Removing appraisal ratings: a leap of faith?

One significant trend is to remove appraisal ratings.  Not just in small, agile organisations. But big names in the US and UK such as Accenture, Adobe, Deloitte, Gap, Google, KPMG, Microsoft, and PwC to name a few.

According to a recent study from PwC, 5% of organisations had removed ratings.  With 1/3 of companies planning changes to performance management, this is bound to gain traction.

What’s making the removal of appraisal ratings seem such a good idea?

• It’s linked to improved collaboration and engagement.  Removing ratings has been linked with improved satisfaction, engagement and retention. Ratings often create a sense of competition, and so affects collaboration. Where I’ve spoken to companies who’ve already done this, they’ve said employees were really happy about it.  So much so, there’s no going back!
• It leads to more frequent conversations. This has always been an aim in good performance management. And moving focus away from a once a year ‘big’ conversation about ratings has been shown to improve the frequency.  Probably because the whole process becomes more about ongoing development than a top-down assessment.  This also leads to a growth mindset and more willingness to hear feedback.
• It means less time wasted obsessing the number. Deloitte in the US estimated two million hours each year were spent on ratings alone. Not surprising given employees are so often negatively surprised by their rating.   Indeed, Scullen et al  found ratings to be more about personal biases of the manager than performance of the individual.
• Ratings generate a ‘fight or flight’ response. We’ve never liked being labelled.  Remember Prisoner Number 6: “I will not be pushed, filed, stamped, indexed, briefed, debriefed or numbered” The Prisoner, (1967 – 1968).  Thanks to a better understanding of neuroscience, we now know that being rated in an appraisal invokes the same chemical reaction in our brain as a ‘fear or flight’ response.

So the case for removing ratings is robust.  But it’s still early days. It will take a couple of years to really see the effects of this. It’s a pretty significant ‘leap of faith’ to take.

And it’s not a decision to take lightly, particularly when:

• We need a simple system to differentiate performance. As the world of work becomes more complex, a rating system provides a simple framework to capture the value people bring through their performance.  It enables smart investment in talent (e.g. development, secondments, promotion) and intelligent data analytics.  Can HR really add value to data where performance is a private conversation rather than a number?
• Ratings enable consistent and transparent reward.  Performance-related reward requires honesty and trust.  The absence of ratings makes it harder to achieve, and monitor, consistency and fairness across a wide population.  In some cases, reward decisions are now based on a system of ‘unofficial’ ratings not shared with employees.  This lack of transparency is a step back: destructive and a possible equal pay risk.  Our 2nd blog in this series will focus on reward without ratings.
• It may not be the ‘silver bullet’ we are looking for.  Is the rating really behind the issues we need to address?  Perhaps the feedback and how it is given is what demotivates employees and provokes the fear/flight response?  If we no longer need to justify ratings, it becomes easier to just focus on positive feedback.  But what’s the impact of this on individual and business performance? A better solution may be to focus on how feedback is given and received, rather than remove the rating.  

What is clear is that there is no easy answer to this one.

Whether or not to remove ratings has to be a business-specific decision. It’s about establishing the best approach to performance management and the root cause of the aspects that need to change. And then weighing up the net value of using a rating system.    

And the right solution may simply be a more ‘grown up’ measurement system. Aligned to concepts such as personal best, future potential and cultural-fit. Deloitte adopted an interesting approach based on four future-focused statements about what managers would do rather than what they think.

What are your thoughts?

Samantha Gee is director of Verditer Consulting
This is number one in Verditer's Performance Management trilogy.