Use of performance ratings systems continues to decline: Survey

But employers struggling when it comes to comp conversations
By John Dujay
|Canadian HR Reporter|Last Updated: 09/24/2018
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Eighty-five per cent of employers use a ratings system, down from a high of 94 per cent in 2011, found a survey of 324 employers. Shutterstock

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The developmental model is becoming a better option for companies hoping to shake up the performance-management process, according to a recent report by the Conference Board of Canada.

And the prevalence of assigning ratings to employees is gradually declining, said Trends in Performance Management: From Forms to Feedback.

Eighty-five per cent of employers use a ratings system, down from a high of 94 per cent in 2011, found the survey of 324 employers.

“More (employers) have shifted towards a rating-less model, but the vast majority still are using ratings,” said Nicole Stewart, principal research associate at the Conference Board of Canada in Ottawa.

“When you remove that rating-piece from the discussion, it allows you to talk about next steps, and where you’re going (as an employee).”

Seventy-four per cent of those companies still use performance ratings for executives, while 83 per cent use them for management and 81 per cent for non-management workers.

“Moving forward in the next few years, we’re really going to see that kind of ongoing feedback and coaching model. It will be interesting to see if we can move the needle on the satisfaction rate with some of these systems,” said Stewart.

Developmental model

In a developmental model, employees are given constant feedback, which makes them appreciate being valued, according to Nic Tsangarakis, principal at Kwela Leadership Talent Management in Vancouver.

“Recognition, appreciation is super important because it plays into feelings of self-worth. It plays into higher levels of engagement; it plays into people feeling more confident, making better decisions, and that, in turn, translates into higher levels of performance… When managers are able to do performance management on a day-to-day basis, on a week-to-week basis, on a month-to-month basis, that’s when it’s more likely to be effective.”

By doing regular check-ins, workers can become more accountable, according to Rob Catalano, co-founder and chief engagement officer of WorkTango, a performance-management technology firm in Toronto.

“The moment you shoot over a goal into a system that doesn’t get looked at again for another 364 days, that whole concept of not having to be accountable for following up with those goals or any level of evaluation, it’s so far away from actually acting on it,” he said.

“From an employee side, I think in this whole consumerization of HR, the feedback that they receive needs to be in a more frequent way than they are used to — across the board.”

For some companies, the rating system should be abolished, said Tsangarakis.

“People don’t like being placed into categories, they eschew the idea of labels: Human behaviour is intricate, complex, and to try and categorize it by way of a rating just no longer works, quite frankly.”

His advice? “Don’t do it.”

Compensation question

But many companies cling to ratings because it is the best way to categorize compensation, according to Catalano.

“It’s one of the biggest change-management pieces that happened because of all the things it is tied to, like comp and so on. It’s in a very unique shift because some companies have abolished it: GE (General Electric) invented it and then they abolished it.”

Switching to a strictly development model is difficult because “it’s really hard to decouple compensation from the performance management process,” said Catalano.

“If you’re decoupling it and change performance management to be frequent conversations and there’s no rating there, well ‘How do we explain this to employees?’ I find that usually that cripples a lot of organizations, so they’re not sure how to handle that.”

“People are struggling because there’s no real standard way of offering compensation that people feel very comfortable with,” he said.

Some organizations have made the switch and then gone back to ratings, because they run into trouble when it comes to the compensation increases, and justifying the increases, as the rating systems are linked back to the reward system, said Stewart.

“But those that have removed it — and most of them are very satisfied — what they’ve seen is it has taken some of the pressure off that discussion to look back and instead focus on where they need to go, and how they’re going to get there,” she said.

Talent-review method

A talent review is a much better way to assess employee performance and decide compensation, said Tsangarakis.

“Managers get together for the talent review and they talk about their people in terms of performance,” he said. “Talent reviews are about managers meeting and talking about people, talking about how they are performing, talking about how they fit into the values, and culture and — very importantly — comparing people across the organization.”

By keeping the talent-review talks behind closed doors, employees don’t feel discouraged.

“If need be, you can actually assign people into categories during that meeting but (workers) don’t know what is happening. And that’s because it’s so undermining from a motivation perspective,” said Tsangarakis. “You can still differentiate, you can still use performance for deciding on compensation increases, but you don’t need ratings — that’s the point.”

For managers, it is often tough to conduct formal evaluations with workers, said Stewart.

“When you think about that typical appraisal, it is not the best way to get somebody to perform. Managers struggle a bit with the process,” she said.

“It’s hard to give negative feedback, so maybe taking off some of that pressure of a rating, they’re really able to focus a little bit more on the changes that need to be made, and looking at where the employee can go.”

From the employee perspective, just hearing the rating can be tough as well.

“When you have a conversation with an employee, they’re actually not even hearing or registering what the development conversation is all about: (It’s) ‘What am I getting ranked so that it can impact my compensation plan?’” said Catalano. “I am a big proponent of saying we need to get this concept of managing people’s performance and remove that terminology to be more about performance development.”

Done incorrectly, ratings can force employees to be “pigeon-holed into a rating, versus having their performance reflect what they really have done to contribute to the organization,” said Irene Lis, founder of Aligned People Strategies and vice-president of HR consulting at Stratford Managers.

“If you’re managing a sports team, you want everybody to know their role, you want everyone to have positive feedback, constructive feedback. When all the players are pulling together and getting that same kind of feedback, resources, they’re all moving the same direction for the same purpose and feeling good about it.”

Paper nightmare

There’s also the administrative burden that ratings systems produce, according to Lis.

“Performance management should never have been about policing, never about the paperwork. It should always have been performance management, which is the development piece. ‘Where do we need to go together and how can I help you get there?’”

“It’s not a paper process, it’s not simply a mechanism to confirm your annual increase or not, and it’s horrendous when it’s used as a way of catching people doing things wrong,” said Lis. “Just making it an administrative paper process versus a people-centric process can be quite demoralizing.”

By overburdening managers, the process doesn’t achieve its goals, said Stewart.

“Usually, about half the organizations report back to us that they’re just not satisfied with performance management, and they point to the amount of administration,” she said. “(It’s about) managers complaining, employees complaining.”

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