Do Ratings Help or Hinder Performance?

This is the question on the minds of many leading organizations these days. Microsoft recently shared that they were doing away with their stacked ranking system, a key element of the performance review process that was based on a bell curve and forced the elimination of the lowest-rated 20% of employees. Microsoft went so far as to eliminate ratings altogether in their performance reviews.

At the same time, Yahoo!’s CEO implemented stacked ranking, forcing managers to rate staff using the designations “occasionally misses” and “misses” to accommodate a bell curve strategy, even if the designation wasn’t completely accurate. While Yahoo!’s CEO denied that the ratings were forced, many employees disagreed (mostly anonymously). She has been widely criticized for her decision, and interestingly most pointed the finger at the HR head in charge of communicating and executing the controversial plan for the poorly executed roll-out.

When it comes to managing, measuring and rewarding performance, what is the right way? Unfortunately there is no easy, one-size-fits-all answer to performance reviews. Every organization and employee is different, and an effective performance review process takes into account cultural aspects of the organization.

In an effort to help you better understand and implement performance reviews that add value, we put together some best practices that should serve as the cornerstone to any performance management plan, whether you choose to do ratings or not.

Performance feedback should be a continuous, ongoing process. You are missing out on a huge opportunity to accomplish goals and move initiatives forward if you wait to address performance issues on an annual basis. Be proactive and provide ongoing feedback so that there are not any surprises during an employee’s yearly, or even quarterly, evaluation. This approach gives the employee the directives they need to change course immediately if needed, or incent them to continue the course they are on.

Provide a clear line of sight between the employee’s responsibilities and the organization’s goals. Ensuring employees understand how their work directly affects the organization’s success is an essential driver to getting employees to perform well. If your employees know where the finish line is they are more apt to reach it.

Use SMART goals – specific, measurable, attainable, relevant, and time-bound. It is important to make sure each employee’s goals meet each of these five criteria, otherwise it can be difficult and highly subjective determining whether a goal is met. And if it is clear that a particular goal is not met, it is easier to assess the reasons why the employee didn’t make it (i.e. it was not because of poor communication on the organization’s part).

Be mindful of the process and timing. An effective performance evaluation requires giving managers and employees plenty of time to complete the process in a thoughtful way. Rushing through an evaluation makes it seem like you are just crossing something off your list. Create an environment that shows you value their contribution and feedback and you’ll experience greater results and engagement from your employees.

Training is important. Give your team the tools they require to administer reviews that result in the actions your business requires to be competitive in the marketplace. For managers, you might need to provide additional training to prepare them for dealing with difficult questions or delivering challenging messages. Employees may not always like what they hear, but they will always respect an honest and straightforward response.

Understand what motivates your employees. Not all employees are motivated by the same thing. Check in regularly with employees to see what gets them excited about coming to work. It’s not just about compensation (although if you don’t get that right it is a big demotivator). In fact, Resourceful HR recently conducted a survey about what attracts and retains talent – compensation came in fourth. Check out the results here. Link to whitepaper/resource page. Be creative and consider other rewards you can provide in lieu of raises or bonuses. Consider opportunities for additional training, leadership/career development opportunities or team rewards. It’s important to remember that pay systems alone do not keep people nor manage their performance.

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