It’s Rating Season. Time to Play the Game
As I write this, it’s Halloween. Scary is cool and every door is an opportunity for kids. It’s scary in organizations at this time of year as well as the “year-end process” kicks off. Each new year is a new opportunity for employees. It won’t be long before employees find out what kind of “treats” they got from their organization. Did they get a big candy bar? Did they get a small candy bar? Did they get the candy that no one likes (you know what I’m talking about)? Or, did they get nothing or the proverbial lump of coal? Given the recent wave of layoffs and restructuring by many organizations, many employees will fall into the latter category as they are shown the door.
At the beginning of the year, we talk about performance “management,” but at the end of the year, it’s all about performance “evaluation.” The time for feedback, coaching, and development is over. It’s time for cold reptilian judgement. It’s rating season. Ratings are the raison d'être of traditional PM. And employees aren’t just rated--they are differentiated. Organizations grade on a curve. Regardless of the similarity of employee efforts and contributions, supervisors must differentiate them, however fine the distinctions, on whatever basis is necessary. I can’t think of anything scarier.
In one study by my friend David Futrell, nearly 40% of employees received a lower rating than they felt they deserved.[1] This is the way the “PM math” works. Only a small percentage of employees can get top ratings because reward budgets are fixed, and ratings drive rewards. And since most people believe they are above average, they will be surprised and disappointed when they don’t get them. [2] Low ratings are required to give those with high ratings disproportionate rewards, and disproportionate rewards, the theory goes, is required to motivate employees. Employees dread this time of year because their rating seems almost random--their manager pushed a button on the rating machine and a ping pong ball came out with a rating on it. Employees don’t trust the process, and they don’t feel like they have control over their rating.
The reality is most managers have been keeping score all year. They need to provide employees with feedback on how their rating is trending to minimize these surprises at the end of the year. For many employees this feedback will be negative. Because top ratings are rationed, managers monitor employee performance for failures or signs of weakness that can be used to justify lower ratings. In fact, managers secretly breathe a sigh of relief when they find examples they can use to justify low ratings and meet their rating distribution requirements.
While there have been calls for an end to these practices, few companies heeded the call. [3] And recently, it feels as if the pendulum has begun to swing back the other way, with some writers concluding that going ratingless didn’t help or that it was just another fad that has run its course. [4] Never mind the fact that it seems inappropriate to call something a fad that few companies actually adopted. So, while people complain about ratings and PM at this time of year, most believe there is little to be done about it, that these complaints and unhappiness are an inevitable part of a functioning meritocracy. The headwind PM creates in organizations is annoying and irritating, but not fatal, like a pebble in your shoe. No PM process will please everyone right? After all, the only thing worse than ratings, PM and meritocracy are the alternatives, right? Organizations learn to tolerate the noise from employees and managers; they learn to endure this time of year. This leaves us where we started, a painful process, with lots of rationalization and fatalism, and no suitable alternatives.
Not so fast.
Let’s examine the arguments being made by proponents to stick with ratings:
Organizations that abandoned ratings never really did. They pushed them downstream or they went underground. This lack of transparency isn’t fair to employees, so we should bring them back into the open.
Organizations need ratings. Decisions need to be made about employees, chief among them rewards decisions. These decisions depend on ratings. Employees need feedback on how they are trending relative to those decisions, especially those employees who will end up at the bottom of the distribution. Ratings deliver those messages.
Ratings are fairer than the alternatives.
Employees want to be rated; they want to know where they stand.
Ratings motivate employees to work hard.
“The Game”
At the heart of these arguments is the presumption of a “game” organizations play with employees. The game goes something like this: Employees work for rewards. Rewards are distributed on the basis of performance. Performance is measured by supervisor ratings. Employees compete with one another for ratings and rewards. The winners get top ratings and a disproportionate share of the rewards, the losers resolve to try harder next year.
The game reflects a traditional view of PM as a means to an end, and that end is making decisions about reward distribution and differentiation. The game is predicated on a set of assumptions and principles from classical economics, behavioral psychology, and labor economics that are decades or even centuries old. They reflect a more coercive approach to governing, motivating and controlling the behavior and actions of employees in the service of organizational goals:
Behavior is controlled by its consequences--rewards and punishments, extrinsic motivators. Money is the chief consequence, the chief motivator.
People are self-interested; they seek to maximize their returns while minimizing their efforts.
The efforts of self-interested employees need to be “aligned” with the goals and interests of the company. This is done through performance contracts with reward contingencies, threats, and regular monitoring and surveillance.
Rewards must be based on individual performance and supervisor ratings are the only way to measure performance for most jobs.
Reward budgets are fixed so we are playing a zero-sum game. These budgets must be allocated efficiently and effectively; they cannot be overspent.
Rewards must be differentiated as much as possible to motivate employees.
Competition for limited rewards motivates employees to work hard and employees need a scorecard to know how they are doing.
