By Rachel Feintzeig
Can a year's worth of work be boiled down to a stock phrase like
"meets expectations"?
As companies reinvent management by slashing layers of hierarchy
or freeing workers to set their own schedules, performance
ratings--which grade workers on a 1-5 scale or with labels like "on
target"--stubbornly hang on. Companies like Gap Inc., Adobe Systems
Inc. and Microsoft Corp. abolished such ratings after leaders
decided they deterred collaboration and stoked staffers' anxieties.
Yet other companies are having a harder time letting go.
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.
Human-resources managers conducted an experiment to test a new
way of managing performance, allowing 1,700 workers in the HR
department to go unrated, although not without feedback, for about
two years, according to Ms. Johnson.
Managers found they could still differentiate performance and
distribute compensation. However, when Ms. Johnson's team presented
its findings, company executives weren't ready to give the labels
up, concerned that forgoing ratings would suck healthy tension out
of the workplace, she said. So the HR department started rating the
employees in the experiment again.
"We don't want to be in a place where everyone's an
outstanding," she said. "We worry a lot, as we should, about
unintended consequences. You make a little tweak in an innocuous
place--you don't know, sometimes, the impact it might have."
Intel declined to be quoted for this article.
Marc Farrugia, the vice president for human resources at Sun
Communities Inc., is going through the "exhausting" process of
revamping performance management at the owner and operator of
manufactured housing communities. He's concerned about the accuracy
of the company's current approach to ratings; some managers just
dole out higher scores in order to maximize bonuses for employees
they're scared might leave; others give everyone average ratings
because it is easy. Workers complain the ratings aren't fair and
don't paint a true picture of their annual performance.
"I'm being more and more convinced that ratings are doing more
harm than good," Mr. Farrugia said.
Some managers felt differently, however. At a recent meeting,
senior managers resisted the idea of eliminating ratings, claiming
workers wouldn't get the feedback they need, Mr. Farrugia said.
Plenty of managers like ratings for the same reason employees
loathe them--the grades are informed less by data than by the
boss's judgment. The irony is that ratings remain subjective as
companies have more ways than ever before to track staff
performance. At Deloitte LLP, the company recently overhauled its
performance-management system after realizing that ratings revealed
more about the manager assigning the ratings than the employees
themselves.
Some executives worry that figuring performance measures, such
as the time it takes for restaurant workers to take an order, into
reviews might lack context.
"I have a real love-hate relationship with data," said Kevin
Reddy, the CEO of fast-casual restaurant chain Noodles & Co.
"You can get a false sense of security if you zero in too closely
on a rating system."
The company moved away from numeric ratings about seven years
ago but still places workers into broad categories like "meets
expectations." Mr. Reddy said he and his leadership team continue
to question whether they're doing feedback right and motivating
employees.
Jean Martin, a director at research and advisory firm Corporate
Executive Board who works with companies on performance management
systems, said executives are "giving the numbers too much power" by
endlessly debating their worth. An analysis of 30,000 employees by
her organization shows ratings don't have a direct impact on
performance, she said.
Others say they have evidence showing that workers contribute
less after receiving a poor rating. David Rock, the director of the
NeuroLeadership Institute, a research firm that applies
neuroscience to the workplace, said ratings conjure a "threat
response" in workers, or "a sensation of danger," especially if
they don't get the number they expect. And the hangover from a bad
rating can last for months, Dr. Rock said.
One California-based Intel marketing employee said the
"successful" rating he received last month made him feel as though
his work mattered little to the company. He said he's wondered
whether he should work less hard, theorizing that he'd get the same
rating anyway. He's also started looking for jobs elsewhere, he
said.
Companies that have gotten rid of ratings say their employees
feel better about their jobs, and actually listen to managers'
feedback instead of obsessing over a number. John Ritchie, a
Microsoft human-resources executive who goes by "J," said the
technology company's practice of rating and ranking employees
discouraged risk-taking and collaboration; since discontinuing the
practice in late 2013, teamwork is up, he said.
The internal change mirrors the shift CEO Satya Nadella is
working to effect externally, charming and collaborating with
startups and venture-capital firms so that Microsoft doesn't get
left behind in the increasingly heterogeneous world of
technology.
"We needed to change and everybody knew it," Mr. Ritchie said of
the new performance management system.
The Gap's new approach dumps ratings in favor of monthly
coaching sessions and frequent employee-manager conversations. But
HR executives had to convince leaders that the move wasn't
"sacrilegious," according to Eric Severson, the company's co-head
of human resources.
Holly Bonds, a 17-year veteran of the company, said it was
strange at first; she was used to scanning her review for her
rating and bonus number. She now talks more frequently with her
manager, so she has a better idea of where she stands, a process
that she's found less stressful than worrying about her rating.
"I haven't missed it," she said.
Write to Rachel Feintzeig at rachel.feintzeig@wsj.com
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