GE Becomes the Latest Organization to Ditch Performance Ratings

GE Becomes the Latest Organization to Ditch Performance Ratings

Rachel Emma Silverman broke the story at the Wall Street Journal this morning:

A new performance-management system asks employees and managers to exchange frequent feedback via a mobile app called PD@GE, in person or by phone. The messages are compiled into a performance summary at the end of the year. For GE, a longtime standard-bearer for corporate management, the shift reflects the realities of a new work climate in which employees expect more feedback from bosses and peers—companies, in turn, expect employees to act quickly on that feedback. …

Roughly 30,000 GE employees have tried rating-free reviews in the last couple of years. An internal study found that bosses could dole out pay and promotions effectively, and employees and managers preferred the new approach. At a meeting last month, about a dozen senior executives finally decided to dispense with the past practice. Scrapping ratings “led to more meaningful, richer conversations that were not getting distracted by…a label,” said Janice Semper, a GE human-resources executive. She adds that the changes apply to GE’s 200,000 salaried employees. Hourly workers may eventually be included if labor contracts allow.

GE executives had hinted at this last month, saying at the time that they were even thinking about doing away with annual raises. The decision to abandon performance ratings comes amid a trend of major employers from Goldman Sachs to IBM to the Pentagon shaking up their performance review systems to de-emphasize and simplify ratings. Other organizations have done away with ratings altogether, like Accenture, which set this trend in motion last year. As a gigantic employer with outsized influence in the corporate world, GE’s performance management systems have always invited copycats—longtime CEO Jack Welch’s “rank and yank” practice of firing the bottom 10 percent of performers was widely imitated—so this change is likely to resonate beyond the confines of GE itself.

However, GE’s move also comes just as we are finding that eliminating performance ratings isn’t necessarily a good idea.

CEB has discovered that employers that removed ratings experienced on average a 14 percent decline in the quality of manager-employee conversations, a decrease in time spent on informal conversations, and significant declines in top performers’ satisfaction with pay differentiation as well as in employee engagement. Other researchers have also questioned the wisdom of scrapping ratings. While the standard model of performance management is definitely in need of reform, the way many organizations have chosen changing things up may not produce the results they want. It will be very interesting to see how GE’s new system works out in the long term.