Why Some Companies Are Ending Employee Performance Ratings


Even though some major companies like Microsoft have decided to eliminate their stack ranking systems, the controversial employee review process will never go away entirely.
Industries like defence and aerospace, for example, tend to value execution over creativity, so need a way to measure and compare employees. Ranking workers on a bell curve that features a set number of high, average, and poor performers meets that need.

But increasingly companies are moving in the opposite direction, and using an entirely ratings-free system.

While it’s still only a small fraction of businesses, around 6% according to Cliff Stevenson of The Institute For Corporate Productivity, big names like Adobe, Expedia, and FedEx are among the companies that no longer rank their employees. Instead, t

hey focus on incremental or divisional goals rather than on individual ones.

Advocates of stack ranking argue that such measures are required to spur internal competition and weed out poor performers. However, companies that have stopped grading employees altogether have seen positive results in employee engagement and no negative impact on any performance metric, Stevenson’s research found.

“The very concept of the performance review is very backwards-looking; it’s ‘What did you do over the past year?'” Stevenson said. “Instead, they started looking more at development and enabling employees for the coming year.”

Feedback becomes continuous rather than being delivered a few times a year in an extremely high-stress meeting.

“The concept is that you get your feedback not once a year or quarterly, but as things happen,” Stevenson said. “As you finish a project, your manager has the discretion to come to you then and talk to you about success or areas for development as they see fit.”

It’s a completely different, and arguably superior, way to manage people than rating and ranking them.

The rigid, quarterly, numbers-focused stack ranking system came about as an effort to manage large, distributed, and unwieldy workforces. But in an age when we have better data and a better idea of what makes people tick, it’s not necessary.

Especially for small businesses, where individual employees have an outsized impact on a company’s performance, touching base and rewarding employees as needed is a much better option.

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