To Rate or Not to Rate. That is the Performance Management Question.

Although it has obvious benefits for aligning, motivating and developing an organization’s workforce, performance management is the most hated of human resource processes. If not done well, it interferes with the relationships between managers and employees. Performance management is often bureaucratic and time consuming, with long forms to complete and 360-degree feedback to collect. In many companies, there are rankings to do, forced distributions, forced removal of some percentage of the poor performers, and conflicting and overlapping competencies.

What often gets lost in the process is relationship building, honest performance and developmental feedback, and employee commitment to higher levels of performance and innovation.

Quality guru W. Edwards Deming called for ending performance appraisals altogether because he found the whole process demotivating. He had a strong belief that effective systems (not people) could curtail variation in process outcomes. Controlling process variation, however, does not build talent within an organization, improve customer relationships, increase innovation, or develop employees.

UCLA professor Dr. Samuel A. Culbert also advocates eliminating performance appraisals, saying that they are, “A negative to corporate performance, an obstacle to straight-talk relationships, and a prime cause of low morale at work. Even the mere knowledge that such an event will take place damages daily communications and teamwork.”[i]  Instead, he advocates performance previews: problem-solving discussions about how the boss and employee will work together more efficiently and effectively in the future.

According to Deloitte, 39% of the companies they survey are changing their performance management systems to place more emphasis on continuous feedback, coaching, and separating feedback from pay discussions. Companies that have made such changes include: Adobe, New York Life, Motorola Solutions, Kelly Services, Dell, Juniper, IBM and even GE.

Some companies, however, have reviewed their performance management practices and decided to keep them, including performance ratings, after making some tweaks. Facebook is one of those companies. After analyzing their performance management system a few years ago, they conducted focus groups and a follow-up survey with 300 employees. An overwhelming 87% of employees wanted to keep performance ratings. Facebook kept their performance evaluations for three reasons: fairness, transparency and development.[ii]  Facebook ties their ratings directly to compensation. Facebook management concluded that ratings help employees understand how their total contributions are seen by the organization.

Medtronic is reinstituting performance ratings, due to its acquisition of Covidien, which has a more traditional view about performance management. Intel, Price Waterhouse, and Deloitte are also reinstating performance ratings. Deloitte is using more than one rating (based on competencies) and keeping the emphasis on developmental feedback.

Some of this swing of the performance management pendulum is due to business cycle timing. During the 2008 great recession, many employees were laid off, and new hires were easy to find. Management wanted performance management systems with ratings to easily identify whom to keep and whom to let go. Moreover, when budgets for pay increases are small, having rigorous performance management systems to divvy up a small pie seemed futile.

After the economy became hot again, finding new hires proved difficult. The pendulum swung to building more collaborative work environments and employee development and retention. Out went onerous performance management practices.

Should companies stop doing performance appraisals? No, but I believe that performance management needs an overhaul. I recommend that Human Resources leaders and their companies begin by looking at the talent needed to support their business vision, culture and strategies and ask themselves: Do we need more accountability and compliance or collaboration and innovation? Are we seeing a rise in turnover for hard-to-replace talent? Is our business experiencing rocketing growth or restructuring? Do we need to upgrade our talent?

Generally, I believe that growing businesses which need to attract hard-to-find talent and promote collaboration and innovation should do away with ratings. Companies struggling with accountability and going through restructuring, however, have good reasons to keep or install ratings.

Whatever changes you make with your company’s performance management system, remember: It is a major change initiative! What are you planning in your performance management system? What are your views about ratings? Join the conversation!

Victor Assad is the CEO of Victor Assad Strategic Human Resources Consulting and is a Managing Partner of InnovationOne. He consults on innovation, talent management, developing agile leaders and teams, and other strategic initiatives. To learn more about performance management and what really motivates employees to excel, download his free whitepaper, “Performance Management: Are You Aligning Employee Passion to Company Purpose?” Questions? Please e-mail Victor at victorassad6@gmail.com or visit www.victorhrconsultant.com. For innovation visit www.InnovationOne.US.

[i] Dr. Samuel A Culbert. (Oct. 20, 2008).  “Get Rid of the Performance Review! It destroys morale, kills teamwork and hurts the bottom line.  And that’s just for starters.” The Wall Street Journal.  Retrieved from online.wsj.com/news/article_email/SB122426318874844933-IMyQjAxMT10MjA0NDIwNjQzWj

[ii] Lori Goler, Janelle Gale, and Adam Grant, (November 2016) “Let’s Not Kill Performance Evaluations Yet: Facebook’s experience shows why they can still be valuable,” Harvard Business Review.

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