What Happens When Companies Nix Performance Ratings?

Business man and woman in a meeting

For a recent article in the Harvard Business Review, the NeuroLeadership Institute published its analysis of what happened when 33 large companies removed their performance ratings.[i] Here are their findings:

  1. The frequency of manager-employee conversations increases dramatically. I totally get this one. I have observed this significant change while working with companies to update their performance management practices and eliminate performance ratings. When you take the drama out of “What are you going to rate me and how does it impact my pay?” employees’ mindsets shift from bracing for a fight and defending their work to being open to feedback and development!
  2. Companies significantly reduce administrative burden. The authors referred to a previous HBR report that Deloitte needs two million hours annually to review its 65,000 plus employees across the globe. Adobe estimates that its yearly reviews require an equivalent of 40 full-time jobs.
  3. Conversations focus on goals, growth, and development. The revamped performance management systems for these 33 companies led to richer manager-employee conversations. Assessing past performance transitioned to setting goals, planning growth and taking action. This speaks to an implicit recognition that employees feel more engaged in the organization when they feel supported by a manager’s guidance and coaching and when they have more ownership of the process.
  4. There is no single best practice. My advice to companies is always: Before you change your performance management system, be clear about why you are doing it. Does your performance appraisal system exist to build alignment to your company’s strategy and goals? Provide feedback and coaching to employees? Decide which employees deserve the highest raises? Identify your best talent? Determine what makes your best talent the best? Depending on the answers to these questions, you can put a thoughtful performance management process in place to improve the organization’s ability to successfully implement business strategies, build a culture of learning, collaboration and performance, and develop your next generation of leaders and technical wizards.
  5. No one is getting rid of pay-for-performance or pay differentiation. Despite having no simple rating for employee performance, the authors report that the companies are working out how to identify low performers and high performers. High performers are benefiting from the same or even more differentiated pay as a result of compensation going back to more of a “manager discretion” strategy. My advice is that performance and compensation should be calibrated by manager groups rather than left up to individual managers. I have seen this team evaluation approach lead to more consistent and accurate performance assessments.
  6. Well-designed change management is essential. Change is constant in organizations, and executives should be experts in change management. The authors report that the few organizations that rolled out their new performance management platforms too quickly and without a lot of planning – in a period of a few months – regretted rushing into it. Most of the companies recognized that taking the necessary time to execute a strong change management strategy was essential to their new performance management approach.

Is your organization re-thinking performance management? Have you already made changes? How has it worked out? Join the conversation!

Victor Assad is the CEO of Victor Assad Strategic Human Resources Consulting and is a Managing Partner of InnovationOne.US. He works with key decision makers and human resources leaders on talent management, leadership development and coaching, innovation, and other strategic initiatives. Please e-mail Victor at victorassad6@gmail.com or visitwww.victorhrconsultant.com. For innovation visit www.InnovationOne.US.

[i] David Rock and Beth Jones (Nov. 6, 2015) “What Really Happens When Companies Nix Performance Ratings?” The Harvard Business Review. Found at https://hbr.org/2015/11/what-really-happens-when-companies-nix-performance-ratings.

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