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Well-known companies such as GE, Gap, and Microsoft have made, or are in the process of making, the move away from rating past performance and toward more frequent, meaningful conversations aimed at driving ongoing improvement, development and realizing potential. With these organizations paving the way for a new trend in performance processes, curious organizations of all sizes are asking, “should we follow the trend?” or “why should we bother with performance ratings?”

In defence of performance ratings

Those in favour of performance ratings assert that employees want to know how they “measure up”. Ratings allow for maximum performance differentiation and establish clear links between performance and rewards.

Further, ratings supporters may assert, ratings are a communication tool for managers. Without ratings, employees may be unclear about where their performance stands if managers aren’t skilled at performance feedback.

What neuroscience shows us

Really though, how different is a rating of 2.5 from a 2.75? Ratings reduce complex human behaviour and performance discussions to a single figure or label. In addition to what may be seen as “false” differentiation, those in favour of a shift away from performance ratings can look to the findings of neuroscientific research which demonstrates that performance ratings can be counterproductive for two reasons:

• Labeling employees with a rating or ranking results in a “fight or fight” response, shutting down the ability to engage in meaningful, productive conversations about performance; and
• A focus on past performance rather than future potential sends the unconscious message that performance levels are fixed and unlikely to change.

Common performance rating challenges

Furthermore, most managers and employees have experienced more than one of these common challenges associated with performance ratings:

• Ratings provide an “out” from the responsibility of having honest, direct and sometimes difficult performance conversations in a timely manner and/or crowd out room for discussions about development;
• Ratings fuel competition among employees rather than fostering collaboration among employees to compete with other companies;
• There are high time and costs associated with rating processes. Deloitte found their previous performance system had employees and managers spending around two million hours a year on performance reviews.
• Ratings cause employee reluctance to discuss their learning experiences, personal performance concerns and development needs for fear that they may be penalized;
• Overall, there are negative feelings and perceptions of unfairness by both managers and employees when ratings are part of the process.

Factoring the shift to no ratings

For the organizations that pioneer the transformation, front-line reasons for shifting to a no ratings performance process include:

• A desire to shift the investment of time away from creating and discussing ratings and towards discussing and leveraging performance in a timely manner;
• A need to remove the “check box” approach to reinforce that managing performance is an ongoing, not a once a year, process; and
• A need to recognize high-performance behaviours rather than high performers. This mindset is growth-oriented and acknowledges that any individual is capable of, and should be recognized for, high-performance when appropriate.

Caveats for consideration

So, while the general consensus around performance ratings tends to be frustration, if not outright disdain, there are a number of things to be carefully considered before jumping on the “no ratings bandwagon,” the top three typically being:

• Management Capability—Do managers have the skills to deliver ongoing, meaningful performance feedback without the “crutch” of ratings?
• Legal Considerations—Can the performance process continue to have the ability to provide sufficient notification when a performance problem exists?
• Links to Rewards and Opportunities —How will the performance process link to pay and other talent decisions?

Change the narrative of ratings

That said, if a simple rating scale is best suited to your organization, here are some shifts in practice to enhance the meaning of your ratings:

• Use narrative descriptors as opposed to numeric ratings or letter grades to facilitate meaningful performance conversations; and
• Consider listing your descriptors according to where you see the vast majority of employees performing. Traditional rating systems that place “meets expectations” in the middle of the rating scale tend to make performers feel adequate rather than successful, which is not the true intent. Listing descriptors in order of expected frequency sets up a different mindset regarding performance.

No magic potions without due diligence

Performance ratings, if implemented correctly, can provide value; the challenge is that the costs often out-weigh the benefits. When rating systems are not working well, the movement away from performance ratings gains momentum. However, removing performance ratings without other changes and supports is not the magic potion for your performance process fixes.

Kyla Nicholson is a senior consultant and Vincent Chow is co-founder and partner at LoganHR, a BC-based HR firm specializing in compensation, performance management, and career transition.