Have we approached performance management reform in the wrong way? I think so. Read on for why.

Have you eliminated your performance ratings? How’s it going? I would be really interested in whether you are seeing improvements in performance and engagement as some recent research suggests that after the initial euphoria you may actually be getting a drop in both. Of course you actually have to be measuring this to know…. but that’s another story.

There has been quite a bit of hype (in my view) on removing ratings to improve performance. A lot of that is driven by a number of high profile companies publically sharing what they have been doing. And it has to be said quite a lot of their consultants capitalising on the publicity.

That aside what neuroscience is telling us about the impact of ratings on the brain makes a case for their removal.  Neuroscience suggests ratings create a number of negative responses which have an impact on motivation, and productivity.  These include fear and the resulting negative impact on sense of social reputation, negative comparisons between people and demotivation. Many companies have assumed that removing ratings will also remove this impact and create a more positive environment which enables better performance. Now research from CEB is highlighting the actual results companies are getting. CEB’s headline on their research is that employee performance is likely to drop by 10% if you remove ratings.

Hold on that’s not meant to happen!

But it makes sense. The underlying assumption about removing ratings is that without managers being required to apply a rating and carry out an annual review there will be more frequent formal and informal conversations and more feedback which will improve performance. In essence that employees will be listening to feedback rather than waiting for the dreaded rating to be given. But as we have said elsewhere without engaging managers and employees in new behavioural habits that’s unlikely to happen.

CEB found that when ratings are just removed with little or no support to change behaviour there is a 10% drop in performance and engagement after the initial euphoria. Specifically, without training and support managers find it hard to explain to employees how they are performing and they don’t use the time freed up for informal performance conversations. Engagement drops because managers are unable to do the very things that are proven to engage employees, such as set expectations on performance standards, hold clear performance and development conversations, and provide appropriate rewards and recognition including the rational for these.

But are ratings the wrong area to focus on?

CEB’s advice is to encourage more informal feedback and to collect feedback from peers of the employee who they believe will understand the employee’s job better than the manager can and make feedback forward looking- feedforward. I have to say I’m a little worried about some of that advice. Our findings on feedback, suggest there may be a different, potentially bigger issue with how companies manage performance and that’s the role feedback plays. We have discussed this in some depth in The Feedback Debate, you can watch the webinar. Our analysis of both the psychological research (most dating back to the 90’s) and the neuroscience suggests without a major shift to the way feedback is positioned and collected performance management will not improve to the extent companies need. Feedback which is negative, collected and delivered by the manager without much input from the employee creates as much threat as ratings do and with all the follow on negative impacts. Potentially the ‘new’ approach to performance management means some employees will be experiencing negative unsolicited feedback much more frequently.  Positive feedback and what we call employee initiated feedback doesn’t have this threat impact. Nor it seems does feed forward if delivered through creating insight rather than telling the employee what to do in the future. But introducing this kind of feedback approach requires a shift in the power structure between managers and employees and training for both.

We are beginning to see some companies shifting their approach to this type of feedback system and they are getting good results. We are also very excited to see companies like Pay Compliment taking the findings from neuroscience and using them to design their feedback software. They provide systems which help employees give and receive feedback real time and in a non-threatening way.  David Perks CEO of Pay Compliment tells us they are also creating an algorithm which will allow companies to provide qualitative feedback without resorting to ratings.

So in the not too distant future there may be some software solutions that support brain-savvy feedback. But even with that it is essential for companies to invest in creating new behavioural habits with managers and employees and shift the focus of feedback from manager led to employee led. From negative to positive and from looking back at performance to looking forward.

Too often in HR we have focused on one aspect to change performance. The focus on ratings at the expense of understanding the role of other aspects of the performance management process is another example. Performance is based on three interlocking factors, understanding what’s expected – goals – knowing whether progress is being made of the right standard – feedback – and recognising success. Focusing on only one of these will not get the results needed. We need an integrated approach if companies are to get the increase in performance required. This is more complex and requires a better business case but the results will make the extra effort worthwhile.