Companies That Got Rid Of Performance Ratings Aren’t Doing So Well, Sadly

Ratings are a necessary evil and companies may go back to using them.
We are slaves to the performance review system, apparently.
We are slaves to the performance review system, apparently.
andrewgenn via Getty Images

If there’s one thing workers hate more than being rated and reviewed, it might be not getting a rating or a review.

Companies who have gotten rid of a ratings system using numbers or grades to judge employees -- and many have over the past few years -- actually saw overall worker performance decline, according to depressing new research from advisory firm CEB. Much of the blame for the decline, the study shows, can be placed at the feet of managers -- who are failing to give workers clear feedback without the rigid rating system to help guide them.

Employee performance dropped by 10 percent at the companies that abandoned a rating system, according to CEB’s survey. Engagement, a catchall term for the pride, energy and optimism workers put into their jobs, dropped by six percent. Engaged workers are more likely to stay with their company, to work beyond the minimum and to feel enthusiastic about their role.

“Employees in organizations without scores were the most dissatisfied and frustrated,” Brian Kropp, HR practice leader at CEB, told The Huffington Post. “They felt they lost recognition and were the most disengaged.”

Kropp said that he’s heard from a few companies that plan on going back to ratings in the next year or two, though he declined to identify them by name.

CEB surveyed just under 10,000 workers at 30 organizations that used a variety of review strategies: Some workers received ratings, others didn’t; some got feedback from their peers, others solely from managers; some got frequent feedback beyond just an annual check-in.

Some of these methods are working, Kropp said, but leaving out ratings is not one of them.

For the past several years about six percent of the Fortune 1000 has gotten rid of formal, traditional reviews, according to the CEB. Most recently, GE, Adobe, Gap, Deloitte, Accenture and Microsoft have revamped their review processes.

These companies made the change for a few reasons. First, the annual review has become antiquated. A once-a-year exercise where workers set long-term goals for the next 12 months makes little sense in a faster-paced office where plans and strategies are discarded and changed with alarming frequency.

Second, a growing body of research shows that rating workers is often counterproductive. It often makes them feel terrible, putting their minds into fight-or-flight mode when faced with critical feedback. You’re so busy defending yourself you can’t hear the constructive bits of criticism you need to succeed in your job.

Worse, some organizations did what’s known as “forced ranking,” limiting the number of stellar ratings they can give to workers. Only a certain percentage could get a top score. This method had the perverse effect in some competitive workplaces of pitting colleagues against one another.

Related to that, performance reviews have also been shown to reinforce stereotypes and gender biases. For example, a woman might be called over-aggressive and pushy while a man’s review would call similar behavior confident and leader-like.

A third reason for the switch was resources: The formal review process takes up a lot of manager time. Consulting firm Deloitte said employees and managers spent 2 million hours a year on performance reviews. Gap said the process cost $3 million a year.

““There are only a few managers that can provide great feedback without a rating. The vast majority of managers aren’t good enough to work in a system without a rating.”

- Brian Kropp, HR practice leader at CEB

Companies that got rid of annual reviews and ratings, for their part, said they’d give workers more frequent feedback to let them know how they’re doing. Some of these processes were made formal -- monthly check-ins, say.

At Deloitte, they’re doing weekly check-ins and having managers answer four questions about employees: Would you award the employee the highest possible compensation? Would you always want him or her on your team? Is this person ready for promotion? Or, is this person at risk for low performance? The questions seem more objective than what you’d get in a traditional review, where you'd rate things like "works well with peers," or "takes initiative."

Deloitte's questions, by the way, are just a new way of rating workers -- and so probably would not fall into the problematic category identified by CEBs research.

It was the companies who removed ratings and made the review process less formal that ran into trouble. When the process was stripped of all formality, managers just skipped it. Leaving employees in the dark about how they’re doing.

And even when managers did talk, without a rating workers were left confused about where they stood. Some workers became less satisfied with their pay, since their bosses weren’t really explaining salary decisions to them anymore.

“There are only a few managers that can provide great feedback without a rating,” Kropp said. “The vast majority of managers aren’t good enough to work in a system without a rating.”

It’s sort of like getting a report card without any grades.

“One employee we talked to was like ‘I have these great conversations where I thought they were providing feedback, but it was like me reading my horoscope. I only found about the truth about my performance when I didn’t get a raise. If I had gotten a score I would’ve had more clarity,” Kropp said.

This doesn’t necessarily mean we need to go back to giving workers grades, though, said David Rock, chief executive of the Neuroleadership Institute, a performance review researcher and proponent of getting rid of ratings.

If you are going to take away ratings, it’s critical that you make sure managers are still having regular conversations with the people they oversee, Rock told HuffPost. The conversations should also be forward looking (so you’re not berating anyone).

Rock's group has done its own research at companies that have changed their review system and seen more positive results, he wrote in a LinkedIn blog post, defending a world without ratings. The big difference, though, is that this research focused solely on managers, while CEB talked to employees.

But both Rock and Kropp say that the key to a good review system has less to do with the details like ratings or grades and more to do with being thoughtful about giving people feedback.

And feedback is necessary, one way or another. Companies that are responsible for giving out raises and bonuses, and for firing people who aren't meeting expectations, need to have some kind of paper trail that helps justify decisions. Workers also need to work under a system that they feel is fair -- where good employees get rewarded and bad ones are shown the door.

There’s no perfect system, Kropp said. And at the end of the day, “no one likes performance management.”

And that is perhaps the clearest conclusion anyone has so far been able to make about the whole process.

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