The evolution of performance management is at an inflection point as businesses look for new ways to accurately measure employee performance and give the right kind of feedback to improve it most effectively. Over the past year and a half, many major employers have either abandoned or radically reformed their performance rating systems, moving toward more qualitative and continuous feedback, and in some cases scrapping the the traditional annual review entirely.
The rationale behind these changes has been to engage employees more constructively in the performance management process, but CEB research has cast doubt on whether this really works. Looking at companies that have ditched ratings, we found that less than 5 percent of managers were able to effectively manage employees without them, while getting rid of ratings had a negative impact on the quality of manager conversations, employee satisfaction with pay differentiation, and overall engagement.
Performance management is in need of reform at many, perhaps most organizations, but simply getting rid of ratings doesn’t seem to do the trick. Ultimately, ratings tell employees where they stand in a way that qualitative feedback can’t always match. At TLNT, Natalie Trudel suggests some ways to square that circle, retaining the most useful aspects of ratings but making them more timely, relevant, and specific:
For convenience, the same rating scale is often applied to all areas of an employee’s evaluation; from goals to competencies. This is more often than not a 5-point rating scale (5 – Outstanding, 4 – Exceeds Expectations, 3 – Meets Expectations, 2 – Needs Improvement, 1 – Unacceptable). The problem is that you can’t rate certain evaluation criteria using this scale, and it isn’t fair to expect managers and employees to do so.
Goals, for instance, cannot be “Outstanding” or “Needs Improvement.” They are more appropriately “Achieved,” “In Progress,” “Deferred,” or “Cancelled.” The same is true with development items or accomplishments. We suggest re-defining rating scales to make them specific to the criteria being rated.
Let’s ditch the term rating altogether and instead start using a text “status” scale to replace the 5-point scale so employees can be evaluated on actions instead of subjective views of quality. This allows tracking to take place while removing some of the negative stigma associated with ratings.
In fact, this retooling of the rating system is precisely what some major organizations have opted for. While some, like Accenture and GE, have taken the bold step of removing ratings entirely, others have opted for a system that keeps numerical ratings but either simplifies them and de-emphasizes them or makes them more detailed. Examples of organizations that have chosen this course include IBM, Goldman Sachs, and the Defense Department.