“There are a few different issues with rating systems,” says Rajeev Behera, CEO of Reflektive. “The first and foremost is that they’re very demotivating for employees.”
According to Behera, when employees hear that they’re anything other than the highest potential rating, it demotivates them immediately.
“That is a huge problem because the whole point of performance management is to help improve the performance of your employees,” he told HRM.
“Only a very small subset of your employees is going to be top rated so that means you’re demotivating and causing disengagement for a huge amount of your workers when you rate them,” he continued.
San Francisco-based Behera says the second major issue is around bias and accuracy.
“There are two big biases that come into play that cause the inaccuracy,” he told HRM. “One is recency bias where people just remember the last few months of that employee’s actions.”
The second, and according to Behera more important issue, is rater bias where the manager’s approach has a far greater impact on the outcome than the employee’s actual performance.
“There have been studies that say who the rater is matters far more than who the employee is,” he told HRM. “So who the manager is and how they grade is more important than the employee’s own performance.”
Both these biases, he stresses, are working to undermine the huge amount of time and effort employers put into performance reviews.
“If you’re spending so much time on performance reviews – and Accenture said they spend two million hours on performance reviews – and the result ends up being an inaccurate rating that demotivates people, then that becomes a pretty big issue,” he warned.
It’s for these reasons that Behera says employers are finally waking up to the inefficacy of performance reviews.
“There’s a lot of momentum around companies removing ratings completely,” he told HRM. “This is a huge trend and we saw it with start-ups two or three years ago but now we’re seeing large companies too.”
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From Goldman Sachs to Morgan Stanley, we’ve seen a number of major corporations scrapping performance reviews in recent months – so why is the practice falling out of favour with HR? Here, the CEO of a leading service provider shares his thoughts.