performance that companies expect actually fall because managers struggle to make and communicate performance and pay decisions without ratings. In fact, less than 5% of managers are able to effectively manage employees without ratings. CEB analysis shows that eliminating ratings leads to four unintended outcomes.

  1. Manager conversation quality declines by 14% because managers struggle to explain to employees how they performed in the past and what steps to take to improve future performance.

  2. Managers have more time, but time spent on informal conversations decreases by 10 hours because managers do not shift that extra time toward ongoing, informal performance conversations.

  3. Top performers’ satisfaction with pay differentiation decreases by 8% because managers have trouble explaining how pay decisions are made and linked to individual contributions.

  4. Employee engagement drops by 6% because managers are unable to do the very things that are proven to engage employees, such as set expectations for their, hold clear performance and development conversations, and provide appropriate rewards and recognition.

What You Should Change About Performance Management

Although a handful of managers are more effective without ratings according to CEB data, most organizations will find it too difficult to get their managers to the level needed to make it worth the significant investment required.

Rather than getting sidetracked by the ratings debate, all companies should look to employ performance management best practices in three ways.

  1. Provide ongoing, not episodic, performance feedback: Increasing the frequency of informal performance conversations allows managers to provide more timely feedback to employees and to adjust expectations about what’s required from an employee given recent organizational changes or their past performance. This can improve employee performance by up to 12%, according to CEB analysis.

  2. Make performance reviews forward looking, not backward looking: Assessing and discussing future performance provides managers and employees with a more accurate understanding of their abilities to meet future business needs and how to improve those abilities.

  3. Include peer, not just manager, feedback in evaluating performance: Collecting feedback from peers who understand employees’ work helps managers assess and discuss employee performance in an environment where employees must increasingly work with peers to be effective.

More On…

44 Responses

  • Prasanna says:

    Not all Managers are capable of differentiating performance. People management skills are not formally imparted. managers tend become too socialistic in keeping the top, average and below average performers together. This will frustrate the top performers and overall bring down the quality of workforce. Companies can afford to remove performance rating if the organization exceeds its target consistently for a long time. Cif the organization performance drops, there will be a need to bring back performance rating.

  • Why can’t HR accept that there are more negatives to using performance ratings than positive ones?

    Is that because they themselves have never actually had to use them?

    • Pete M says:

      Anthony, what HR dept doesn’t use them? I’ve worked in a variety of HR environments for the past 20 years and we’ve all used them. In fact, it was seen as a ‘must’ – we couldn’t expect to manage the process unless we were actively involved ourselves.

    • Cortney says:

      I’ve spent the last 12 months not focusing on performance ratings and trying to focus more on on the spot coaching. I can say from my experience. I will be now moving back towards performance ratings for all the reasons described in this article. What I plan to do is post the ratings for my team so everyone can see them in an effort to remove the administrative aspect.

  • David Rock says:

    In fact, if you do three (fairly basic) things well, you get significantly positive results. We have 36 case study examples. See http://bit.ly/1Tkw22S

  • Jamie Resker says:

    Having ratings is unlikely to improve performance.

  • Wally Hauck says:

    Using ratings to improve individual performance is inconsistent with systems thinking. An organization is a social system and the interactions are so complex that it is impossible to accurately evaluate one part of the system without understanding the interactions.
    You are promoting the status quo which has not worked since it was started in the 3rd century China.
    It would be useful for you to read Deming.

    • Ken C says:

      Dr Deming identified so called “management by objectives” as one of the five deadly diseases to an organization. I tend to agree. In fact, it’s funny to me that Deming almost identifies the basis for the Scrum Framework in Agile. I would have liked to hear what his thoughts were on it.

      In Scrum, teams self organize and build upon identified strengths and weaknesses. Instead of a typical MBO structure, they truly work as a team and avoid “ladder climbing” and “self promotion”. Most of the reasoning I’ve been seeing in regard to failure to remove this arbitrary system seem to be opportunities for managers to develop themselves as leaders. And I’ll further posit that my own experience with some of these so called objectives lack any real metrics to truly define where an employee lands in terms of expectations in the first place.

  • Elizabeth says:

    I had worked in my company quite successfully for over ten years before performance reviews changed.
    Over night people that had been there for years were being told they weren’t meeting targets. Managers were telling people that they needed to change or find new jobs!
    Needless to say sickness increased and people left in droves. This caused more stress internally and frustration grew amongst the managers. All they wanted was to be the top team every month. After six years of this totally sixteen years l had a breakdown and was dismissed through ill health.
    I don’t think l will get another job due to my age but l am glad to be out of that environment.

  • Maria West says:

    Evaluation without scores sounds like Participation Trophies.
    Just throw in some safe spaces and play dough.

  • Aaron Brown says:

    Two years ago we formed a leader led PM council. They recommended blowing up the annual review and eliminating ratings. We did so. We introduced simple, easy-to-complete quarterly check ins. (2 clicks) We trained mgrs on coaching, 1:1’s. For the annual merit process we introduced two new performance definitions: Top Performance (results & behavior) and At Risk/Low Performance. Managers were trusted with and challenged to come up with the definitions of each. They figured out what Top and At Risk meant by telling stories of employees. Calibration was now more “art” then “science”–harder? yes, but way better because it put the responsibility of defining performance on managers instead of HR. They built a new muscle and capability. We trusted them despite the challenge of going through a couple of cycles before getting really calibrated across and down the org. It worked really really well. We saw immediate results. I am not against ratings… I just believe that it is more about the maturity of the org/leaders and designing the right approach more than “ratings vs not”. I am a believer in doing it differently. Riskier? yes, but way worth it with the long view.

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