No one likes traditional performance ratings very much. Most people ﬁnd the rating process opaque and question its objectivity and fairness. Managers don’t want to spend their time shoehorning people into fixed categories, defending their choices, and communicating ratings that disappoint more often than they thrill. Even HR doesn’t like ratings very much, as the process often involves chasing down managers to complete ratings and enforce guidelines. To respond to this, 14 percent of organizations we surveyed have gone “ratingless,” abandoning performance ratings altogether.1
Meanwhile, almost everyone likes pay for performance. Performance-based rewards provide the recognition for initiative and productivity required to effectively show that the performance system is fair. Bersin research shows that organizations that use pay for performance are 2 times more likely to innovate, 1.5 times more likely to delight customers, and 1.3 times more likely to meet financial targets, among other benefits.2 In short, pay for performance works—not as the ultimate motivator of behavior, but to enable people to move toward higher orders of intrinsic motivation.
This can create something of a conundrum for companies. Paying people for performance requires evaluating their performance, doesn’t it? So, how can companies pay for performance without rating performance?
That’s not the only complication associated with ratingless performance management: Our High-Impact Rewards and High-Impact Performance Management studies reveal that ratingless organizations are more effective than other organizations at engaging the workforce, balancing team and individual performance, and, surprisingly, limiting the rewards of low performers. But the research also reveals that ratingless organizations tend to be less effective than ratings organizations at optimizing reward spend, developing talent, personalizing rewards, and—you guessed it—paying for performance.
The challenge facing leaders who want to get rid of ratings is this: How do you get out of the proverbial frying pan of ratings without jumping into the fire of not paying for performance?
To help you answer that question, we explored the key issues that need to be considered before abandoning performance ratings. We found three areas of concern: HR issues regarding process, risk and compliance, and strategic alignment; management issues surrounding oversight, performance differentiation, and communication; and workforce issues around criteria, transparency, and fairness. These problems all need to be addressed to design a ratingless performance management and rewards system that properly fits your company’s culture, values, and mission, as well as to support a transition to ratingless rewards without creating organizational chaos and harming workforce morale.
In our new article, The Ratingless Rewards Dilemma: How to Determine Pay without Performance Ratings, we discuss the pros and cons of six specific approaches that companies can take to implement ratingless rewards, and we offer our insights regarding one of the most promising approaches. We also explore predictions regarding the ways in which artificial intelligence may impact performance management in the near future, including its potential to create a tighter link between performance and rewards.
If you have a story to tell about your own challenges or successes with ratingless rewards, please email Pete DeBellis (firstname.lastname@example.org) or Kathi Enderes (email@example.com) with the details.
Bersin members can access The Ratingless Rewards Dilemma: How to Determine Pay without Performance Ratings in the Bersin library. Stay tuned for additional research on how organizations can continually improve their approaches to pay for performance coming later this year.
1 Seven Top Findings for Enabling Performance in the Flow of Work, Bersin, Deloitte Consulting LLP / Kathi Enderes, PhD, and Matthew Deruntz, 2018.