Employee performance suffers when ratings are removed from performance reviews, according to business advisory firm CEB.
On average, employee performance drops 10% when ratings are absent from the review process, largely due to the inability of managers to effectively manage talent without ratings.
Impact on Employees
In an effort to improve their performance management systems, some companies have removed numeric or qualitative performance ratings.
However, while there is often an initial positive reaction after eliminating performance ratings, key performance outcomes such as quality of manager feedback and employee engagement ultimately suffer.
This has a greater impact on high-performing employees than average or low performers.
High performers are less satisfied with the amount of time managers spend on performance management and manager conversations in environments without ratings.
On the other hand, lower-performing employees are happy when ratings are removed, and they’re not confronted with a score.
Without a rating to point to, managers struggle to explain how pay decisions are made and link to individual contributions.
Employees notice this. In organizations where there are no ratings, the number of employees who believe their organization connects performance to pay decisions dropped 8%.
Not surprisingly, in these workplaces, high performers are less likely to feel that they are rewarded appropriately for their contributions.
"Performance ratings are crucial for organizations that desire a high-performing and engaged workforce," says Brian Kropp, HR practice leader at CEB.
"Without the tangible symbol of a rating, employees don't understand the processes or the philosophies behind their organization's performance management, which causes them to put forth less effort at work and become disengaged."
Without ratings, managers struggle when trying to explain to employees how they performed in the past and what steps to take to improve future performance.
In fact, employees working at organizations that have eliminated ratings from the review process score their performance conversations with managers 14% lower than at organizations that use ratings.
Managers at organizations that have abolished ratings also spend fewer hours on informal performance management conversations—24 hours per direct report per year, versus 36 hours at organizations with ratings.
"When performance ratings are removed two things happen for managers—they spend less time on performance management and they have difficulty providing concrete evidence of how the employee is performing and progressing," says Kropp.
The Path Forward
Companies should focus on improving their performance management in three ways:
- Increase the frequency of informal performance conversations. In addition to offering more timely feedback to employees, managers who have ongoing rather than episodic performance discussions are better able to adjust expectations about what's required from employees. This adjustment can improve employee performance by up to 12%.
- Make performance reviews forward looking, not backward looking. Assessing and discussing future performance requirements helps employees understand their ability to meet future business needs and how to improve in order to meet them.
- Use peer—not just manager—feedback in evaluating performance. The need for collaboration has exploded—two-thirds of knowledge workers interact with upwards of 10 different people each day. Collecting feedback from peers who understand employees' work helps managers accurately assess and discuss employee performance.