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17 Jan 2023

Why forced distribution ratings should get the thumbs down

Employee performance reviews should be about a conversation between employer and worker

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According to recent reports, Google has introduced a new employee evaluation system called Google Reviews and Development (GRAD), which requires managers to rate at least 6% of their reports as low performers, compared with just 2% under the previous process.

US news channel CNBC reports that employees are “jittery” about the new performance review system, since appraisals will come at a time when the company is looking to cut costs.

The new system will require managers to rate three times more employees as underperforming than they were required to do previously. But is this policy change a way for Google to cut costs, or does it have another purpose?

It’s all about the numbers

Whatever the reasoning behind it, forced distribution of performance ratings is a bad idea. General Electric introduced the system in the 1980s, but abolished it in 2016 when managers realised it created a negative culture.

Studies show that performance ratings demotivate employees – apart from the top performers. You might have 10% of people rated as top, but most will be labelled average or good. This can discourage those who could still be doing a great job.

The main problem with rating employees this way is that they tend to focus on the number. When it comes time for an annual review, all anyone can think about is ‘what’s my score?’ rather than listening to feedback or discussing their performance.

But what really matters is the quality of feedback. How am I doing? What can I do better? What should I be doing to improve on my objectives and performance? This type of qualitative feedback often gets ignored because of focus on the numbers.

Competition and complacency

Rating people this way gives the perception that they are fixed, rather than capable of growth and improvement. If a manager tells an employee “I think you're a three,” the person may think: “Ok — next year I'll probably be a three as well.” This makes them less likely to work on self-improvement and can even lead to complacency.

There is also a lot of research that shows performance ratings lead to higher stress levels among employees, which can create a fight or flight response. People either get angry, or make plans to leave.

Forced distribution can create a culture of competition. If a team consists of 10 people and one of them has to be rated as ‘underperforming’, employees don’t want the other nine members of their team to do really well – or better than they are. That would put them in a risky position.

Likewise, people won't want to join high-performing teams because it increases their chances of being one of the underperformers. So in the context of this culture, colleagues are less likely to support one another and collaborate.

Ratings are subjective – and biased

Some may argue that ratings provide useful data because they tell us how many people are underperforming. But the fact is these assessments are highly subjective. A manager in one area of the business may rate somebody as underperforming, while that same level of performance is deemed acceptable by another manager. So unless you’re running hundreds of hours of calibration sessions – which isn't realistic for most companies – there will be bias.

All things considered, forced distribution ratings are a bad idea. The negative impact of creating a culture of competition and anxiety, spreading mistrust among employees and managers, far outweighs any small financial saving.

In partnership with 3R Strategy

Independent Pay & Reward Consultancy

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