The performance review season is here yet again, and you know the drill. It is the time of the year when you have to call each of your team members into the conference room, and have a one-on-one talk regarding their performance throughout the evaluation period. You hand them a letter, enclosed in the official company envelope, and start off the conversation with some positive things to make the employee comfortable as you move on to cover negative aspects and the areas where they need improvement.

The result of such performance review meetings is often unclear, leaving employees perplexed whether they were praised or lectured for their performance. However, if done with the right approach, performance review based on ratings can be an excellent management tool to reinforce the solid performers and egg on the poor ones to perform better.

Lately, it has been seen that most enterprise level companies are opting out from the performance rating system, considering it to be an inefficient approach for employee evaluation. Companies like Microsoft, Adobe, and Juniper stopped evaluating employees using a performance curve or assigning a one-to-five rating on the core competencies as per their job description.

Has the rating-based performance appraisal system become outdated and ineffective for employee evaluation and appraisal? Let’s have a look.

Why do we need to Deploy Performance Ratings?

When the manager meets with their employees, performance ratings allow them to draw a picture of their current performance, based on their previous year’s actions and behavior. Moreover, it helps them to map out future expectations and goals regarding the employee’s performance. By doing so, the manager creates a situation where they are setting the bar for the employee till the next performance review.

Recently, Kimberly-Clark, an American multinational corporation with presence in 66 countries, hired SuccessFactors for designing a performance rating and management system. Many of its employees had roles with overlapping responsibilities across multiple teams, and the organization wanted to develop a system that would help the managers equip their employees with various capabilities to work with multiple teams.

With the help of SuccessFactors, Kimberly-Clark was able to implement goal management, succession planning, and performance management solutions in all its branches, and that too in 18 different languages. The results indicated considerable improvement in over 90% of employees in terms of communication within the company and goal alignment. In addition, about 65% of employees perceived their performance appraisal as accurate and fair.

With the help of performance management through a rating system, companies are able to base the employee’s appraisals on their current skill sets, number of project completed, past achievements, and measurable behavior. All this information can be effectively used for coming up with innovative ways to motivate employees, and addressing their individual needs in the organization.

The Best Ways to Rate the Performance of Employees

There are several approaches managers can use to assess and rate the performance of employees. Some common rating systems include:

Graphic rating scale comprise of 5 to 7 point scale that the raters use to rate the productivity and performance of employees. It is the most commonly used rating system for performance evaluation.

The behavioral scales and checklists method assesses employees based on their behavior instead of traits. The managers record their employees’ behaviors that are relevant to their job performance, and based on their good and bad behavior while performing a task. The rating is done based on the manager’s judgment.

The employee-comparison method compares employees with one another instead of judging them against pre-determined criteria. It eliminates leniency and central-tendency errors; however, it may allow for some degree of the halo-effect error.

Software Products

G2 Crowd, a business software solution provider, has created a grid for performance management systems, and divided software providers into 4 major categories: Leaders, Contenders, High Performers, and Niche. The company has made a list of best software products suitable for customers belonging to each category.

• Leaders: UltiPro, TalentSpace Halogen Kronos Workforce Ready OnDemand, and Cornerstone
• Contenders: PeopleSoft, Workday, SuccessFactors, and ADP Workforce Now
• High Performers: Engagedly, WideAngle, Workboard, Performance Pro and Trakstar
• Niche: Namely, SilkRoad, FinancialForce HCM, Skillrater and BetterWorks

Why Shouldn’t we Deploy Performance Ratings?

If we look at the other end of the spectrum, organizations using rating system as a part of the employee performance evaluation process have seen decline in the employees’ performance, which essentially beats the entire purpose of performance rating.

Recently, several big companies including Motorola, Deloitte, GE, Adobe, Accenture to name a few, decided to change their performance management system. They got rid of performance ratings, and steered towards a more real-time, feedback based system.

The logic behind this is quite straightforward: annual or bi-annual performance review, based on a rating system, doesn’t provide a comprehensive evaluation. If you give a person a higher rating, they may develop a superiority complex or become complacent. On the other hand, people who get less top rating are likely to get disappointed, discouraged, angry, or even jealous. Moreover, there is a good chance that the rating will cloud the employee’s mind, and they won’t be able to comprehend the manager’s feedback completely.

Rating based performance appraisals can be very time consuming, not to mention overwhelming for both employees and managers. As they are based on human assessment, they are subject to biases and rater errors. If the manager fails to do it in the right way, it can potentially create a negative experience for the employee.

The Best Alternatives to Rating Employees

For accurate performance evaluation, companies should opt for a combination of different methods. Managers may choose a single evaluation process for assessing an employee’s performance, but with the help of multiple methods, they will be able to get a broader picture and pinpoint areas where the employee needs to improve. Based on the results, you may be able to give recommendations to support employee development.

• Self-assessments: As the name indicates, the employee evaluates and appraises their own job performance and behavior.
• Peer Assessments: In this method, employees are gathered in a group, and asked to assess and appraise the performance of their colleagues.
• 360-Degree Feedback: It includes multiple assessments of employees. Aside from evaluations from peers and superiors, it also includes self-assessments.

Apart from these widely accepted performance evaluation methods, there are a few other unique techniques that CEOs and CFOs of different enterprises use.

John Dillard, the President of Big Sky Associates, has enforced a quarterly performance plan for every employee. The plan is developed with collaboration in quarterly meetings, and is kept in a shared file, which is accessible by everyone. All staff members know how their performance will be assessed, as the employee themselves helped the managers create their targets, and discuss them regularly with their supervisor.

Kirk King, the President of Continuity Programs Inc., uses quite a simple evaluation process. The CFO and the president ask the employee to have lunch with them on the company’s account, and also invite that employee’s direct manager. They provide the employee with a list of questions beforehand and discuss them over the lunch. Based on the employee’s answers, they judge the performance and perform appraisals based on that information.

At the end of the day, there isn’t any one-size-fit-all solution that can be applied on each and every organization. Therefore, it is up to you to decide whether it is a good idea to implement rating-based performance appraisal system, based on your company’s nature and unique objectives and needs.