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Dropping the Performance Ratings

ratingsWhy the world is falling out of love with the Annual Performance Review and its ratings.

Ahh.  The Annual Performance Review.  We’ve all had one and all left one feeling vaguely worse about ourselves and probably demotivated as a result.  It’s also quite likely you’ve been on the other side of the table too – having had similar feelings.  In many ways, Annual Performance Reviews make sense.

In business we crave the ability to quantify everything, from our sales targets to the number of toner cartridges we use.  Why shouldn’t our people be the same?  The ability to rank our employees in a given context and to assign performance-related perks (or not) has been the bread and butter of the average HR department for decades.  Where would General Electric and Jack Welch be without them?

So why are a growing number of high profile, global organisations including Amazon, Microsoft, Accenture and even General Electric themselves, moving away from the fixed rating, yearly performance review?

To begin with, the world doesn’t work to yearly cycles anymore, it may well do for senior managers, investors and your finance department – but for those of us on the frontline we have daily, weekly and monthly goals to achieve – things we quite often receive instant feedback on.  We inherently know (or at least we should do!) what our performance has been over any short time period, so why wrap it up once a year and look backwards?

Totem Lollipops

When Deloitte analysed their performance processes, they found employees and managers spent around two million hours a year on performance reviews (take the average hourly wage at Deloitte and times it by 2 Million – that’s a big number).  Do we know we’re getting good value out of this time?

Initially designed to help managers coach people to better performance, most appraisal meetings fall into a rut of ‘what you did well over the past 12 months and what you didn’t do well’.  In today’s corporate environment, assessing, addressing and rewarding performance once a year is simply too slow – both for the business and for the employee.

Which leads us to the second part of the answer: millennials.  David Rock and Beth Jones, writing for the Harvard Business Review about their research on this move to abolish ratings, comment that:

“Millennials in particular crave learning and career growth.  Of the 30 companies we studied, one preliminary finding that jumped out was that after a company removed ratings, managers talked to their teams significantly more often about performance – three or four times a year instead of only once.”

A growing number of your workforce will have grown up with the ability to give and receive feedback instantly, frequently and whilst mobile.

Jelly Bean Diversity

The nature of that feedback has changed too – the problem with many appraisal meetings is that much of the time is spent talking about the ratings themselves, not the underlying performance.  Millennials are far more comfortable asking the question why.  They don’t simply want a star or a thumbs up on their rating form, they want to see constructive feedback.

If a manager is unable to give them this guidance and coaching – in real time remember – then the manager is no better than a troll on YouTube.

It’s also the case that the familiar incentives don’t always encourage the best employees anymore, so we’re required to offer more tailored feedback and customized work arrangements for our top performers.  Companies that are removing ratings are seeing the conversations with their employees move from justification of past performance to conversations about growth, development and by extension – engagement.

All of us as managers need to stop getting stuck in processes and reviewing what is in this day and age, the ancient history of work performance 12 months ago.  We need to instead focus on instant, specific feedback so that everyone knows when they’re on the right path – and how to make positive change when they’re not.

Totem Gummi Bears

But does it work?  The CEB and the NLI have been researching companies who have made the move already and there are mixed results. CEB claims that most experiences are negative after the removal of ratings, whereas the NLI describes very positive outcomes. 

In the conversations we are having with clients taking the option to say goodbye to the rating system, there is a constant theme of concern over the organisation’s readiness.  Are managers aware of what they will be doing instead of discussing ratings?  Are they ready for that?  If this means more frequent and specific feedback, do managers have the skills and confidence to do that well?

The NLI have found that the most successful transitions have been where the business has lead strong change management communication on why this is happening, what it means for everyone involved and how people will be supported through it.  These businesses have also focused on increasing the frequency of performance conversations and moving the discussion from looking at the past to looking at the future.

It’s not a big stretch to see how the neuroscience literature supports this – as any change brings uncertainty unless there is an increase in strong communication focused on the why question.

In our next article we explore how you can do this well too…