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Should businesses be ditching employee ratings?


Performance management has been one of the hotter topics over the past years, partly because the process has caused so many of us angst.  Along with instances of demoralisation as employees, we have wrung our hands over how to approach tough conversations let alone find the time to have them. 

Some company practices have contributed to the flaws in this process and a refresh is definitely needed.  However, ditching ratings is a cut too deep for the vast majority of companies.  Well thought out and defensible outcomes are crucial for employee growth and for leader insight.

The side-effects of forced distribution

A small but vocal minority of companies are putting an end to ratings, as the side-effects of forced distribution, a previous ratings fad, are sometimes worse than the cure it was supposed to provide. 

If major job decisions are bound to a single, reductive number, careers can be made to feel won or lost. This defeats the purpose of performance management, which is to increase the value created by each employee. 

Behavioural Economics

In the past decade, Behavioural Economics has emerged as a powerful force. It identifies that employees are likely to have an emotional response to the rating placed on them.

While it may be true that employees will not rationally receive their ratings, this is equally true with salary increases, bonus awards or promotions, none of which are going away soon. 

The noble idea of freeing the individual from experiencing discomfort comes at too high of a cost for organisations.  Clear communication on progress against expectations provides the necessary context for growth in roles and careers.

Take away the pressure

Ratings should only be used as an input rather than a sole factor that determines the outcome of major job decisions. By taking away the decisive power of ratings, pressure is lifted from employees. It also creates a feedback loop for employees, who must own their careers, to push managers. 

The trouble with removing ratings

Without the insight of ratings and their spread across different talent groups company insight is hindered.  Performance assessments are highly valuable for HR and business leadership in analysing who is leaving and why. 

Leaders, including the Board, risk losing clarity on how decisions are being made, the health of the company’s talent, and how this talent is or isn’t contributing to the achievement of company goals.

While the move away from ratings is still a recent phenomenon, there are already troubling examples.  Companies who removed documented outcomes found an increase in employees registering dissatisfaction and experienced difficulty in how to validate pay decisions.

While pay should not be dependant ratings, useful correlations across reasonable employee populations can be drawn from performance assessments. 

An effective approach

To use ratings more effectively, companies should adopt the following three approaches:

  • Removal of rankings
  • Greater tolerance for manager judgment
  • Rate multiple factors

Integrating these approaches trades laboratory precision for better situational decisions, the acknowledgement of development progress, and consideration of expected future contribution.

Ratings reveal important insights about employees, the company and the board. These insights create a useful fact base that can be used to achieve create value and progress towards achieving company purpose.

Chris Hare is Director and Founder of Quantitative HR (QHR), a leading the market in applying the latest strategic workforce planning and HR analytics approaches, enabling clients to unlock the value of their human capital.

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