Performance ratings – the best way to demotivate good performing employees?

Performance ratings: “What was your performance rating this year? Did you get a 3? Or a 4?” Ending the calendar year often signals time for performance appraisals and those of us who have been in a company that used individual performance ratings are familiar with these kinds of questions. Especially when the rating comes with a financial reward, our own score and how it compares to others is of keen interest.

There’s a lot of debate around performance ratings these years. Different kinds of pain-points trigger companies to look for different options and performance management will be a topic that the Caveman will visit from different angles. The topic for this post is about the accuracy of which we can measure performance.

Clearly, individual performance doesn’t bucket up in five (or how many categories you use in your rating scale) nice discrete categories that are easily distinctable. Individual performance follows a continuous scale. Applying a discrete rating on a continuous performance scale means that you have to set cut-offs scores on the continous scale, i.e. where does a rating of “Average” separates an “Clearly above average”?

Measuring performance is not an exact science. “Measurement error” means, that all people who are in a neighborhood of the cut-off – above as well as below – randomly fall in either rating. In order words: For the people within the measurement error range, the rating becomes random – or even worse – subject to all sorts of biases, the ability to self-promote and other things that has nothing to do with performance.

Adding the “Illusory Superiority cognitive bias” described in “You such more than you think”, a lot of people genuinely feel that they are clearly performing above average, and leaders will not be able to tell them why they are not.

In fact, applying standard statistical assumptions and best practices of performance ratings, 20-25% of all employees will get an “average” score and feel disappointed as they as easily could be rated “clearly above average”.

One out of four are disappointed and feels that the system is unfair. And it’s not the lowest performing people in the organisation: we’re talking about good performing people that delivers as expected and even above, and this is hardly a part of the organisation you wish to demotivate and disengage?

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