Despite decades of research on the pros and cons of using quantitative ratings as a foundational component of performance management, the debate continues: Should we use ratings or not for reviewing and developing our people?
- The design of performance management processes and the decision to use or avoid performance ratings depend on a company’s needs and culture
- With or without ratings, performance conversations should take place separately from developmental conversations
- Thoroughly training managers and employees on the performance processes, cadence, and expectations are critical for establishing buy-in and trust
- While ratings may provide some advantage for quantifying and tracking performance and aligning compensation, ratings don’t provide a clear benefit in developmental feedback
- Bias exists in all types of feedback, yet it’s difficult to measure without some type of quantification of performance (i.e., through ratings, calibration, goal tracking, and impact analyses)
- Feedback should focus on a person’s performance, behaviors, and impact… not on the person themself
There are countless scholars and practitioners who argue for one side or the other, and highly valid pros and cons exist with either approach. Over the past two decades, numerous organizations around the world have moved away from harnessing ratings in their performance reviews, and over time, some of these companies have switched back to using them or have turned to use “shadow ratings” behind the scenes (a practice we do not recommend). Choosing whether to use ratings or not depends on numerous factors; thus, the decision must be made by People teams and leaders within each company based on what best aligns with their performance goals and organizational culture.
Rather than making strong recommendations as to which approach is “best”, this article is focused on providing clarity on the strengths and challenges of each strategy so you can guide your company to make an informed decision which most suits your needs.
But first, here are a few questions to consider when making decisions about your performance approach:
- What are we trying to achieve with our performance system? Is the focus on:
- Measuring & identifying performance differences?
- Aligning performance with compensation & promotion outcomes? Will we pay for performance?
- Driving growth and development?
- Fostering more frequent conversations between managers & employees?
- Encouraging development or initiating employee separations when poor performance is identified
- What cadence of performance & development cycles or conversations makes sense with our culture?
- How do we make it safe for managers and employees to give each other candid, actionable feedback?
- What resources are we willing to allocate to making the system work well?
- How might we best communicate our decisions to drive understanding, support, and adoption?
- What would success look like and how will we know if we’ve achieved it?
Using Performance Ratings
Because the use of ratings in performance reviews has been commonplace for decades, let’s focus on their pros and cons first.
If you do choose to use a scale, we recommend a 5-point scale with the 2nd point as “Average / Meeting Expectations” to drive greater distribution among those performing above average and further differentiate higher performance. Conversely, most managers aren’t comfortable using a rating more than one point below “Meeting Expectations”, so it makes sense to simplify that “lower” end of the scale. If your company embraces more of a growth mindset, considering choosing language like “getting there” rather than “below average”. Decisions on whether to coach or terminate an employee who consistently isn’t performing should be based not on the severity of the rating but on how long they’ve not been meeting expectations. For information on how to develop your own rating scales, check out our blog: How to properly choose and design rating scales.
Advantages of using ratings
Properly-designed, behaviorally-anchored performance ratings:
- help establish a common language around desired behaviors and outcomes
- clarify and communicate expectations around performance and impact
- contribute to a quantitative record of performance over time (which is easier to track and interpret than qualitative feedback)
- help differentiate critical behaviors and identify where employees are excelling or struggling
- pinpoint where training & development resources are best applied
- allow for performance calibration to identify bias and enhance fairness
- promote more fair distribution of compensation increases, promotions, and development opportunities
- may act as criteria for validating selection and training tools to improve hiring, onboarding, and developmental outcomes
- are more easily captured from managers than measuring most “objective” performance outcomes
- help simplify interpretation and decision making despite the fact that performance is a continuum
Disadvantages of using ratings
- Concerns employees feel objectified by potentially being labeled with a number, category, or “score”
- Without input from others, managers may make ratings based on subjective judgments about behaviors that they may not regularly observe
- These subjective reviews of performance are commonly fraught with implicit, unconscious decision-making biases. Common biases adversely impact the accuracy of performance ratings (though these biases also impact most performance-related judgments, regardless of whether they involve ratings)
- Designing behaviorally-anchored scales that apply across the organization is difficult, and designing appropriate scales by job type is labor-intensive
- Properly training managers on how to use the ratings system can be challenging (but is critical) and may be met with resistance from those who are opposed to ratings
- Managers may intentionally deflate (i.e., underrate) an employee’s performance rating to avoid “losing” a high-performing employee to a promotion
- Managers may inflate (i.e., overrate) a low-performing employee to avoid having to “deal with HR” or follow a strict performance & development plan
- Managers and employees often don’t understand how ratings are used to make compensation and promotion decisions
- Ratings by themselves may not actually motivate employees to perform better
- Ratings may be an “easy target” for employment lawsuits
Granted, going “ratingless” doesn’t automatically circumvent most of these challenges, particularly those relating to bias or lack of credibility due to managers not actually being consistently aware of how an employee is performing. Further, well-designed, behaviorally-based ratings scales help minimize many of these issues and allow for quantified analysis of outcomes to identify bias or patterns of misuse.