Given this is the game (and there is little debate about this), arguments made by proponents of ratings make sense. Of course, organizations need ratings; differentiating and distributing rewards requires ratings. [5] It makes sense then that few companies abandoned ratings and those that did struggled. And it makes sense that employees want ratings--how else would you distribute rewards? Greater transparency makes sense as well; if there is a game, employees need to know the score and they need to understand the rules. It also makes sense that organizations try to improve ratings, tinkering with rating scales, training raters and getting more raters involved through 360-degree reviews. And it makes sense that companies adopt practices like mechanical rules to translate ratings into rewards, forced/guided distributions, and calibration. These practices increase the predictability of reward distribution and mitigate the risk of overspending reward budgets.
The problem with our approach to fixing PM is we have accepted this game as a given. Chris Argyris called this approach “single-loop” learning. [6] When you try something, and it doesn’t work, you try something different. Organizations have tried for 70 years to improve the game with little to show for it. Companies are as unhappy with PM as they were 70 years ago when famed organizational scholar Douglass McGregor wrote “An uneasy look at performance appraisal.” [7] His original article was published in 1957 and again in 1972. Maybe this article should be published every 15 years until the “uneasiness” disappears.
To fix PM, we need to practice what Argyris called “double-loop” learning. When something doesn’t work, especially after 70 years of trying, you step back and examine the values, assumptions, and beliefs behind your practices. When you engage in double loop learning, you don’t just question the practices, you question the game itself. Our practices are breaking because the principles on which they are based are antiquated.
Researchers abandoned the principles behind the game decades ago. [8] Evidence supporting practices based on these principles is increasingly lacking. I won’t review the evidence here since it has been thoroughly documented it in other places. [9] Suffice it to say that human beings are not tape measures; they are flawed measuring instruments and the judgments (ratings) they make can be problematic, inaccurate, and inconsistent. And what organizations are asking of managers in this process is nearly impossible to do accurately and fairly. Performance ratings are far too inaccurate to be the basis for distributing hundreds of billions of dollars in merit pay and bonuses each year. And there is ample evidence suggesting employees don’t want to be rated, and that comparing employees’ performance with one another can be harmful to performance, especially when collaboration and innovation are important. Other elements of the game also lack research support. Practices like basing rewards on individual performance, radical differentiation of rewards, and creating large inequalities in pay within organizations have not been effective in driving employee motivation and performance and organizational effectiveness.
The New World
It’s problem enough that research no longer supports the game and this should be reason enough to abandon it. Perhaps the bigger problem however, is the old game doesn’t fit the new world. The old game was created during the industrial revolution, and works best with simple, routine, and stable jobs where detailed performance contracts can be established, and performance can be measured quantitively. It works best in hierarchical organizations with small spans of control, clear and distinct responsibilities, and co-located employees that the organization “owns.” It works best with bountiful, stable rewards budgets. And finally, it works best with employees who accept the game.
The new world of work isn’t like this. Simple jobs are gone; they have been outsourced, automated, or replaced by AI. Workers today are increasingly knowledge workers, doing jobs that are more complex and dynamic because organizations face environments that are characterized by increasing volatility, uncertainty, complexity, and ambiguity. It is difficult to establish detailed performance contracts that remain relevant for more than a few weeks or months for many jobs. For many employees today, the only constant is priorities will change, the work will change, and reward budgets will get cut. Agile is the rule for today’s organizations, and the old game depends on predictability. Organizations today are flatter with larger spans of control, making it difficult for managers to keep score and monitor the performance of their employees, especially when many of them work virtually or in other locations (or even in different hemispheres). Another complicating factor is the fact that organizations today don’t own all the talent they need. Managers today are responsible for the performance of gig workers, contractors, vendors, partners and fixed-duration employees along with full-time employees. You can’t play the old game with people you don’t own. And gone are the days when individual employees worked independently, and when organizations could rely on a few exceptional employees to drive their success. The old game is tailored to individuals, but the new world of work calls for teamwork and collaboration Work today is increasingly being done in teams and in teams of teams. Given the complexity of the problems organizations face today, they need everyone, not just the top 5-10%. And finally, those playing the game are different today. They want different things. They have different expectations that aren’t satisfied by old game. [10]
The New Game
The science and practice of organization design, motivation and high-performance points to a different game. It doesn’t make PM and ratings a slave to rewards. It puts PM to work for the business, redefining PM as a management process that translates business strategy and organizational goals into real work. It provides purpose, direction and alignment for employees and facilitates progress toward organizational goals.
The new game isn’t about coercion through ratings, differentiation, and rewards, it’s about performance…enabling the performance of individuals, teams, and organizations. It’s based on contemporary principles and practices from psychology (cognitive, social, and positive psychology), organization design, behavioral economics, and neuroscience. In the new game, employees are not coerced into performing, they are enabled and unleashed. And managers are not simply complying with an administrative process to distribute rewards, they are supporting, enabling the performance of their teams. In the new game, performance management becomes “performance enablement.”
There is strong evidence supporting these principles and the practices based on them. [11] Goals and the meaning they provide are at the center of the new game. Employees work for more than a paycheck. They work hard to make progress on their goals and the goals of their team and organization. They see how their efforts make a difference for the organization and its customers. They work hard because they are a part of something bigger than themselves. Organizations don’t need to chain employees to their goals with performance contracts, incentives, and surveillance.
