The topic of whether to keep or remove performance ratings is increasingly becoming a discussion point in client conversations and networking forums. However, if organisations truly want to improve the effectiveness of their performance management systems (and reward outcomes), we have found that much more can be achieved by looking beyond this question.

Sure, with ratings typically associated with ‘old style’ approaches to performance management, it is tempting to do away with them as part of a transition to more fluid systems featuring regular check-ins rather than six-monthly appraisals, and potentially articulated with crowdsourced feedback as part of a more developmental approach.

And yet, this has not turned out to be all that it promised on the basis of employees feeling lost and managers struggling to have structured conversations without a reference point to turn to. As a result, there has been a trend of organisations returning to some form of rating system.

Where to look for solutions?

Removing performance ratings to improve performance management feels a bit like throwing the baby out with the bathwater. Here are some thoughts to help you address the real issues.

Start off by looking at the extent to which links to pay are to blame. It is often the case that decisions about performance ratings are manipulated to achieve certain pay outcomes, thus creating an imbalance of employee performance and ratings – and discrediting the performance management process.

Poorly managed forced or ‘strongly guided’ distribution curves do not help either. In the eyes of employees these mechanisms artificially push down performance ratings, which impacts negatively on trust and engagement.

Over-engineered reward systems also play a part. Ratings determined through complex arrangements are difficult to communicate clearly and unlikely to have the desired effect on employee performance.

Finally, the inconsistent allocation of performance ratings within and across departments can be a demotivating factor if employees see underperforming peers getting similar or even higher ratings than them, or conversely, when high performers do not achieve a commensurate rating.

What to do then?

Here are 3 ideas for you to consider:

1. Think more strategically. Rely less on specific, beginning of year targets/KPIs which may be out of date (and out of sight) by year end. Through the year and year-end have a conversation about what the manager and appraise can say about their contribution to the firms business success.
2. Keep it simple. Look at fewer ratings with clear definitions and differentiation between them. If you cannot explain ratings easily, and managers/employees do not understand them, it will be difficult to ensure consistency and effectiveness in performance management.
3. Mind the curve. Let’s be honest, most distribution curves are there to manage affordability of performance-related pay plans. Why not look at other vehicles to manage affordability and avoid the risk of eroding trust in performance management? Telling employees that “performance awards will vary depending on overall levels of individual performance” is a message more likely to land better than “we can just give awards to X amount people”.

Remember the last time you could not find something because you were looking in the wrong place? Think of that next time you are considering the performance rating question.

Get in touch to discuss this in more detail.

Juan Novoa, Lead Consultant at QCG – October 2019