MHR Blog

The Dangers of Ratings


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?

1 – 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?

2 – 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.

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.

3 – 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.

4 – 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.

5 – 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 are 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 fool proof, 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. If all research points to this method having a negative effect on employee engagement, why do we continue to use it?

So what are the alternatives?

Changing this system, or removing it completely, flies in the face of traditional HR practice. Performance ratings provide instant data, and we’ve become accustomed to measuring, recording and comparing everything – the way we work often depends on it. But that doesn’t mean that change is a bad thing.

If you insist on keeping performance ratings, here are a couple of ways they can be improved:

Use ratings alongside check-ins

Ratings as part of an annual appraisal simply don’t work. Why wait up to a year to find out that some of your staff are performing at unacceptable levels while others are clearly underused. These are issues that require immediate attention. Instead, ratings should be used alongside performance check-ins, providing you with a real-time overview of how your workforce is performing.

Scrap ratings for over-performance

The current 1-5 rating system labels employees that are meeting all expectations – that is the vast majority of people – as average. Would you be happy to admit that most of your employees are merely average? This clearly needs rethinking.

If you have to rate people on a numeric scale, why not scrap ratings ‘4’ and ‘5’ and make ‘3’ the top mark? After all, what more can you expect of an employee than them meeting all your expectations? Instead of being labelled as average, most people would be told they are doing a good job. This makes sense, because most people are doing a good job.

Obviously it’s important to reward people when they go over and above their everyday duties, but this should only happen in reaction to an unplanned external event – otherwise it would be part of their job description. These moments should be recognised as and when they happen, with employees awarded something like a ‘star’ rather than a higher rating. If employees are consistently carrying out extra duties, perhaps it’s time their job title was reconsidered.

Train managers to rate people properly

For any rating system to work, it’s key that managers are objective in their approach. Proper training should be provided to all managers to ensure they are aware of the potential for subjectivity and bias. Simply giving managers a document with a description of each rating is not sufficient. Managers should also use performance ratings to turn poor performance around rather than punish employees.

Stop skewing the data

We’re asking managers to rate employees, then ignoring the ratings if they don’t fit a prescribed distribution pattern – this is crazy. Streamline the ratings process by doing away with Bell curves, forced distribution and quotas – they skew the results and complicate the process. After all, if your managers have been trained properly, you’ll be able to trust their ratings.

For those brave enough to scrap ratings altogether, here are a couple of alternatives:

Judge emotions rather than giving grades

Your employees are intelligent adults, not naughty school children. Why are we grading them at all?

Instead of handing out marks, why not take the time to ask how your employees feel? Are they satisfied, stressed, bored or anxious? Do they feel underappreciated, or perhaps a little out of their depth? How do they feel about their workload – too much or not enough? These are important questions to ask, and they will never be answered by dishing out ratings. Stop trying to make it an academic exercise and try to understand how people are feeling.

Go with the flow

Understanding how your employees are feeling and what makes them tick will help you keep them in the flow. This is a mental state in which a person is fully engaged and immersed in the task at hand, giving them a sense of energised focus and enjoyment in the process.

In order to be in the flow, your employees need to be challenged just the right amount – too much and they’ll feel anxious and stressed, not enough and they’ll feel bored and disengaged.

Performance management should focus on keeping your employees in the flow – something ratings are never likely to do.

Final thoughts

What is the purpose of performance management? To a certain extent it’s about an organisation keeping tabs on its employees. But surely its real goal is to help employees develop their talents, making them more effective and efficient in their work. This in turn gives a CEO confidence that they have the right people in the right jobs, with a talent pipeline for succession and a low flight-risk workforce. With this in mind, it’s high time we looked at performance ratings and asked the question: who is this really benefiting?

Condensing a year’s worth of work into a single number simply isn’t an accurate or fair way of assessing performance. In fact, it’s impossible to equate an individual’s value in this way. Worse still, the process is expensive and lengthy, and serves only to disengage people.

It’s time we moved away from managerial practices that grade and demoralise employees, and move towards those that encourage continuous growth, improvement and engagement – this benefits everyone.

This article is part of a series on Talent Management in 21st Century. If you missed the previous article, you can take a look here.

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