Performance Reviews

The Pros and Cons of Ratings in Performance Reviews

August 13, 2019
June 23, 2022
Lesley Chen
Lattice Team

While not everyone is a fan of performance reviews, we do know they can be an important tool for your company because they can directly impact your company's bottom line by helping you identify and retain your best people. So it’s worthwhile to spend strategic time and energy figuring out the best way to roll reviews out to your teams.

There’s plenty to consider. How often should they happen? Should reviews be 360? But a controversial question that often comes up is: should we use ratings in our performance review process?

We put the question to four HR and People leaders at our recent Great HR Debate event. The truth is that no one answer fits all. So, let’s take a look at the pros and cons of ratings in reviews, and see which works best for your needs.

Pro: Data that can be used for compensation and succession planning.

When it comes to assessing how good something or someone is, everyone loves a grading system — from rating a restaurant five stars to giving something an F for being totally sub-par. The same goes for people in an organization. 

There’s nothing more black-and-white as a rating scale — whether you’re using a 3-point, 5-point, or letter-grade system. Right away, you’ll see who your company’s managers view as the top performers, sorted into ranked lists. And depending on the number of rating variables, you can parse those high performers based on specific skills or goals.

More importantly, all that data can help HR, People teams, and managers feel confident that decisions regarding who gets raises and promotions are less subjective, because they’re based on who is getting consistently praised as a top performer. These top performers are the exact people who the company most wants to work to retain and keep engaged.

“We use Lattice, we have a rigorous 360 process, and we assess the hell out of each other,” said David Mann, Head of Human Resources for CircleCI. “And we like it because it is rigorous, it is objective, it is 360, it is data-driven, and it is smart. That’s the data we use to adjust compensation and raises. So yeah, bring on the ratings.”

Con: Ratings are too subjective.

While it’s great to have all that very specific data that are easy to visualize and parse, a rating system is only as good as how those ratings are defined. While it may seem like a number of grading scale feels pretty easy to interpret, that’s just the problem; managers are human and have very different interpretations of what ratings represent.

“And no matter how much training and discussion and going back and forth and calibrating, no matter how much of that I've ever done, I've never seen people get to the point where they can agree on what each number really means,” said Omada Health Director of People & Culture Anna Martinelli at our HR Debate event. “For some people, three out of five is ‘amazing, amazing!’ For other people, they think they did really well, and they should get a five.” 

Try heading that confusion off at the pass by very clearly defining what each level in a scale means, and training managers on those differences along with clear examples for each. And if a scale is based on terms like “exceeds expectations” or “meets expectations,” define those expectations. Set OKRs, have regular feedback conversations and 1:1s, give praise, and more. Those touchpoints between reviews will help employees know where they stand, before getting hit by a surprising score.

Con: People focus on the number over the feedback.

For our panelists at The Great HR Debate, this was their #1 issue with ratings. Numbers are so definite and so easy to understand that the more longform feedback explanation about why an employee got that rating gets lost as TL;DR muddle.

“That’s just how we’re wired: to hook into that number and believe that it's the source of all truth, because we got grades in school and we got trained on that system,” said Martinelli. “But I think in my experience, people improving on giving qualitative feedback is much more likely to happen than people getting good at numerical ratings.”

Tonal Head of People Jonathan Akhavan added, “During performance reviews season, you would have people walking around being like, ‘Oh, I'm an E,’ ‘I'm an O,’ ‘I'm an F.’ But it was like, okay, but what was the qualitative feedback on how you're performing? What can you actually take away from that feedback that is going to better yourself? But they often focused on just the rating.”

According to a survey, 68% of employees who receive accurate and consistent feedback feel fulfilled in their jobs, so perhaps erring on the side of that feedback  — especially delivered in a live conversation — versus an easy grade will do more good in the long run.

Pro: Ratings make it easier to communicate performance.

The hard truth is that that quality feedback from managers, especially during high-crunch review periods, is hard to come by. Some managers may find it difficult to come up with the right way to express what they need their people to do better.  Others may simply hate having to write things out.

Data shows managers struggle when ratings aren’t an option. According to 2016 research by CEB (now Gartner), “Manager conversation quality declines by 14% because managers struggle to explain to employees how they performed in the past and what steps to take to improve future performance,” and “less than 5% of managers can effectively manage employees without [ratings.]”

“Employee performance tends to drop when ratings disappear because managers struggle to make and communicate performance and pay decisions without ratings,” said Blakeley Hartfelder, Gartner research consultant.

But just because it’s more difficult, doesn’t mean it’s not worthwhile to find ways to improve your managers’ communication skills, because nothing replaces the performance conversations their employees will need to improve. If it looks like real feedback isn’t happening, perhaps it’s time to do a manager training refresher around setting goals, how to give feedback, how to conduct 1:1s, and more. 

So, how do you do performance review ratings right?

While the People leaders from our event were torn on performance ratings as a concept overall, all of them did agree that there is a right way to do them. 

If you’re choosing to go forward with ratings, here are a few tips to make them work well:

  • Set the “expectations” for your rating scale by starting with OKRs for employees. These set the bar for how much they're exceeding or underperforming in their job.
  • Make sure your performance process goes beyond a once-a-year event, and involves ongoing feedback. Not only does it allow your managers to stay on top of those OKRs and course-correct as needed, but employees are more likely to trust that they’re being evaluated fairly.
  • Implement 360 reviews so the employee feels like the review is influenced by a self-review and peer reviews, and so they can provide feedback upward about how effectively they feel they were managed to success. This will help make ratings-based reviews not feel as one-sided and subjective as a simple manager review would. 
  • After your performance review period, show that the ratings are meaningful by using the data transparently to make informed People decisions, like rewarding top performers or starting performance improvement conversations.

Getting ready to launch performance reviews? Download our detailed HR's Guide to Preparing for Your Annual Performance Review, which covers writing performance review questions, preparing your managers and employees for employee evaluations, and increasing performance review participation rates.