Julie Lock explains the flaws of traditional performance ratings and why now is the time to adopt a new approach.

Performance ratings have been part of the annual appraisal process for as long as I can remember. They aim to condense an employee’s performance – from the smallest tasks to the biggest projects – into a single-digit grade. Seems a bit too simplistic, right?

It’s no surprise that organisations have started to doubt the value of ratings, with many looking to alternative ways of monitoring and measuring performance. To see why, let’s take a closer look at how this bizarre process works.

The process

Employees are typically given a rating on a 1-5 scale, with ‘1’ being the worst and ‘5’ the best. But what do these ratings really mean?

• Below expectations

An employee awarded a ‘1’ is considered to be performing at an unacceptable level. This means they are either willingly underperforming or they are out of their depth. With ratings usually given as part of an annual appraisal, this underperformance could have been the case for up to a year.

In reality, such issues require instant action, with the employee receiving immediate support, mentoring and coaching, or being repurposed into a more suitable role for their skill set. If all else fails, they should be exited from the organisation. How has this situation been allowed to go unaddressed for so long?

Handing out ‘1’s also means some difficult conversations will have to take place. Are your managers fully trained to handle this?

• Meets some expectations

This rating means that the employee, while performing well in some parts of their job, needs help in other areas. Let’s get one thing clear – people can’t be firing on all cylinders 100% of the time. New starters in complex new roles may need time to fully bed in.

Likewise, people returning from an extended period of absence may take time to adjust back to work life. In such cases, a ‘2’ is understandable, and improvements can be agreed, documented and measured as goals for the employee to achieve. A long-serving employee dropping from a ‘3’ to a ‘2’ is more troubling, however.

The outcome of this long-winded and expensive process is the majority of employees being told they are average.

In any case, managers should ensure that those awarded a ‘2’ are put on a development plan to help them get up to speed. Again, this sort of problem should be nipped in the bud, not addressed at an annual appraisal.

This rating is not the end of the world, but on a 1-5 scale, being awarded a ‘2’ can feel pretty awful.

• Meets expectations

This rating means that the employee is doing everything they are supposed to be doing to the level expected by their employer. Good news, right? Unfortunately not. On a 1-5 scale, instead of hearing ‘everything’s going well’, employees awarded a ‘3’ hear ‘you are average’. And nobody wants to be told they are average.

• Exceeds expectations

Presumably, this rating is handed out not to employees doing a really good job, but to those doing more than they are expected to do. Really, this should only be the case in extraordinary situations, where someone goes above and beyond their usual responsibilities in reaction to a particular event or issue.

Doing your regular tasks really well shouldn’t qualify – that’s just meeting the expectations of the job.

• Continuously exceeds expectations

If an employee is continuously going over and above what is expected for their job title, they are clearly in the wrong position. They ought to be on a development plan or repositioned as quickly as possible to avoid them becoming bored. But again, this is something that needs addressing immediately – why wait a year to figure it out?

If your potential stars are stuck in the wrong positions, they will become a flight risk.

What happens next?

Once the manager has assigned the ratings, they send them to their HR department who gather the ratings together and check them against a bell curve – a template for a supposedly normal distribution of low, average and high performers.

If the ratings don’t fit neatly into the bell curve – for example if the manager awarded too many ‘4’s and not enough ‘2’s – HR will return the ratings to the manager, who will then calibrate them accordingly.

We are left with a set of abstract data designed to satisfy HR policy, but with little benefit to anyone else.

The result

The outcome of this long-winded and expensive process is the majority of employees being told they are average. Worse still, performance ratings can actually be detrimental to their wellbeing.

Emotional distress

Research has shown that ratings cause negative emotions among employees. Those receiving low or average ratings feel undervalued, disappointed and disillusioned. This has a long term negative impact on the employee.

High ratings, on the other hand, result in a sense of recognition, but this is short lived. Unless the employee is on a career development plan, they soon realise that their employer recognises their potential but is doing nothing with it. They will therefore seek employment where they are not just recognised, but are also rewarded for their talents.

Receiving low ratings can result in a ‘fight or flight’ reaction, with less resilient employees feeling forced out of their jobs. Then there’s the problem of employees discussing their ratings, which can lead to a culture of rivalry, negative comparisons, and perceived favouritism.

None of these things is likely to improve employee morale, and a disengaged workforce means low productivity.

Subjectivity

Ratings are inherently subjective. Managers can be influenced by their mood, or their relationship with the person being appraised. Personality also plays a part, with managers more likely to give higher ratings to employees with similar personality traits to them.

Even the order in which people are rated can skew the results – a good employee could appear to be underperforming when following an outstanding employee.

As a result, some people will feel that they have been marked unfairly – and if the process isn’t completely foolproof, this feeling may well be justified. To compound the problem, employees are likely to dispute low ratings, causing extra work for managers and HR, and fuelling resentment between employees and managers.

But surely ratings have some benefits?

Of course – ratings do serve a functional purpose. And that’s why it’s tricky to do away with them completely.

First of all, ratings are a tried-and-tested way of measuring performance. They provide simple, quantifiable data that can be used by employers to gain insight into their workforce. Ratings allow organisations to succession plan by earmarking high performers.

They are also an easy way to allocate performance-related pay and rewards. This only works when the data is not influenced by a benchmark (such as a bell curve), and when the data is collected in real-time. Ratings can also be used as supporting evidence of a dismissal or formal warning; or from the employee side, to request a raise.

But ultimately, performance ratings must benefit the employee if they are to be worthwhile. 

About the author

Julie Lock is Service Development Director at MHR