performance ratings

Should Performance Management Use Ratings?: Five Factors

Supervisor ratings have long been a part of performance management, but that has been changing. This video explores whether performance ratings are necessary or even desirable and how to decide when to use them.

As part of updated their performance management systems, many companies including some major ones have experimented with doing away with performance rating scales.

But is this a good idea?

Abandoning rating scales has had some postivie results , but not always, and some companies that dropped ratings have brought them back.

A survey by Corp Executive Board of more than 9,000 managers and employees across eighteen countries and found that without ratings managers actually spend less time on performance management and the quality of performance conversations is degraded.

Without a rating to focus on in the conversation, managers may feel it’s harder for them to deliver a clear message.

Employees who previously received the highest ratings missed them most.

Abandoning ratings also reduced the employees’ confidence that their pay was related to performance, increasing the perception that pay increases are more linked to favoritism.

What are the problems with ratings?

Most people don’t like being rated or having to rate others.  For both, the process of rating can be a highly emotional experience which is counter to the goal of providing accurate and objective feedback.

Political considerations also enter into the equation, which can be magnified in a political organizational culture that does not value objective feedback.

In addition, annual supervisory ratings can have a bureaucratic, adversarial connotation that may be inconsistent with today’s organizational culture.  It may be perceived as inhibiting collaboration and increasing unproductive internal competition. Performance ratings are also viewed as focusing on the past rather than the future.

So whether or not performance management should use ratings is not a straightforward question.  It is worth remembering what the purpose of performance management is.

Performance management has two sides. The first is measurement and assessment of performance as a basis for HR decisions such as employee selection, compensation and termination; the second is to provide feedback and coaching and identify developmental activities so that employees can do their best.

The measurement /assessment function requires data. Take for example the HR function of employee selection. The selection process might involve a Job Interview, a Work Sample, Personality or Honesty Test or perhaps substance screening.

From a measurement perspective, any selection procedure is technically considered to be a test, yielding a test score.  Once on the job, performance or criterion data can be collected for each employee that can be matched with his/her score form the selection procedure.

To assess the validity of the selection procedure the correlation between test scores and job performance is calculated.  Without performance data this assessment can’t be made. Performance data are also necessary for most other HR functions, such as assessing whether a training program, compensation plan or absence management plan is effective.  Criterion data are needed for all these assessments.  So without performance ratings where do the criteria for assessing HR functions come?

It is possible to use “hard criteria” such as Sales, Error Rates, measures of  Speed/Accuracy,  On-time Completion or  Resource Usage as criteria for assessment /evaluation.

But hard criteria are also not without problems.

Criteria may not be completely under the employee’s control.  For example, sales data may reflect territory or seasonal factors. High achievement may mask performance problems, for example when individual achievement is made at the expense of team performance. Alternatively, team achievement may mask individual performance deficits.

Should performance management use ratings?: Five factors
So getting back to our question “Should performance management use ratings?”   It depends.  I suggest organizations consider five factors:

  1. Workforce Characteristics. First, consider the nature of the employees in question. Are they permanent or temporary, full time, Part Time, or contract? It may not be worth rating temporary transitory employees. On the other hand it may be useful to rate part time or contract workers as a basis for continuing employment. Employees with a high skill or experience level or with professional qualifications may not benefit from need to be rated as they are self monitoring.   Millennial and younger workers tend to expect more frequent and timely feedback so for ratings to be useful they need to come close to the performance.
  2. Performance Variability. In the past it was assumed that in most jobs, performance was normally distributed with most workers clustered around the middle. But some companies such as Google have come to the conclusion that relatively few high performers do a lot of the work. So depending on the job, skill level, and workflow, it may not be useful to try to rate workers in the middle of the pack, but instead to identify and focus on high performers.
  3. Incentives. The third factor to consider is whether the organization has incentives in the form of compensation, benefits, perks or promotions with which to reward better performance? If not there may be less value to rating workers when there is no   perceived consequence of their performance level.
  4. Organizational climate. The appropriateness of ratings also depends on organizational climate. Is it competitive or collaborative, highly political? Individual performances ratings may impede collaboration so team feedback may be preferable in a collaborative environment. A highly political environment makes it less likely that performance ratings are objective and accurate so they may be of less value.
  5. Workplace Analytics. In virtually every workplace today employees interact with a digital interface that gathers analytics such as task completion, speed, error rates, sales, as well as customer satisfaction input. With the increased availability of workplace analytics, the ration of managers to employees has dropped.  So with high quality performance data available from analytics and fewer managers performance ratings may have lower priority.  Ratings might still be valuable for many jobs in many settings to supplement workplace analytics, which may have the same deficiencies as the hard criteria discussed earlier.

It seems early to conclude that performance ratings should be abandoned across the board, as the organizations that have abandoned, then reinstated have shown.

photo: Drew Beamer

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