Performance reviews in midst of an overhaul
Survey finds some companies that scrap ratings system face complaints
There’s a revolution going on in corporate human resources departments, and the much-hated annual performance review is in the crossfire.
Over the past few years, a fastgrowing number of high-profile companies have been blowing up this annual rite of corporate life, replacing the traditional yearly review with something more frequent, less formal and, they hope — less reviled.
According to a March survey of more than 250 companies by the research and consulting firm Brandon Hall Group, about 16 per cent said they had recently eliminated the use of a rating scale.
The rebellion is taking different forms. Some, such as Accenture and Microsoft, have ditched “forced rankings” that use a bell curve to distribute employee performance, among other things. Others, such as Adobe and General Electric, have either dumped the rating scale that labels employees’ performance with, say, a “3” or “meets expectations,” or are testing the idea with groups of employees.
Big banks like Goldman Sachs and Morgan Stanley have made changes to the way they rate and review workers.
But as the uprising gains steam, a big question remains: How good are the systems replacing them? As companies revamp reviews, what’s working and what’s not?
New survey data shared with the Washington Post by the advisory firm CEB reveals that one of the big changes employees have cheered may not remain so popular over time. It finds that companies that eliminate ratings altogether — replacing the “grades” workers get, whether in the form of a numerical scale or descriptive terms like “excellent” or “meets expectations” — could be in for some complaints.
CEB surveyed more than 9,000 managers and employees across 18 countries and found that those who worked for organizations that had scrapped ratings from the review process actually scored the performance conversations they had with their managers 14 per cent lower. Employees who had a top score under the old ratings system missed them most, with satisfaction scores dropping even further. And among the group that had no ratings, the number of employees who believe their organization differentiates pay by performance dropped eight per cent, the survey found.
“For organizations that have abandoned some sort of categorial rating type feedback, what we actually find is that experience is pretty negative,” said Brian Kropp, CEB’s H.R. practice leader. Without a rating to focus on in the conversation, Kropp said, managers may feel it’s harder for them to deliver a clear message. The survey also showed that when companies drop ratings, managers spend less time on performance management.
Finally, employees appear to have a harder time seeing the link between pay raises and performance. When there wasn’t as clear of a link between a score they got on their performance review and the size of the merit increase they received, employees’ “perceptions of pay differentiation fell,” Kropp said.
In focus groups, “they tended to say ‘my manager’s just going to give more money to the person he likes.’”
While these new results may spark caution in companies thinking of jumping on the trend, it also seems too soon to say eliminating ratings is a bad idea. After all, years of research have pointed out the challenges of grading employee performance — how ratings can lead to manager bias, demotivate workers, and, especially if forced onto a curve, prompt the kind of internal competition that isn’t helpful in a team-driven workplace.
Kropp does say their survey revealed places where the negative effects of ditching ratings didn’t show up: When the quality of the managers in place were especially high. “If you’ve got really great managers, you can really be successful in any system,” Kropp said. In such places, he says, there’s a “small benefit from not having scores.”
Kropp also agrees that the dissatisfaction some managers and employees are reporting in the rating-less reviews may be because the changes are new. Most companies who’ve dropped ratings altogether have done so in the past couple of years, so managers could get better at them over time, and employees may grow more accustomed to not having them.
The problem: Corporations tend to be impatient. Kropp says he’s already hearing from companies that are thinking about going back.