Is ratingless the answer to the performance management challenge?

Angel Hoover, practice leader of Willis Towers Watson's EMEA Talent Management and Organisational Alignment unit, reflects on the rise of ratingless approaches and what is needed for HR directors and organisations to successfully embrace the performance management phenomenon.

Today’s business headlines reveal ongoing debate about performance management strategies and tactics, in part due to the low satisfaction with the current approach – a recent survey found that only 34% of employers feel their performance management process is effective. As a result, organisations large and small are attempting to rewrite the book on performance management by, among other things, eliminating the rating of employees and creating what’s termed “ratingless” approaches. Examining the supposed rush into ratingless feels very similar to what we saw in the early 2000s, when many organisations were enamored with the use of forced rankings.

Why Go Ratingless?
In a study that Willis Towers Watson conducted in 2014, we found that 4% of the participating organisations did not use performance ratings. Replicating this survey in 2016*, that number stayed relatively stable at 5%.

Why, then, is there so much discussion on moving to a ratingless system? As organisations consider the implications, they are attempting to address a number of key issues. First, employees are looking to have more meaningful discussions with managers about performance, development and career options. Traditional systems unintentionally create a focus on the final rating and even highly effective managers are challenged to facilitate a discussion that doesn’t start at the rating, rather than on how successfully the employee delivered on expectations. Second, removing the rating allows a more organic discussion of outcomes, behaviours and career potential. Third, it reduces administrative time for completing annual forms. Finally, removing ratings from the process may enhance overall employee engagement. Mount, Scullen and Goff’s study** confirmed that performance ratings can be disengaging for most employees, regardless of the rating.

There are clear risks associated with ratingless systems, one of these relates to the pay for performance link. Most organisations with pay for performance philosophies link pay and performance somewhat formulaically, enabling a more objective method for differentiating pay across varying levels of performance. In removing that objective value, whether numeric or descriptive, that part of the process breaks down.

Another potential downfall has been proven in recent research conducted by CEB***. Managers and employees simply do not replace the time they spent completing mid-year and annual performance forms with more frequent, meaningful discussions about performance and development.

Added to this, identifying high potentials, particularly for succession planning can be perceived as more complex. Since one typical criteria for identification is performance history; no longer can an organisation turn to their HR system to export a list of ”5’s” and “4’s” to consider and discuss as candidates for high potential.

Any organisations considering a ratingless system need to look at reducing the above risks by evaluating impacts to three areas: Process, People and Systems. Employees still need and want to know how they are performing, so it is imperative to be clear about performance expectations, regardless of the design. An updated process should include frequent discussions to ensure clarity on expectations, how the employee contributes to the team or the business, as well as how frequently managers and employees should meet to discuss performance.

The ability to facilitate quality discussions during a performance year is fundamental to ratingless designs. A manager needs to evaluate an employee’s performance and potential for development, which will be used in formal talent reviews and succession processes. Organisations must then, measure effectiveness of managers through a 360 processes, manager effectiveness ratings from employee engagement surveys and employee focus groups, because the primary source of this data originates from those discussions.

It is important that any system employs technology to aid and enable managers. If the system is based in paper or lives in multiple systems, it reduces usability of past data and increases the time mangers need to complete the admin side. Organisations should look to technology platforms that can capture real-time feedback, using short forms that can completed in 60 seconds or less.

Although going ratingless could be the answer for some organisation’s performance management conundrum, for it to be successful the necessary investment in infrastructure and manager support must be in place. Without it, you may be in no better place than you were under the traditional model.

* Willis Towers Watson, October 2015. Global and Regional Study of Performance Management.
** Mount, M., Scullen, S. and Goff, M., 2000. Understanding the Latent Structure of Job Performance Ratings, Journal of Applied Psychology.
*** CEB, 2016. The Real Impact of Eliminating Performance Ratings, Insights from Employees and Managers.