Thriving Workforce
Is the performance rating a thing of the past?

A recurring trend in both large and small companies is the abandonment of traditional annual performance review processes that generate a performance rating. In fact, it seems that the formal and documented numerical performance rating is under attack, giving way to the notion that existing tools and processes used to recommend, calibrate, and defend the rating are too cumbersome, time consuming, and inflexible.

As this latest article from World@Work Journal shows, Mercer has measured the rationale for, and consequences of, performance ratings for more than 20 years. These findings, combined with Mercer’s experience, have helped organizations improve or rethink their performance management processes, led to the development of a framework to help companies evaluate and — if appropriate — plan an exit strategy from performance ratings.

The errors and biases inherent in performance ratings are well recorded. Independent raters rarely agree on the performance ratings for the same employees and, more important, rater characteristics explain more about a rating than rate characteristics. Despite years of effort to reduce biases, ratings in many organizations still differ by gender, ethnicity, and/or age — even when holding constant such factors as experience, education, and prior year’s performance rating.

In addition, performance-rating processes involve a lot of work and resources. Many organizations have technology solutions, which may be expensive and not necessarily user-friendly. A recent client experienced dissatisfaction, even cynicism, among supervisors all the way up to the CEO, who said that the new system with its bells and whistles was complex and took time away from meaningful performance conversations with direct reports. Often, performance management processes require endless calibration meetings, documentation, politicking and, inevitably, an overall performance distribution. In short, while employees (and supervisors) often value the feedback associated with ratings, many don’t like the performance rating system.

At the same time, ratings have a profound impact on employees’ careers and the immediate rewards they receive. Mercer research has repeatedly found that low ratings drive employee exits (voluntary and involuntary), while high ratings drive voluntary retention as much as three years after the rating was received. Ratings also are related to short- and long-term career progression. Overall, ratings matter to employees, even if their accuracy is questionable at best. In most organizations, performance ratings provide an important input into multiple talent processes and decisions. Without ratings, organizations have to rethink how to effectively communicate these decisions.

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