Is It Time To Drop Performance Review Ratings?

by admin

Is It Time To Drop Performance Review Ratings?

by admin

by admin

For many employees, this time of year represents the dreaded annual performance review. Having set goals for the year, Managers rate the success of staff over the last twelve months using a number, a letter, or sometimes a single phrase describing an individual’s efforts which is then ranked and salary, bonuses awarded.

This scenario is commonplace for many companies despite the mounting evidence suggesting these conventional methods of performance management simply aren’t working.

As lingering impacts from COVID disrupt the world of work, for some companies it may be time to rethink some or part of their performance review process. More effective methods of evaluation or rating are arguably the most contentious part of the process providing opportunity for change. At face value, de-emphasising ratings shouldn’t cause much of an impact to performance discussions. It’s just a number / letter, right? Not necessarily. Many organisations would attest to broader issues at play with their performance management program.

Common comments we often hear from companies referring to their performance review process;

“Our year-end conversations are not happening or if they are, they’re not done well.”

“95% of the conversation isn’t really about performance or development – it’s setting up for the rating outcome.”

“Our managers lack the capability to have courageous conversations and provide meaningful feedback.”

“Our employees are not skilled at receiving feedback.”

“A Manager’s view becomes THE view, creating a lack of trust with employees.”

So how can companies take a different approach to improve the effectiveness of their performance management program?

Evolving your performance management framework

The table below shows a continuum of evolving practices of performance management from traditional to substantially different.

performance management framework

How to improve conversations around performance

Perhaps a key driver for dropping performance review ratings is for organisations to get better at performance and development conversations including constructive feedback (managers and employees). But, to improve means to do it more often than once a year.

Fortunately, these uncertain times are driving more frequent goal setting and performance check ins – at least monthly, perhaps weekly, sometimes daily. But how can organisations develop ‘new’ skills of giving and receiving feedback?

Here are some ideas companies use:

  • Introduce simple tools to support the conversation e.g., talk sheets, performance matrix to plot the degree of stretch performance and how often employees are achieving outstanding performance.
  • Face to face training for giving and receiving feedback including role play.
  • Develop animated video for those who respond to more visual learning.
  • Design structured campaigns with monthly topics e.g., “how to give/receive feedback”, “career conversations”, “removing barriers”.
  • Introduce new technology to provide real-time feedback including mobile devices. This can also be used for employees to provide feedback on their Manager’s coaching effectiveness.

How to link pay with performance

With ratings de-emphasised or even removed, you may now be asking, “How do we link pay and performance?”

There are various approaches that can provide valid alternatives for making pay decisions.

  • For base salary reviews, use a competency progression and market relativity model.
  • Move to team / organisation bonuses – a team bonus fund could be allocated for team performance based on outcomes vs target. The team then determines how best to distribute the funds which could comprise both what was achieved and how it was undertaken (behaviour and values come into play here).
  • Apply standard bonus % of an employee’s salary determined solely on company performance. To recognise top performers, set aside a small bonus pool.
  • Use the incentive budget to supercharge your award & recognition scheme and allocate based on peer ‘points’ throughout the year.

The rapidly evolving workforce dynamic and new working world presents some companies with a catalyst for change to their performance management traditions. So perhaps it’s the perfect time for organisations to move away from misleading outcomes, clumsy processes and complex structures requiring entire quarters of the year being put aside.

Here are four questions to contemplate as you reflect on the effectiveness of your organisations performance management program:

Purpose – is our performance management approach aligned with our critical business challenges?

Targets – are our business objectives effectively translated into clear targets that are logical and actionable?

Evaluation – are our performance ratings and reviews evidenced based, objective and differentiated?

Outcomes – do the performance ratings result in fair, transparent and appropriate rewards?


The Reward Practice is an independent consultancy specialising in the development of custom remuneration, reward and incentive programs for companies of all sizes and stages.

Contact us for more information on how to motivate staff, leaders and top performers.


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