There seems to be no letting up in obsessing over performance ratings in the corporate world. To ditch ratings or not is the question. Last year saw many Fortune 500 companies announcing their decision to drop performance ratings. Many large Indian information technology companies, among them Infosys Ltd, Wipro Ltd and Tata Consultancy Services Ltd, have announced that they are considering moving away from the ratings system. While it is difficult to predict what will happen, there are already some early indicators on what the path is likely to be. US-based CEB Inc., the best practice insights and technology firm, in a recent study mentions that about 6% of the Fortune 1000 companies have abolished ratings, 15% are in the process of deciding whether or not to do away with ratings and 28% of the companies are willing to consider it. As many as 51% of the Fortune 1000 companies say they do not plan on removing ratings.
According to David Rock, director of US-based NeuroLeadership Institute, 200 of the Fortune 1000 companies are considering their next move on performance ratings for their organizations. As Marc Effron, president of the Talent Strategy Group, says: “HR (human resources) usually runs for the next shiny object and forgets the basics.” That’s what seems to be happening in the case of performance ratings. Comprehensive implications of this measure are yet to be understood, but we find companies big and small in various continents obsessing over performance ratings, and the need to move away from ratings and bell curves.
Talk to HR folks if they are sure ratings are expendable; most of them shrug and say they aren’t certain but with large organizations giving it a try, it’s worth considering.
The recently concluded CEB study shows that less than 5% of managers are able to effectively manage employees without ratings. Their analysis shows that eliminating ratings leads to four unintended outcomes:
1. Manager conversation quality declines by 14% because managers struggle to explain to employees how they performed in the past and what steps to take to improve future performance.
2. Managers have more time, but time spent on informal conversations decreases by 10 hours because managers do not shift that extra time towards ongoing, informal performance conversations.
3. Top performers’ satisfaction with pay differentiation decreases by 8% because managers have trouble explaining how pay decisions are made and linked to individual contributions.
4. Employee engagement drops by 6% because managers are unable to do the very things that are proven to engage employees, such as set expectations for them, hold clear performance and development conversations, and provide appropriate rewards and recognition.
CEB has some recommendations to fix this that include providing ongoing, not episodic, performance feedback, make performance reviews forward-looking, not backward-looking, and include peer, not just manager, feedback in evaluating performance.
Fortunately, we already have tools available that make CEB’s recommendations workable. Karma Notes, the new mobile app developed by Salto Dee Fe, does precisely that and is tuned to make sure that organizations can implement this flawlessly across the globe with minimum administration. Karma Notes provides employees the option of seeking feedback throughout the day/week (not only episodic but free flowing). It has both the push (manager can give feedback) and the pull mechanism (employee can seek feedback), thus increasing the data points to make feedback genuine and not biased. It provides the option of seeking feedback across the organization, beyond boundaries and hierarchy. The feedback to improve has to necessarily follow the 2+2 model created by Effron of the Talent Strategy Group. In the 2+2 model, the person has to share the way forward on any area of improvement and these can be suggestions in the form of free flowing text.
The app is based on the principles of behavioural economics and keeps nudging employees to share feedback based on a frequency chosen by the organization. The app has a live dashboard for employees to monitor their progress and not depend upon reports coming to them from HR. The onus of seeking feedback, and working on improvement areas, shifts from the manager/organization to the employee. The system encourages equity (both manager and employee can give feedback to each other), fairness (multiple sources of feedback) and enhances performance (action to improve can be taken now instead of waiting for the year-end).
The answers to managing performance are still emerging but it is clear that winds of change are blowing and employees want more transparency, more data points and a holistic view of their performance, not just a unidimensional managerial view. Employees also want real-time information, as do employers. Employees also like the feed forward idea, which they believe can help them improve and achieve their career goals faster.
While the jury is still out on the future of performance management, the debate over the usefulness of ratings will only intensify in the next few years, especially as organizations bold enough to ditch ratings report success, or lack of it, in their endeavours. One thing is for sure: once the dust settles on this frenzied debate over ratings, we could find ourselves in possession of answers like Karma Notes that could well define employee performance management in the way that Peter Drucker did in his Management by Objectives approach six decades ago.
The author is co-founder of Salto Dee Fe Consulting Service Pvt. Ltd, a business-enabling organization specializing in talent management and organizational transformation.