Now, let’s move onto the pros and cons of going without ratings.
No Ratings / Ratingless Performance
In this context, “ratingless” refers to the elimination of a system that summarizes an employee's overall contribution (and/or all of their performance behaviors) into a single number, score, or label, such as a “4 out of 5” or “meets expectations”.
Many leaders believe that the use of standardized performance ratings is outdated and no longer appropriate in many cases. A common argument is that although ratings may have been effective during the industrial age when job responsibilities were more consistent and directly measurable, the way work gets done within many organizations has changed dramatically due to technology, globalization, team matrixing, and greater variations in role responsibilities and expectations.
More than ever, employees tend to work in complex, dynamic environments where their responsibilities are continually changing, particularly for the “white collar” workforce. Even employees with the same job title often have responsibilities that are increasingly different from their colleagues. Some leaders believe the modern workforce requires a more dynamic, individualized approach to reviewing performance.
Not surprisingly, multitudes of companies have taken the leap to eliminate formal ratings in their performance and development cycles. Granted, many of these organizations have shifted away from past-looking performance management to one that has a primarily forward-looking developmental focus, and that changes the needs of the tools and processes involved. Let’s take a look at the pros and cons of the ratingless approach.
Advantages of going ratingless
- Employees don’t feel they’re being “reduced to a number or score”
- Managers often feel they have more latitude it adapting the process to the needs of their teams
- Shifting to a Growth Mindset: Ratingless performance cycles tend focus on opportunities for future growth and impact rather than strictly looking backwards at specific accomplishments and failures, though this varies by company and performance management philosophy
- Cycles may be less intimidating for employees and managers, thus contributing to more open & honest conversations about future growth opportunities
- Performance & development-related conversations tend to feel less formal and thus become a more natural part of manager: employee 1x1’s
- All of these factors contribute to employees feeling the performance feedback process is more humane and growth-oriented, and this can positively impact retention
Of course, it’s still critical to have a clear structure and process in place for when and what is covered in feedback conversations. For example, managers should have a set cadence for reviewing goals, contributions, developmental aspirations, and general feedback with employees - and this feedback should incorporate input for the employee and their peers.
Disadvantages of going ratingless
- Managers and employees may not feel there’s a shared language or set of expectations around performance and impact
- The performance feedback process may feel more abstract and poorly-defined, resulting in confusion and low adoption rates
- Linking “non-quantified” performance judgments with compensation and promotion outcomes becomes more challenging and often more confusing. Employees and managers are less likely to trust a reward system that’s not clear and well-defined.
- When compensation and rewards are not demonstrably aligned with performance, high performing employees may feel unrecognized and are thus more likely to leave; conversely, low performing employees may feel they can “fly under the radar” without negative repercussions
- Managers may feel there’s less accountability built into the system, thus they may “play favorites” or withhold opportunities from employees without documented justification
- Lack of ratings can actually lead to higher levels of bias (due to lack of standardization of expectations) that may be more difficult to identify and track over time
- Many organizations that say that don’t use performance ratings utilize some other form of categorization of performance which, oftentimes, is just another form of a rating or performance classification “in disguise”
Quick tips in practice
Regardless of whether you choose to incorporate ratings into your performance system or not, here are a few recommendations for optimizing your feedback processes:
- The choice to include or exclude ratings from performance reviews is dependent on the needs and culture of each organization, and leaders need to seriously consider the pros & cons of each approach
- Managers need to be thoroughly trained on how the performance feedback process works. Preferably, commit to not just training your managers but also ensuring every employee has an opportunity to learn how the process works and what is expected of them and their managers.
- It’s important to separate developmental and performance conversations (for more information, see our Performance Science Fundamentals ebook) so employees aren’t overwhelmed with or distracted by feedback that doesn’t align with the intent of the conversation
- Developmental, growth-focused reflections don’t require ratings
- While reviews by managers may include behavioral ratings, feedback from peers typically should not with the exception of more broad items like, “I would definitely want this person on my team again”
- It should be clear that ratings focus on a person’s performance, not on the person themself. Leaders should be trained to speak about them as such (e.g., “Larissa has been exemplifying our values and has surpassed her goals for the past two quarters” rather than, “Larissa is a consistent 5”)
- Avoid the use of forced or stacked rankings as they can negatively impact motivation, can drive unhealthy competition among employees and managers, and are widely viewed as being unfair
While making the decision to incorporate ratings into your performance management system is not an easy one, it’s important not only to understand the pros and cons of each core approach, but also understand what the perceptions of your current process (or lack thereof) are across your organization. If you haven’t already done so, we recommend launching our Performance Diagnostic survey to better understand what’s working (and not) with your company’s feedback system.