Posted by Julie • October 11, 2016 (Last modified July 29, 2018) • 3 min read
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.
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:
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.
Instead of getting sidetracked by the ratings debate, companies should look to improve their performance management in the following ways:
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.
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