Importance of Performance Ratings

As we go through the current round of performance ratings it’s important to remember what the roles of these processes are.

Most companies introduce these tools to provide differentiation in bonuses and pay rises between the top performers, good performers and low performers. This is meant as a way of motivating the people who contribute the most to the companies performance, and also as a way to weed out lower performers and improve the overall talent pool.

Correctly used this can be very beneficial, incorrectly used it can have the entirely opposite effect, potentially demotivating the high performers and rewarding lower performers, confirming that their poor performance is acceptable.

At one company where I worked, we had 5 rating levels which basically translated to very good, good, acceptable, not very good, and poor. A ‘forced curve’ was supposed to be used to ensure the distribution met the companies guidelines, but in reality it was just used to try measure the distribution, and invariably as long as it was within 2-3% no changes were made.

In one year, my rating was good, which was a big surprise to me, as I had not only done my own job very well, but I had also taken the initiative to start a cost reduction program which cut $20m per annum from the operational budget and in addition I had deputised for a colleague doing his job as well as my own for several months.

When I had the input meeting with my manager to prepare for the rating meeting he said my performance was clearly very good, and the best performance in the department.

I left the meeting feeling very motivated.

2 weeks later when I had the feedback meeting my boss, and he was clearly very uneasy, and as we talked about my strengths and weaknesses, he was less enthusiastic as he had been in the previous meeting. Finally he told me that I had been rated as only good and whilst he realised that this was not what I had expected it was still a good rating, with the company showing that they appreciated my efforts.

I was livid to say the least, and asked, ok who in the department has been rated very good, and please explain to me what they had done to achieve that rating.

At this point he looked even more uneasy, and then he finally told me that senior management had decided that this year, they would not rate anyone very good. They would just go with the 4 ratings, with good as the highest ranking.

So actually my rating was the best available.

I was dumbstruck. I said, so actually my performance was very good, but as a company we have just decided that this year we wouldn’t recognise that, we would just put it down as good, and he said yes. I asked have we down graded everyone one grade or does this just apply to the people who were very good. He said, this just applies to people who would have been very good.

So with one corporate decision we had managed to demotivate an entire group which just happened to be the top performers.

What is the rational for such a decision, surely the goal cannot have been to demotivate the top performers.

I asked whether the same would apply for the current year, or would they reintroduce very good. My manager told me he didn’t know.

So I told him, ok then I will only do good work until you can confirm that very good work will be rewarded.

Apparently, the goal was to try and reduce bonus payouts. I did ask why we hadn’t just applied it to the poor performers, and was told we didn’t pay them enough to be able to make the saving needed.

Within 12 months I had left the company, and I can say that from that meeting onwards my performance was tempered to just good. My motivation and trust in the company was completely shattered and I was not the only one to take this approach.

So the impact of these actions were to lose many of the very good performers, which was actually the contrary result for what the tools were supposed to deliver.

Whilst these tools can be very beneficial, when implemented incorrectly they can cause untold damage.