CompTeam gets inquiries from our clients in regards to how to make the shift from one performance rating system to another. Many companies are still utilizing the outdated performance management processes that no longer meet the needs to the business or the workforce. We work closely with these companies to help them modernize their performance pay processes.Below is a recent inquiry from a client of ours, and our response.
We are exploring the idea of eliminating ratings from our annual performance review process. One of our owners feels like despite incredibly generous bonuses and competitive merit increases, people are still disappointed when they are rated as "Successful" (#3) vs "Consistently Above and Beyond"(#4) in our 5 tier rating system. What should we be thinking about when considering a move to a NO rating Performance Management system? Could you please share some guidance?
Studies have shown that when performance ratings are removed, most of the company is satisfied with the result. There are only 2 groups of people that are disappointed, your leadership/owners and high performers. This is not surprising as the highest population of employees are often included in the “average performer” category.
Ask yourself "Who are you trying to appease by removing ratings?" and then consider if rating are the real problem or is it the unfortunate victim of a broken coaching and performance development practice. This simple question needs to always be at the forefront of your mind during this transaction.
Performance management has been a hot issue for over 10 years now and the industry has discovered that the problem resides with the lack of frequent feedback, expectation setting and coaching from managers. A WorldatWork/globoforce study in 2017 revealed that 95% of companies in the study still have formal performance appraisals and 88% use ratings. The big trend is that companies are slowly moving away from the annual review to something that is more frequent. In 2012, 96% of companies had annual reviews, now only 75% remain with the annual frequency. 20% of companies have moved to a half-year review and 5% of companies have switched to quarterly or monthly reviews.
I have been in the performance pay business for almost 20 years now and can confirm that you are correct in saying that no one likes to be labeled as average or an underperformer. The best cure for that is to be a high performer. If you are a "life-style" company that is not overly concerned with performance, removing performance ratings should improve the overall happiness of your employees.
Companies that have removed ratings often suffer from a fall in performance, less pay differentiation between high and low performers and a higher amount of turnover in top talent. The exception of high performing companies that don't have individual performance ratings have one thing in common, they have great managers that are effective communicators and know how to reward and recognize their people for their outstanding contributions.
We hope that this quick example of how we response to the various inquiries that our clients send our way provides you a glimpse of our diverse backgrounds and how often we stay in sync with the ever changing landscape of the HR world and it’s many subcategories. Should your company being in the exploratory phase of a rating system switch, please reach out to find out what CompTeam can do to help ease this process.