The Trouble With Grading Employees
Performance ratings such as ‘meets expectations’ sap workers’ morale, but firms aren’t sure they can do without them
Can a year’s worth of work be boiled down to a stock phrase like “meets expectations”?
As companies reinvent management by slashing layers of hierarchy or freeing workers to set their own schedules, performance ratings—which grade workers on a 1-5 scale or with labels like “on target”—stubbornly hang on. Companies like Gap Inc.,Adobe Systems Inc.and Microsoft Corp. abolished such ratings after leaders decided they deterred collaboration and stoked staffers’ anxieties. Yet other companies are having a harder time letting go.
Intel Corp. has long rated and ranked its approximately 105,000 workers on a four-level scale, from “outstanding” to “improvement required.” Devra Johnson, a human-resources director at the chip maker, observed that ratings tended to deflate morale in a good chunk of the 70% of the company’s workforce that receives a “successful” rating each year—the second-lowest label.
“We’d call them the walking wounded,” she said.
Human-resources managers conducted an experiment to test a new way of managing performance, allowing 1,700 workers in the HR department to go unrated, although not without feedback, for about two years, according to Ms. Johnson.
Managers found they could still differentiate performance and distribute compensation. However, when Ms. Johnson’s team presented its findings, company executives weren’t ready to give the labels up, concerned that forgoing ratings would suck healthy tension out of the workplace, she said. So the HR department started rating the employees in the experiment again.
“We don’t want to be in a place where everyone’s an outstanding,” she said. “We worry a lot, as we should, about unintended consequences. You make a little tweak in an innocuous place—you don’t know, sometimes, the impact it might have.”
An Intel spokeswoman declined to be quoted for this article.
Marc Farrugia, the vice president for human resources at Sun Communities Inc., is going through the “exhausting” process of revamping performance management at the owner and operator of manufactured housing communities. He’s concerned about the accuracy of the company’s current approach to ratings; some managers just dole out higher scores in order to maximize bonuses for employees they’re scared might leave; others give everyone average ratings because it is easy. Workers complain the ratings aren’t fair and don’t paint a true picture of their annual performance.
“I’m being more and more convinced that ratings are doing more harm than good,” Mr. Farrugia said.
Some managers felt differently, however. At a recent meeting, senior managers resisted the idea of eliminating ratings, claiming workers wouldn't get the feedback they need, Mr. Farrugia said.
Plenty of managers like ratings for the same reason employees loathe them—the grades are informed less by data than by the boss’s judgment. The irony is that ratings remain subjective as companies have more ways than ever before to track staff performance. At Deloitte LLP, the company recently overhauled its performance-management system after realizing that ratings revealed more about the manager assigning the ratings than the employees themselves.
Some executives worry that figuring performance measures, such as the time it takes for restaurant workers to take an order, into reviews might lack context.
“I have a real love-hate relationship with data,” said Kevin Reddy, the CEO of fast-casual restaurant chain Noodles & Co. “You can get a false sense of security if you zero in too closely on a rating system.”
The company moved away from numeric ratings about seven years ago but still places workers into broad categories like “meets expectations.” Mr. Reddy said he and his leadership team continue to question whether they’re doing feedback right and motivating employees.
Jean Martin, a director at research and advisory firm Corporate Executive Board who works with companies on performance management systems, said executives are “giving the numbers too much power” by endlessly debating their worth. An analysis of 30,000 employees by her organization shows ratings don't have a direct impact on performance, she said.
Others say they have evidence showing that workers contribute less after receiving a poor rating. David Rock, the director of the NeuroLeadership Institute, a research firm that applies neuroscience to the workplace, said ratings conjure a “threat response” in workers, or “a sensation of danger,” especially if they don’t get the number they expect. And the hangover from a bad rating can last for months, Dr. Rock said.
One California-based Intel marketing employee said the “successful” rating he received last month made him feel as though his work mattered little to the company. He said he’s wondered whether he should work less hard, theorizing that he’d get the same rating anyway. He’s also started looking for jobs elsewhere, he said.
Companies that have gotten rid of ratings say their employees feel better about their jobs, and actually listen to managers’ feedback instead of obsessing over a number. John Ritchie, a Microsoft human-resources executive who goes by “J,” said the technology company’s practice of rating and ranking employees discouraged risk-taking and collaboration; since discontinuing the practice in late 2013, teamwork is up, he said.
The internal change mirrors the shift CEO Satya Nadella is working to effect externally, charming and collaborating with startups and venture-capital firms so that Microsoft doesn’t get left behind in the increasingly heterogeneous world of technology.
“We needed to change and everybody knew it,” Mr. Ritchie said of the new performance The Trouble With Grading Employees - WSJ: