Human Resource Departments tend to become frustrated with the lack of results from their performance reviews. Around 70% of companies are now reconsidering their performance management strategy. Are you?
Companies are changing their processes by eliminating performance ratings, where typically they would grade employees’ past performance using numeric scores or qualitative labels and then rank them against colleagues. Others are eliminating annual performance reviews altogether.
At this point, it’s still too early to determine whether eliminating ratings or annual performance reviews will do what managers really want, which is to improve employee and company performance.
Removing Ratings Improves Employee Performance
The purpose of the performance review is to be sure that employees know how they can develop their talents and energies and use them more effectively to contribute to the organization’s success. This applies to every employee.
There is a lot of pressure put on both the manager and the employee to give fair performance ratings, but It is rarely unbiased or fair to either side. It would seem natural to assume that removing ratings will improve employee performance.
HR teams tend to think that removing performance ratings will do four things:
- Improve Conversations: Managers will spend less time explaining an employee rating and more time discussing actual performance.
- Help Differentiate Pay More Accurately: Because managers have the required discretion to differentiate pay on their teams without being tied to the ratings they use.
- Improve Engagement: When you remove the part of the review process that causes frustration, it’s possible to improve the employee’s perception of performance reviews.
- Decrease Negative Perception: Remove the competitive nature of performance reviews and focus more on strengths and accentuating those for better performance.
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Removing Ratings Doesn’t Always Work
Approximately 6% of the Fortune 1000 have removed ratings, 15% of companies are in the process of deciding whether to do so, and 28% of companies would consider it. On the other hand, 51% of companies say they do not plan on removing ratings.
When performance ratings are removed managers struggle to make and communicate performance and pay decisions. In fact, less than 5% of managers are able to effectively manage employees without ratings. CEB analysis shows that eliminating ratings leads to four unintended outcomes.
- Manager conversation quality declines by 14% because managers struggle to explain to employees how they performed in the past and what steps to take to improve future performance.
- Managers have more time, but time spent on informal conversations decreases by 10 hours because managers do not shift that extra time toward ongoing, informal performance conversations.
- Top performers’ satisfaction with pay differentiation decreases by 8% because managers have trouble explaining how pay decisions are made and linked to individual contributions.
- Employee engagement drops by 6% because managers are unable to do the very things that are proven to engage employees, such as set expectations for their, hold clear performance and development conversations, and provide appropriate rewards and recognition.
Read This: 3 Things Your Performance Management System Should Upgrade this Year
Improvements For Your Performance Management
Instead of getting sidetracked by the ratings debate, companies should look to improve their performance management in the following ways:
- Provide ongoing performance feedback: By increasing how often performance reviews happen it’s better to give constant feedback. This gives the employee the direction they need to improve their performance more often than once a year. Performance management systems make this task easy for managers.
- Performance reviews should be forward looking: Discussing future performance provides managers and employees a more accurate understanding of their abilities to meet business goals and how to improve upon their skills.
- Include 360 reviews: Collecting feedback from peers who understand employees’ work helps managers assess employee performance more accurately.
It’s imperative when switching up performance management in any way to research just how important things like performance ratings and annual reviews may be to your managers, employees, and overall performance culture.