To Rate or Not to Rate? The Death of Performance Reviews

Whether your company considers performance ratings and reviews a cornerstone of its philosophy or just a good way to keep managers accountable for their employee’s performance, there is a growing trend that may challenge the foundation of the prescribed employee performance review.

Once thought an organizational necessity, the formalized performance rating and review has come under fire by many companies who believe it’s time to breathe new life into an old process. Under the guise that successful businesses need to be agile to forge ahead, some leaders now view the performance rating and review process as a tired tool used to communicate feedback to employees with an expectation to the employee that:

• Their performance will improve based on the predefined numeric scale.

• There is now documentation to support actions such as termination, demotion or job elimination.

According to the Society for Human Resource Management (SHRM) article entitled, “Is It Time to Put the Performance Review on a PIP [Performance Improvement Plan]?”  “… The number of employers that are either ditching the numerical ranking of employees or tossing out the entire performance review process has grown from 4 percent in 2012 to 12 percent in 2014, as referenced in a CEB survey of Fortune 1000 companies.”  And although this appears to be a trend growing in popularity, it begs the question for employers in the cable and telecom industry, “What makes sense for your company culture?”

The industry has predominately adopted a more traditional approach in administering performance reviews adhering to some formal ranking system that ties a pay-for-performance philosophy to calibrate an employee’s performance against individual and company goals. As Pam Hagen, Corporate Vice President of Human Resources for Bright House Networks, states, “We have used a formal, documented process for many years and have no plans to eliminate it in the near future. Our Performance Development Plan contains a section on goals and competencies, and we have two versions… We still believe that the rating is just a general indicator of where [employee] performance falls.”

Ongoing Feedback Essential

But some companies like CBS Corporation no longer use performance reviews and are successfully following the trend that has proven valuable to the organization. Fatimah Shittu, Vice President of Compensation for CBS, says, “It’s been my experience that regimented performance evaluation cycles end up becoming an administrative burden for both employees and managers and, therefore, are not as effective in driving employee behavior or improving performance. This is particularly true for managers with large headcounts. I believe that feedback should occur on an ongoing basis throughout the year. There should be a continuous cycle of setting goals, providing feedback and adjusting behaviors and performance accordingly.”

For many companies like CBS, this approach has added new life to an old process. The April 2015 Harvard Business Review article entitled, “Reinventing Performance Management” by Marcus Buckingham and Ashley Goodall, describes how the professional services organization Deloitte re-engineered the performance management system for its more than 65,000 employees. When Deloitte revealed that the company spent close to “2 million hours a year” calibrating performance ratings, it knew it needed to do something radically different. One of the many outlying factors to overhaul the performance review process includes eliminating the numeric rating system and establishing a “performance snapshot” that’s produced at the end of each project, or quarterly, for long-term projects, to quickly identify employee performance (see the April 2015 HBR for details). It is clear from the research that the interest to re-evaluate the way in which companies provide employee feedback regarding standardized performance ratings and reviews continues to evolve.

Legal Implications

What makes this issue more complicated is operating in a world of increased litigation over such issues as gender bias, fair pay and discrimination. Companies who choose to remain “agile” when it comes to performance evaluations may ultimately come under scrutiny. Legal challenges will continue as companies figure out how to deliver employee feedback in a fair and equitable manner without the help of evaluations as back up to support their decisions.

The recent case of Twitter employee Tina Huang, who lost her discrimination case against the company, provides an example. As cited in her complaint posted on Courthouse News Service, “The company’s promotion system creates a glass ceiling for women that cannot be explained or justified by any reasonable business purpose, because Twitter has no meaningful promotion process for these jobs: no published promotion criteria, nor any internal hiring, advancement, or application processes for employees.”

In this case, although Ms. Huang’s performance was apparently not in question, and she reportedly received favorable performance “reviews,” the company was placed in a precarious position — one that exposed its perceived “tap on the shoulder” culture. Twitter had to ultimately defend its pay practices and policies but eventually prevailed. One may wonder if Twitter’s lack of formal process here as claimed by Ms. Huang helped the company prevail in the lawsuit?  Certainly this opens up a host of questions regarding the challenges companies may ultimately face if they have to defend themselves against such claims. Is the risk worth the price of change?

Whether your company is a fan of a more innovative approach to providing feedback such as with the “performance snapshot” implemented by Deloitte, or is inclined to stick with a tried-and-true performance ranking method, the challenge is clear: whether or not to rate an employee’s job performance using acceptable methods of evaluation. It would be nice to believe that all managers are held to a higher standard of accountability and will lead by example in helping to motivate their staff by providing consistent feedback. However, it’s another thing to realize just how important documentation is to support management’s employment decisions no matter how labor-intensive the process.

It’s nice to feel you are leading the charge for what’s new and different. However, eliminating performance ratings and formalized reviews may be a passing fad much like the nearly extinct 360-degree performance reviews were to the 1990s. It is advisable to review the merits and the drawbacks of any new plan you choose to implement with the people that matter most—your employees. Then you can decide what makes sense for your organization regardless of what the rest of the world may be doing.

– Lisa Kaye is a Cable & Telecommunications Human Resources Association (CTHRA) Board Member, Co-Chair of CTHRA’s Compensation Committee and Founder & CEO, Greenlightjobs.com