August 15, 2019
August 15, 2019
Contributor: Jackie Wiles
Employee performance often drops at companies that nix performance ratings because managers lose a key reference tool and employees become less engaged.
“Many times I’ve wondered, if we just eliminated the entire formal performance management system, would we see any impact on the business?” says one SVP of human resources at a major manufacturing company. This executive isn’t alone in wondering whether their performance management approach is actually paying off.
The 2019 Gartner Performance Management Benchmarking Survey showed 81% of HR leaders are making changes to performance management, and some companies have even considered eliminating altogether the numeric or qualitative labels they use to grade employees or rank them against each other.
The question is whether eliminating performance ratings does what managers want: Improve the performance of employees — and the company.
Few organizations rely solely on formal scheduled evaluations anymore. Many now provide ongoing, forward-looking feedback and leverage peer feedback — performance-management tactics that have been shown to improve employee performance. Amid this shift, ratings can seem like time-consuming administrative busywork disconnected from day-to-day work.
HR teams that favor an end to ratings remain in the minority, but they hope to see four potential benefits.
“These expectations about removing ratings make sense, and employees might initially respond positively, but that positivity tends to fade after the first performance review cycle,” says Jeanine Prime, VP, Team Manager, Gartner.
The reality is that employee performance drops when ratings are removed. When Gartner originally studied the dynamic in 2016, performance dropped by around 10%. In 2018, that decline shrank to a still-significant 4%.
“Employee performance tends to drop when ratings disappear because managers struggle to make and communicate performance and pay decisions without ratings,” says Prime.
In fact, both studies show that eliminating ratings leads to four unintended outcomes:
This article has been updated from the version published on June 29, 2018 to reflect to reflect new events, conditions or research.
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