performance rating scales

Performance Rating Scales: To Keep or Not to Keep?

In recent times, there has been a noticeable trend towards abandoning performance rating scales in favour of performance appraisals and management centred around meaningful conversations and ongoing feedback. Renowned organisations such as Adobe®, Deloitte®, Microsoft®, Accenture®, and even GE® have all made the commitment to move away from relying on a single numerical rating to evaluate performance.

At first glance, this approach seems logical and promising, however, the reality on the ground tells a different story, suggesting that this approach may not be effective or suitable for many companies. Simply discarding ratings without careful consideration of the underlying processes and implementation can yield disappointing results.

It is important to examine the details of these “no rating” processes and recognise that many prominent organisations, which discarded traditional ratings, also introduced a series of new initiatives and procedures to engage their workforce and enhance performance development. Therefore, organisations seeking to eliminate ratings and replace them with mere comment boxes should not be surprised to find that this alone does not lead to significant improvements.

So, here’s the question: Are we disregarding a potentially valuable system along with its flaws? Is it possible to establish an ideal “rating” system that allows for fair and accurate performance measurement without adversely affecting employee engagement, while still providing the necessary metrics for performance monitoring and future planning? Our answer is positive but…

Yes, it is indeed possible to optimise how ratings are defined and utilised in order to minimise any negative impact on engagement and performance. However, for these ratings to truly benefit employees and the organisation, they must be accompanied by a redesigned performance management process.

Now, let’s delve into an analysis of the advantages and disadvantages of ratings and their impact on performance.

 

Evaluating the Effectiveness of Performance Ratings

Negatives of Performance Ratings

It’s clear that there has been a love-hate relationship with ratings over the years. They can be subjective and the less-than-ideal rating scales can be quite confusing. Our experience tells us that people are also biased when handing out ratings and they tend to be more “nice” than “accurate”.

So what do the numbers say? What is the actual impact on businesses that use ‘ratings’, you may wonder?

Here is our case study: We recently hosted a great webinar through HR.com where host, Edie Goldberg presented a case study. Edie stated that Ely Lilly shared some interesting research results that were part of their own business case for eliminating ratings and moving to a more continuous performance management process.  The data they share has to do with their employee engagement scores and the impact that ratings had on these engagement scores.

The research reflected the impact on employee engagement when making a once-a-year review – based on monthly pulse surveys, they noticed an interesting trend over the years. Immediately following the performance rating process, there was a significant drop in engagement for 80% of the employee population. That drop stayed down for up to 3 months after the ratings were given out. A drill-down on this data also revealed that it was employees who were rated a ‘4’ or lower (based on a standard 5-point scale) that had the biggest drop in engagement.

Surprisingly, even the employees with a rating of 5 still experienced a dip in engagement, even though they recovered from the drop more quickly. They determined their rating process was causing a drop in engagement and performance for almost an entire quarter.

 

The data is self-explanatory – if ratings are causing a drop in engagement and performance, you’d think to rid of them, right? Not quite…

Let’s dive into the details before making any decisions – Eli Lilly also states that these ratings are the only form of feedback given in a 12-month period. There is no question that employees experience a level of shock and subsequent loss in engagement when feedback and ratings are saved up for 12 months and then suddenly thrown at them, or when they are given one number that defines an entire year’s worth of work and accomplishments.

Even Eli Lilly concluded that decreases in employee engagement after being rated has as much to do with the initial shock as it does with the ‘labels’.

 

Positives of Performance Ratings

Although they can seem intimidating, ratings can deliver some value and it’s important to acknowledge the positives that come with performance ratings. Ratings offer a quantifiable view of performance – this means an organisation can report on its talent base and use trends to plan for improvements.

Which managers are most effective? Which employees are most likely to become leaders? Are there severe skill gaps we need to address? These are examples of queries that performance ratings may answer.

Some can argue that the ratings themselves are not accurate and thus any data cannot be trusted but overall, we are seeing organisations refusing the let go of any let alone all visibility into their largest investment and determinant of success – talent. Instead, companies are opting to improve the accuracy and validity of ‘ratings’ so any data can be used for decision-making.

Besides providing data and metrics, it has been shown that ratings also provide a clear indicator of relative performance, which makes it easier for managers to focus development discussions and helps employees link pay decisions to results.

 

The Reality of Performance Ratings

Performance ratings, in their various forms, serve as valuable tools within companies. However, the widespread dislike towards ratings stems not from flaws of the tools themselves, but rather from the inadequate provision of suitable tools and information for proper utilisation.

Consequently, ratings are often distributed inconsistently across the organisation, leading to predictable outcomes – managers dislike assigning them, and employees are dissatisfied with receiving them.

 

Achieving a Balance of Performance Ratings

Typically, a uniform rating scale is employed for evaluating all aspects of an employee’s performance, including goals and competencies. This frequently involves a 5-point rating scale (5 – Outstanding, 4 – Exceeds Expectations, 3 – Meets Expectations, 2 – Needs Improvement, 1 – Unacceptable). However, applying this scale to certain evaluation criteria proves problematic and unreasonable to expect managers and employees to do so.

