Stop the Ratings Game

“This year, we couldn’t give any salary increases, so I was able to rate people the way I really thought they performed. It was the best review period I’ve had.”

“I do trades…I tell employees, this cycle, I’ll give you a “meets expectations (3)” rating and your neighbor an “exceeds expectations (4);” next time you’ll swap and she’ll get the lower grade.”

“I keep at least a 1-2 low performers on the team so they can take the hit at merit time. Otherwise, I have to punish some of my good performers with low ratings.”

These are not quotes from Dilbert. They are comments of managers who struggle to make the best of a bad system: annual performance ratings, accompanied in most firms by some sort of “forced curve.”

And the ratings trader? In one firm, fully 60% of employees had different ratings in the July cycle than in the same year’s December cycle. Could the performance of all those employees have significantly improved, or declined, in just 6 months?

Another firm knows that the absolute worst time to survey employees’ engagement is at merit review time. Calls to their employee relations department skyrocket, with managers calling for help in how to deliver bad news and employees calling to vent their frustration.

We believe rating systems, especially those that force ratings along a curve, are counter-productive. By distilling an entire year’s contribution to one letter grade and looking for 60 – 80 of your staff to be less than stellar, these systems end up de-motivating most of your workforce.

Here’s perhaps the biggest cost: these highly charged discussions become a “can I get through this without too much bloodshed” transaction, instead of an open, two-way discussion about performance and contribution and development and the future. With ratings and a curve hanging over the conversation like a dark cloud, these performance discussions become a lost opportunity.

How can this pattern be good for business?

Yes, absolutely, companies should pay for performance. The employees who contribute the most should receive the highest rewards. And yes, every employee needs, mostly wants and certainly deserves honest and specific feedback about what they contribute and how they need to raise their game.

But performance ratings systems do not ensure that the best get the most, nor do they lead to improved performance. And the kiss of death is a bell curve. Performance ratings, and the bell curves they almost inevitably lead to, cost companies time, morale and ultimately, money.

Our solution: establish clear performance standards, goals and measures and pay for those—or not, based on what the employee delivers. Cheer ALL your employees to outperform. Abandon performance ratings, and especially, do not look for a bell curve in your workforce.

(Would any firm ever impose a bell curve on their products? “No, I’m sorry, it can’t be a best seller; something has to be a dog.”)