Don’t Remove Performance Ratings (Unless You Are Willing To Do Three Things Well)

The shift away from formal numerical performance ratings is at an interesting tipping point. According to a recent CEB study, approximately 6% of the Fortune 1000 have removed ratings, 15% of companies are in the process of deciding whether to do so, and 28% of companies would consider it. On the other hand, 51% of companies say they do not plan on removing ratings.

At this junction, with around 200 large companies either considering or betting on the path away from performance ratings, it’s important to have good data about the process. Here’s what else this new CEB study showed: removing ratings can be a positive experience, but only if you do a few key things. If you just remove ratings and expect employees to be more engaged, without taking a few key steps, you are more likely to find the experience a negative one. Yes, you read that right: Don’t remove performance ratings, unless you plan to take the process seriously, as you may not get the results you want.

What are the three things? In summary, companies need to ensure there is an increase in the frequency of performance conversations that happen throughout the year, that these conversations shift from past-focused to future-focused, and that they support the culture shift with robust change management.*

At first glance, CEB’s headline that ‘most firms had a negative experience’ appears to contradict other recent research. At the NeuroLeadership Institute, we have been tracking the trends around removing performance ratings since 2012. A study we completed in 2015 found 36 large companies with positive results from the transition on engagement, quality and quantity of performance conversations, and employee perceptions.

The discrepancy here is that NLI interviewed firms who were willing to be a case study and therefore had a positive experience. Whereas CEB’s study went directly to employees rather than HR, and in this way they found both positive and negative experiences. Also, NLI studied mostly larger organizations, who by nature have a more mature HR function, more likely to think strategically about a change, whereas CEB studied companies of many different sizes.

CEB’s study found a ‘majority’ of firms who had removed ratings had negative experiences. Yet these were also firms who didn’t do three important things. And if you only selected firms who did do these three things, the majority had a positive experience.  A big question here is whether you can do these three things without removing ratings. At the NLI we are not so sure, given that the act of rating people creates such strong emotional reactions. It is hard to be future-focused in conversations when you feel defensive. Also, our research showed a strong pattern of the quantity and quality of conversations going up significantly on the removal of ratings, when done well. We think ratings, by their nature, inhibit ongoing conversations: the task is mentally ‘parked’ until a designed time of year. CEB continues to wonder if it is possible to get the benefits of more frequent, forward looking conversations, without removing ratings. At the NLI, we think a better thing to solve for is, how can we make it much easier for all companies to execute the three things necessary to make rating-less performance work?

Where ever you land on this debate, the CEB study is an important reminder that companies need to take the change seriously. Don’t just remove performance ratings, unless you are willing to create an environment in which performance is managed throughout the year. It could well be true that if you take away ratings, but don’t take the proper steps to communicate the rationale for change, managers could interpret this as a sign that performance conversations don’t matter so much. Without the pressure of having to do something formal, managers may focus their attentions elsewhere. As a result, employees may feel that their development is no longer being prioritized. This is probably what CEB found. In companies who have successfully transitioned away from ratings, there is a clear expectation of regular performance conversations, often quarterly and even monthly, with systems and processes for making sure this happens. In these cases, the quality and quantity of conversations has been going up.

Most of the companies that NLI interviewed had focused on improving the quality of conversations that managers were having with their people. They had made the shift to more of a forward-focused conversation, emphasizing development rather than evaluation. This is much easier to do without formal ratings, but it appears from CEB’s study that a surprising number of companies are not taking this path, and hoping for the best. We believe that helping managers have better conversations about performance is a critical to the success of transforming performance management. We are seeing many different ways companies are tackling this, though not all of them look like formal classroom training.

It is also interesting to note that CEB’s study found that even in companies with increased pay differentiation, employee’s perception at times was the opposite. This underscores the need for deliberate communication about what’s happening and why. Change management has been a critical component for the companies who removed ratings successfully. 

While removing ratings isn’t all a bed of roses, that doesn’t mean we should stop planting the garden. Companies who have been approaching this thoughtfully have been achieving some great results. According to the 36 companies we spoke to, the rewards were worth the effort. Mark Ferrara, VP of Talent Management at Eli Lilly is clear that the quality of conversations between manager and team has gone up since their change two years ago. Rob Ollander-Krane from Gap shared that 90% of employees reported having monthly discussions, a significant jump since removing ratings two years ago. Autodesk, now in its fourth year post-ratings, has seen improvements year over year in the question “I believe my pay and job performance are linked”. Their data has also improved year on year. And Cigna found that after removing ratings, they went from 70 to 74% of employees agreeing to the question ‘In the last year I have had the opportunity to learn and grow at work’. There are dozens of examples of companies like this having a successful transition, and none we spoke to felt that the effort to get there was too much.

At this critical point in the evolution away from performance ratings, we should be mindful that they journey isn’t an easy one. At the same time it does appear to be a worthwhile one, if you do it right. Thanks to CEB’s research we also now know the key factors necessary for success. In short, don’t remove ratings, unless you plan to do it thoughtfully. And above all, focus on the quality of conversations managers have with their people.

*Note: CEB also believed that 'getting data from more than the manager' was important. At the Neuroleadership Institute, we believe this is an excellent way of getting less biased and more accurate performance data. However, few of the 36 companies we found who removed ratings successfully had launched this kind of strategy as yet.

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Want to dig in further? Join us for a case study webinar with tech firm Autodesk, and discover what they learned after 4 years without ratings - Tuesday, June 14 at 1:00pm US EDT. Register to attend here.