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Nov 6, 2015
This article is part of a series called Editor's Pick.

I have been calling for the death of traditional, scored performance appraisals for a long time.

Today, there is a chorus of voices singing this same hymn.

But, despite there being pretty clear evidence that this practice is fatally flawed, most companies persist, leaving their employees and managers to suffer from HR’s version of Chinese water torture.

What is holding us back from putting this nonsense behind us for good?

When I speak to groups and mention that I led HR at an organization several years ago that did away with performance appraisals and evaluation scores, the same question always arises. Someone inevitably asks, “What did you do about merit increases if there weren’t any performance ratings?

This question alludes to one very obvious misconception: performance ratings drive merit increases.

Merit increases = better performance ratings

The truth? Merit increases drive performance ratings. This is why your organizational average performance rating is “exceeds expectations.” Higher ratings are a result of bigger merit increases. Bigger increases are given because employers want less conflict, less drama, and happier employees.

So why is compensation still the single factor stopping most HR leaders from killing their performance appraisals? They just can’t get over the hurdle of how to make compensation decisions in the absence of a number to anchor it to — even when that number is known to be at best flawed or at worst manipulated.

This bears some exploration.

The fear holding organizations back from replacing their performance appraisal and rating system is rooted in their awareness of how important compensation is to employees (see note about less conflict, less drama, and happier employees above).

Compensation is, after all, why we show up to work in the first place. So any time we make changes that may influence comp, we naturally go on high alert.

Rarely do reviews give a clear picture of performance

The real issue at hand here is one of clarity and communication. Compensation expert (and TLNT contributor) Ann Bares does a great job of describing this challenge in her post, Pay Differentiation without Performance Ratings: How’s That Working for Us?  She writes: 

So what’s the problem? I think it’s this. Employees are forced to draw judgments about the fairness of their pay in the absence of clear, unambiguous information about how well they are performing.”

The irony, of course, is any assertion that performance ratings actually provide clear, unambiguous information about how we are performing.

Even when a scored appraisal tool is better than most, there’s the issue that humans just aren’t good at assessing other humans. So asking a manager to translate their flawed, subjective (read: inaccurate) assessment of an employee’s performance into a number to be used to drive compensation seems pretty sketchy.

The solution lies in recognizing that the goal isn’t to eliminate the performance appraisal or the rating. It is to deliver on the promise these ineffective solutions hoped to fulfill — to create greater clarity for employees about what is expected of them — and then to provide feedback about whether they are meeting these expectations.

It must be a process that impacts performance

I work for a company that designed a performance management system that provides an alternative to the traditional, scored appraisal. It’s simple, effective, and provides greater clarity for employees by helping you:

  • Set clear goals and objectives;
  • Provide regular recognition and feedback in regards to achievement of these goals and objectives;
  • Coach and provide support towards achievement of these goals and objectives.

Traditional performance appraisals are lousy at assessing performance, and I think we can all agree we need to do away with them.

But when you do, it’s critical that you replace that practice with a process and training that actually impacts performance. The bullet points above give you a good starting point on what that should include.

If your organization is practicing good performance management AND managers are able to have open and honest conversations with employees, then it’s likely that employees will clearly understand the decisions made related to their compensation.

Make the pain stop

Managers should be educated in how to have constructive conversations about compensation and also about their role in making good compensation decisions. If comp decisions are business decisions, then those who are managing the business should be skilled in making them.

The moral of this story is that many organizations have both a performance management AND a compensation management problem.

Don’t let one stop you from addressing the other. Your managers and employees are counting on you to make the pain stop.

This originally appeared on the Quantum Workplace blog.

This article is part of a series called Editor's Pick.