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.
Improve manager conversations: Because managers will spend less time defending a rating and more discussing past and future performance.
Give managers more time for informal feedback: Because the bureaucracy around deciding the right rating has been simplified.
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.
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.
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.
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.
Top performers’ satisfaction with pay differentiation decreases by 8% because managers have trouble explaining how pay decisions are made and linked to individual contributions.
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.
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.
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.
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.