For example, goals cannot be classified as ‘Outstanding’ or ‘Needs Improvement’; they are better described as ‘Achieved,’ ‘In Progress,’ ‘Deferred,’ or ‘Cancelled.’ The same principle applies to development items or accomplishments. The negative impact of these ratings on employee engagement likely arises from forcing employees into an arbitrary quality scale for matters that are more objectively defined.

Our recommendation is to redefine rating scales, tailoring them to the specific criteria being evaluated.

Let’s discard the term ‘rating’ entirely and instead adopt a text-based ‘status’ scale as a replacement for the 5-point ‘rating’ scale. This shift enables employees to be assessed based on their actions rather than subjective assessments of quality. Consequently, tracking can occur without the negative stigma typically associated with ratings.

To further enhance this approach, users should only see the text-based ratings, while a numeric scale can be assigned on the backend to facilitate effortless reporting

 

Goal Status Scale

Goal Achieved (3): All milestones and success measures have been achieved
Active Goal (1): The goal is still in progress, some milestones may have been achieved
Goal Not Met (0): Timeframe for Goal has been met; however, some or all milestones and success measures have not been met
Goal Deferred (-): For timing or business reasons, this goal has been deferred

Development Item Status Scale

  • 100% Complete
  • 75% to 99% Complete
  • 50% to 74% Complete
  • Less than 50% Completed
  • Not Started

For areas of evaluation that have to do with soft skills and require a little more subjectivity, we suggest using a behaviour-based scale where employees are evaluated on the frequency of said behaviours being observed.

 

Observation Frequency Scale

Consistently Observed This competency/skill is observed on a constant basis; everyone in contact with this person would observe excellence in this area
Observed This competency/skill is observed, please continue to focus on it so that it is observed constantly without exception
Observed Sometimes The competency/skill is observed on an infrequent basis, there is a clear development opportunity here
Seldom Observed Needs Immediate Improvement

Remove the Stigma of ‘Meets’

Everyone wants to progress within their role. This is why employees can get frustrated if they are shot into a ‘Meets Expectations’ category – vocabulary such as ‘satisfactory’ and ‘meets’ can come off as ‘just about good enough’, which isn’t great in the minds of many employees.

We suggest using an ‘observed’ or ‘achieved’ rating scale (see above) so that an employee can feel perfectly happy and proud about their performance.

 

Avoid Numbers

We suggest displaying only text ratings instead of having numbers or text and numbers – this way, employees are not associated with a number but instead a relative ‘category’ of a performer. This allows everyone involved to focus on the behaviours and observations instead of getting too hung up on a number. If you are in the process of finding a new performance management system, be sure to check if they can accommodate text-based ratings with a defined scale on the back end for reporting.

 

Ghost Ratings

Something we are seeing more and more of is the concept of ‘ghost ratings’ where a manager is asked to provide an overall rating for an employee that the employee does not see. This allows organisations to report on the status of performance and potential while keeping the review open and conversation-based for the employee.

If you are currently looking into performance management systems, be sure to ask if the forms can accommodate hidden sections and ratings for the manager.

 

Remove the Shock-Factor & Provide Consistency

A little feedback goes a long way. The research presented above (in the case of Eli Lilly) was based on organisations engaging in performance management once a year. There is no doubt that employees experience a level of shock when feedback and ratings are saved up for 12 months and then thrown at them.

It is essential that organisations remove this shock by re-tooling traditional once-a-year reviews with continuous feedback and status updates. Quarterly meetings, performance logs, ongoing coaching and feedback are ways to not only engage managers and employees in performance-boosting dialogue throughout the year, but it removes the air of mystery surrounding appraisals. Both parties enter into the final review knowing more or less what to expect and the conversation can look ahead instead of scrambling to come to an agreement about the past.

Although the idea of managers providing consistent feedback sounds easy, the reality is that ongoing feedback is probably the most important part of an effective performance management strategy and yet it is the most difficult to enforce and monitor.

We have dedicated many posts to that very topic but the main understanding is this – train managers to give effective feedback, create a culture of feedback, encourage organisation-wide feedback and lead by example from the top. If you would like to learn more about how to implement an ongoing feedback strategy in your company, click here to watch our webinar.

 

Prioritise the Future

Building upon the previous points, recent research indicates that overhauled performance reviews, which prioritise future-focused discussions rather than dwelling on the past, appear to be the most effective approach. When employees receive more frequent updates on their progress throughout the year, and the year-end “review” is treated as a formal opportunity for reflection and development, it brings greater value to both employees and managers. Gone are the days when it feels like a nerve-wracking parents’ evening in school.

All in all, it is indeed feasible for organisations to mitigate the adverse impact of ratings while still reaping their benefits, however, it’s important to remember that the culture and specific requirements of your organisation should shape how the evaluation criteria is defined and measured.

By aligning the evaluation process with your organisation’s unique needs, you can establish a more effective and tailor-made approach to performance management.

Analyse what process is best for you and your company, and don’t forget, ratings don’t have to be harsh and basic. We wish you ‘happy rating’ from EmPerform!

 

Align, Develop & Retain Top Talent with emPerform

emPerform includes the tools needed to identify and engage high-performing teams. With online reviews, year-round goal tracking, ongoing feedback, pulse surveys & complete merit & bonus management – you can create a performance program that drives engagement & results.

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