The new game puts a premium on positivity, reinforcing progress, celebrating success and leveraging strengths. And the new game is a team game. Employees have a deep-seated need to belong, so the new game puts a premium on team goals, cooperation, and collaboration. Employees work hard because they don’t want to let their colleagues down. And while compensation is an important part of the new game, motivation does not equal money. In the new game organizations “manage compensation” by paying employees fairly relative to the market, growing their pay over time, and sharing in the success of the team and organization. In the new game, when we win, I win. [12]
With a new game in mind, arguments to keep ratings and other traditional PM practices ring hollow. Organizations don’t need ratings. Reward and other decisions can be made without traditional PM ratings. Compensation can be managed effectively without ratings, pay-for-performance and radical differentiation. What employees want is progress in meaningful work. [13] Employees don’t need ratings; they need enabling and supportive managers. Ratings aren’t better than the alternative because the alternative is a completely different game.
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End Notes
[1] Futrell, D. (2022). It’s About the Conversation! Having High Quality Performance Discussions. Society for Industrial and Organizational Psychology 2022 Conference, Seattle, WA.
[2] Meyer, H. H. (1980). Self-appraisal of job performance. Personnel Psychology, 33, 291-295.
[3] Murphy, K. R. (2019). Performance evaluation will not die, but it should. Human Resource Management Journal,30, 1-19.
[4] See for example:
Goler, L., Gale, J., & Grant, A. (2016). Let’s not kill performance evaluations yet. Harvard Business Review, November.
McKinsey Quarterly. (2018). Straight talk about employee evaluation and performance management. Podcase, October.
Bersin, J. (2018). We wasted ten years talking about performance ratings. The seven things we’ve learned. Blog Post, November 16.
[5] See for example WorldAtWork (2017). WorldAtWork research report: Performance management and rewards 2017. Survey research report. Page 4.
[6] Argyris, C. (1990). Overcoming organizational defenses: Facilitating organizational learning. Boston: Allyn and Bacon.
[7] McGregor, D. (1957). An uneasy look at performance appraisal. Harvard Business Review, May-June, 89-94.
[8] The cognitive revolution that occurred in the 1950’s effectively overthrew behaviorism (stimulus-response psychology) as a sufficient explanation of behavior. In the late 1960’s and early 1970’s, people like Richard Thaler and Daniel Kahneman began to document problems with classical economic thinking. Their research would give birth the field of behavioral economics, which would challenge many of the principles and assumptions underlying classical economics.
For a nice account of the cognitive revolution and the history of this time period from a psychological perspective, see Miller, G. A. (2003). The cognitive revolution: A historical perspective. Trends in Cognitive Science, 7, 141-144.
For a history of behavioral economics, see: Thaler, R. (2016). Misbehaving: The Making of Behavioral Economics. New York: Norton. And you can’t go wrong with Kahneman, D. (2012). Thinking, fast and slow. New York: Farrar, Strauss and Giroux.
[9] Colquitt, A. L. (2017). Next Generation Performance Management: The Triumph of Science Over Myth and Superstition. Charlotte: Information Age Publishing.
Goldberg, E., & Colquitt, A. (in press). Performance Enablement: A New Model for Driving Organizational Performance. Oxford University Press.
[10] There are lots of things you can read about the changing nature of work. Here are a few to get you started:
Johansen, B. (2017). The New Leadership Literacies. San Francisco: Berrett-Koehler.
Boudreau, J. W., Jesuthasan, R., & Creelman, D. (2015). Lead the Work. New York: Wiley.
Boudreau, J. W., & Jesuthasan, R., (2018). Reinventing Jobs. Lead the Work. Boston: Harvard Business Press.
Deloitte (2017). Rewriting the rules for the digital age. Human capital trends report.
Deloitte (2018). The rise of the social enterprise. Human capital trends report.
[11] Colquitt, A. L. (2017). Next Generation Performance Management: The Triumph of Science Over Myth and Superstition. Charlotte: Information Age Publishing.
Goldberg, E., & Colquitt, A. (in press). Performance Enablement: A New Model for Driving Organizational Performance. Oxford University Press.
[12] There are lots of ways effective to manage compensation without ratings, pay-for-performance and differentiation. I have described specific practices and the research evidence supporting them in several places:
Colquitt, A. L. (2017). Next Generation Performance Management: The Triumph of Science Over Myth and Superstition. Charlotte: Information Age Publishing.
Colquitt, A. L. (2018). Performance management: Addressing ratings and compensation. Webinar with 15Five, August 22. https://www.15five.com/alan-colquitt-performance-management-webinar/
Colquitt, A. L. (2018). Rewards: The fly in the ointment of performance management transformation. Executive Networks webinar, March 29.
Goldberg, E., & Colquitt, A. (in press). Performance Enablement: A New Model for Driving Organizational Performance. Oxford University Press.
[13] This idea comes from Teresa Amabile’s work. See: Amabile, T., & Kramer, S. (2009). The progress principle. Boston: Harvard Business Review press.