Performance Ratings are Failing: What you should do instead

A decade or so ago, performance management reviews were the fashionable trend in the HR spectrum. Business leaders revered performance ratings, swore by them, and dared to put them on a pedestal. But the annual performance ratings have since seen a downward trajectory. 

So, what went wrong, and is removing performance ratings really the way to go?

The Numbers Behind the Spectacular Fall of Performance Ratings

Why are so many employees unhappy after their performance ratings? Why do HR leaders often dread conducting reviews? You’d think this bottleneck would have been cleared by now, judging from the hundreds of blogs and white papers addressing the importance of performance management. And yet:

  • Only 18% of HR leaders agree on the effectiveness of performance management at achieving its primary objective. (2019 Gartner Performance Management Benchmarking Survey)
  • A whopping 81% of HR leaders would make changes to their current approach to performance management. (Gartner)
  • 15% of HR managers plan on removing performance ratings in the near future, while 6% have already removed them. 28% of the surveyed group have no plans to remove ratings but would consider. (CEB 2016 Agenda Poll).

So, why are we in this quandary? The answer is simple, really: HR leaders have been focusing on the wrong aspects of performance management. 

Rethinking Performance Ratings: What to Include and What to Shred Out

Problem 1: The Annual, Episodic Review

Twelve months is a long, long time. Can you remember what you tweeted about this time last year? Even the best HR leaders would struggle to remember tasks assigned, and work completed a year ago. As such, the annual performance ratings are toothless at best and demotivating at worse.

Thing is, leaders loathe the workload involved in having to remember a year’s worth of effort for each employee. Workers also get frustrated when they realize their past achievements have been swept under the rug or forgotten entirely.

Solution: Provide Ongoing, Not Episodic, Performance Review

According to the CEB 2012 High Performance Survey, continuous feedback can have a respectable 12% impact on employee performance. A yearly review simply doesn’t cut it. Instead, focus on holding a quarterly or mid-year review. Not only does this break up the pressure of the episodic review, but it also allows you to adjust expectations on employees based on past performance or organizational changes.

Problem 2: Reducing "Effort" in Performance Management

When organizations first paddled the uncharted waters of performance management, the primary goal was to assess employee performance. 

Today, organizations rely on PM systems to drive employee performance, engagement, and development, as well as inform compensation, promotion, and succession planning decisions. These increasing demands on PM mean that HR leaders end up putting too much effort into understanding performance management complaints. It’s a tight rope to walk on.

By “too much effort”, we mean:

  • Cumbersome technology
  • Overly complex 
  • Asking too much of managers and employees
  • Too much time required
  • Requires extensive energy
  • Not user-friendly

While reducing effort might seem like the outright fix to this stalemate, it’s often not the case.

Solution: Focus on Increasing Utility, Not Decreasing Time and Effort

Newsflash: Reducing “effort” in performance management reduces workforce performance by up to 16.6%.  

Assuming that your PM boat is already rocking, decreasing time and effort would send it underwater. Focusing on utility would be a better idea. No matter how much time and effort you spend on performance management, your employees only perceive PM to be worth it when it has high utility. 

Yes, eliminating performance ratings is a prudent move. But even then, the existing review should be modeled to ensure it’s highly useful and utility-oriented. As such, it should be:

  • Tailored for individuals, not collaboration
  • Accurate and fair
  • Highly engaging and motivating
  • Perfectly aligned with business needs
  • Provide deep insight into business priorities
  • Relevant to work

That’s it. Simple. Then go ahead and scrap the final rating. A good performance management review should be based around
solid coaching and continuous improvement, not placing someone into a number box. 

Problem 3: Your Managers Are Not Well Coached

You can have the best PM processes and systems in the world, but if your managers have no clue about how to make the most of a performance review, then you’re doomed. Don’t assume that your HR managers know how to glean actionable insights from a review or award ratings objectively. Heck, some are not even capable of conducting multiple feedback sessions in a short space of time.

Just picture a HR manager indicating “Fairly Good” against every question about each of your employees’ performance. It’ll help no one.

Solution: Coach and Support Your HR Managers

The CEB 2014 Enterprise Contribution Workforce Survey reveals that making performance reviews forward-looking can have a 13% impact on performance. That’s a good statistic to ride on.

So, how do you make your reviews forward-looking and not backward-looking? Easy—embrace leadership coaching. Effective coaching gives HR managers the platform to discuss, assess, and refine their PM approaches. It acts as a sounding board that helps them know how prepared they’re for leadership. More importantly, it helps them realize that removing performance ratings is only half the battle. The other half, as a cutting-edge leadership development program would show, is tailored around handling poor performers and how to extract even more from their best performers.

A Few Final Words

There’s no doubt about it. Traditional performance ratings are ineffective at properly measuring and retaining talent. Don’t wait to see the day when your best performers will walk out the door simply because the ratings were too harsh, too shallow, or otherwise blurry. Give them a reason to stay. Master the art of conducting honest, constructive, and holistic reviews.

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