Performance Evaluation Ratings: Do We Really Need Them?

Is my performance “outstanding” or is it only “commendable?”  Is it “excellent” or only “satisfactory?”  Is it “really super duper” or just “good?”  These are the kinds of questions that can preoccupy employees when it comes to performance evaluation.  Are these categories necessary?  Do they really add any value to the process?

Some people think we do need to use these labels, no matter how subjective or potentially distracting they may be.  They argue that rating descriptions tell employees where they stand.  They also help to protect the company if performance deteriorates.  The company will be able to show that it sent a clear message to the employee by rating him or her as “unsatisfactory,” or whatever the terminology is in that organization.

I am not so sure.  One of the problems with ratings is that they tend over time to become hopelessly inflated.  Just as most college students get A’s and B’s, most workers get “outstanding” or “commendable.”   So as a truly accurate description of employee performance, ratings probably fail.  Some companies use a “forced ranking” scheme, where the organization dictates what percentage of the population gets which rating.  But I don’t know of too many success stories with this approach.  If you know of one, I would be happy to hear about it.

Why not just assess the performance of employees by describing what they did well, and what they need to improve on, and skip the “rating?”  Do we really lose anything important in the process?  Someone might object by saying:  “But how will we decide salary increases?”  My answer is that we decide salary increases the same way we always did:  based on performance.  The person who has met most or all of his/her objectives, and whose contributions were significant should get the bigger increase.  The content of the evaluation will determine that, not the rating.  Each manager will decide the salary increase based on the employee’s performance and any budget constraints that exist.

It is true that a good summary statement of performance will be needed to justify whatever salary increase is recommended.  Otherwise, a manager’s decision might be viewed as too arbitrary.  However, the danger of arbitrary decisions is not overcome by using ratings.  Having ratings doesn’t eliminate this threat at all; it just changes its location.  Rating assignments can be as arbitrary as any other decision.

The need to write good summary statements of performance in a non-rating system means that managers must be especially skilled in justifying different levels of performance.  Eliminating ratings therefore does put a little more pressure on managers to deliver clear and descriptive assessments.  However, this additional pressure may be a good thing rather than a drawback.  What’s wrong with insisting on clear and descriptive assessments?

The question of justifying termination of employment based on performance in order to protect the company and treat the employee fairly is an important issue.  It is true that if someone is performing in a truly unsatisfactory manner, this needs to be very clearly stated as a basis for potential future action.  So perhaps this is the one category that we have to give a name to.  But for everyone else, let’s get rid of the labels.  I think such an approach will help steer employees away from what “category” they are in and help them focus on the right issue:  the actual details of their performance.

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