Thursday, April 23, 2015

Should Your Firm Dump Its Employee Grading System?

The Wall Street Journal published an article this week titled "The Trouble with Grading Employees."  The article, authored by Rachel Feintzeig, focuses on some companies that have chosen to abolish their performance evaluation rating systems for employees.  Feintzeig also reports on some firms that have considered eliminating their rating systems, but were reluctant to abolish them.  Intel was one such firm.  Here's an excerpt that focuses on why rating systems are being questioned by companies such as Intel:

Intel Corp. has long rated and ranked its approximately 105,000 workers on a four-level scale, from “outstanding” to “improvement required.” Devra Johnson, a human-resources director at the chip maker, observed that ratings tended to deflate morale in a good chunk of the 70% of the company’s workforce that receives a “successful” rating each year—the second-lowest label.  “We’d call them the walking wounded,” she said.

I think the debate about ratings systems actually misses the point.  Companies should focus less on whether they use ratings and more on how they optimize performance overall.  To do so, firms should focus on four big ideas.  First, employees need to know where they stand.  That's the core principle that all performance evaluation systems must adhere to regardless of whether firms use a rating system or not.   In too many situations, employees simply do not understand how they are doing.   Second, differentiation is essential.  Not everyone is above average.  Even with ratings systems, some firms do not do enough to distinguish between high and low performers.  Others take rankings to an extreme.  Third, good performance management rests more on the informal modes of communication between manager and employee than on formal evaluation systems.  Communication between manager and employee must be frequent, open, and two-way.  Waiting for the formal review to take place is a recipe for disaster.  Finally, great companies create environments that foster intrinsic motivation.  They do not rely solely on the extrinsic rewards or punishments that come with formal evaluations. 



Marc Scrivener said...

I used to be a big believer in formal performance evaluations, but today I think they're next to worthless.

The alternative, however, is more engagement with employees--as I think you indicated.

Stephen Covey always said that we can't be both efficient and effective with relationships (whether boss-employee, father-daughter, husband-wife). We have to pick one or the other.

Good stuff.


Barton Wilson said...

That is true. Ratings are just detail. While they serve as a way to assess how your employees are performing, it can have a demoralizing effect on some employees. It could also become counterproductive at times, especially when workers aim for higher ratings first and put quality of work second. Though it can serve as a check and balance for standardizing policies and production targets, especially if the company is just starting, or is aiming for a new direction. In the end, it all depends on how the company will implement such measures. Anyway, thanks for sharing your thoughts on the matter.

Barton Wilson @ Isa Registrar

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