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Should you use performance ratings?

Man in black suit holding a card with 3 yellow stars on it.

It is with­out doubt the hottest top­ic of debate in per­for­mance man­age­ment cir­cles at the moment. Should you use an over­all per­for­mance rat­ing as part of your employ­ee per­for­mance reviews or appraisals?

In many ways it seems an obvi­ous thing to do — most com­pa­nies want an easy way of under­stand­ing who their good and bad per­form­ers are. Indeed, the 2014 e‑Reward per­for­mance man­age­ment sur­vey found that 77% of organ­i­sa­tions used per­for­mance rat­ings. But there is now an increas­ing back­lash against rat­ing per­for­mance and some high pro­file com­pa­nies such as Adobe, GE and Microsoft have aban­doned them.

The prob­lem with per­for­mance ratings

The main issue with per­for­mance rat­ings is that stud­ies have found them to actu­al­ly demo­ti­vate employ­ees and neg­a­tive­ly impact per­for­mance, except for those peo­ple rat­ed at the high­est end of the scale. Fur­ther­more, research into neu­ro­science has found that per­for­mance rat­ings acti­vate a flight or fight response in the brain which decreas­es sub­se­quent per­for­mance, except for those get­ting a top rating.

Researchers have also found that employ­ee per­for­mance is improved through good qual­i­ty feed­back, and that assign­ing a per­for­mance rat­ing tends to pre­vent that feed­back from being tak­en on board. The rat­ing is what the employ­ee remem­bers after the event, and not the dis­cus­sions that went with it.

A final prob­lem with per­for­mance rat­ings is that they are large­ly sub­jec­tive and prone to a num­ber of proven rat­ing bias­es such as the con­trast effect’, halo and horns effect’, sim­i­lar-to-me effect’ and cen­tral ten­den­cy bias’. In an exper­i­ment report­ed by MindGym, the rat­ings of a group of employ­ees with rad­i­cal­ly dif­fer­ent lev­els of per­for­mance were analysed, and their per­for­mance rat­ings showed lit­tle cor­re­la­tion with their actu­al lev­els of performance.

Why per­for­mance rat­ing can be useful

Despite these prob­lems, many organ­i­sa­tions are still using per­for­mance rat­ings. The main argu­ments for rat­ing per­for­mance are:

  • It pro­vides a con­ve­nient way of man­ag­ing per­for­mance relat­ed pay (although you can man­age reward with­out per­for­mance rat­ings — find out how here)
  • It enables organ­i­sa­tions to under­stand who their top per­form­ers are for tal­ent plan­ning purposes
  • It can pro­vide sup­port­ing evi­dence when tak­ing action against poor per­form­ers (e.g. in dis­missal cases)
  • It lets employ­ees know where they stand in rela­tion to their peers

Should you rate performance?

This is the key ques­tion and there is no right answer as it will ulti­mate­ly depend on what your ulti­mate goals are for your per­for­mance man­age­ment process. Our advice would be to ques­tion whether you real­ly need per­for­mance rat­ings and, if you are using them, eval­u­ate their effec­tive­ness in achiev­ing your per­for­mance man­age­ment goals. Do some inter­nal research to find out from your employ­ees and man­agers whether they find that rat­ings actu­al­ly improve per­for­mance and moti­va­tion or neg­a­tive­ly impact it.

How per­for­mance rat­ings can be improved

If you decide that you should rate per­for­mance, here are some things that you can do to min­imise the poten­tial neg­a­tive impact of rat­ings and improve their accuracy:

  1. Con­sid­er ask­ing tar­get­ed ques­tions that iden­ti­fy high/​low per­for­mance, rather than pro­vid­ing a sin­gle per­for­mance rat­ing. For exam­ple, Deloitte ask man­agers four ques­tions instead of using per­for­mance and poten­tial ratings.
  2. Train man­agers in how to rate per­for­mance objec­tive­ly and avoid rat­ing biases
  3. De-cou­ple per­for­mance rat­ings from pay reviews. Per­for­mance review dis­cus­sions and rat­ings will be more hon­est if pay reviews take place sev­er­al months after the per­for­mance rat­ing is assigned, and the pay review takes into account oth­er fac­tors such as mar­ket rate and changes in job respon­si­bil­i­ty, as well as the per­for­mance rating.
  4. Avoid the use of forced dis­tri­b­u­tion for rat­ings. Research has found that it can have dam­ag­ing effects on morale and that any ben­e­fits tend to be lim­it­ed to the first year or so of its use.
  5. Mon­i­tor the con­sis­ten­cy of rat­ings across the organ­i­sa­tion and check for pat­terns or bias. Con­sis­ten­cy can be fur­ther improved through peer reviews’ or cal­i­bra­tion’ where­by groups of man­agers get togeth­er to review and com­pare each oth­ers rat­ings and high­light any notice­able rat­ing pat­terns or stand-out decisions.
  6. Avoid the use of labels such as sat­is­fac­to­ry’ or com­pe­tent’ for mid­dle rat­ings. They can be demo­ti­vat­ing as nobody wants to be described as aver­age. Instead, con­sid­er more pos­i­tive ter­mi­nol­o­gy like effec­tive’.

Your per­for­mance man­age­ment soft­ware should sup­port your cho­sen approach

Some per­for­mance man­age­ment sys­tems are com­plete­ly cen­tred around an over­all per­for­mance rat­ing. With Clear Review, you are not tied into rat­ing per­for­mance — you can choose to focus on qual­i­ta­tive feed­back and per­for­mance devel­op­ment instead. If you want to have rat­ings, Clear Review gives you the option of rat­ing indi­vid­ual ele­ments of per­for­mance, hav­ing an over­all rat­ing, or ask­ing tar­get­ed ques­tions, the choice is yours.

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