Scoring formats can provide the backbone of an effective performance management system, aiding managers and business owners in their evaluations of employees and helping them to make important decisions regarding promotions and future hiring requirements.

Choosing the right system for your company can seem like navigating your way through a minefield. Here's a handy guide to the fundamentals of appraisal scoring formats to help you determine the best course of action for your company.

A brief overview of rating scales

Ratings have long been an effective tool in an organisation's performance appraisal process, allowing managers to rate employees on a point scale. Graphic rating scales are commonly used, measuring aspects such as traits and characteristics, competencies, actions and behaviours, and results.

Most often, such ratings are measured on a 1-5 point scale which indicate a range from unsatisfactory to outstanding in each of the defined categories. Checklists can also serve a similar function, offering a list of work-related behaviours and outcomes which apply to the employee's performance. Weighted checklists can also be used, offering a graded response instead of the simplistic yes/no binary option.

Ratings are not without their shortcomings, as Dick Grote outlined in his article for Harvard Business Review, Performance Appraisal Reappraised. Air Force Research Laboratory in Dayton, Ohio, was tasked with cutting staff and reviewed 3,200 performance appraisals. Grote explains:

"They found that nearly all the appraisals were positive—not a single person had been rated “unsatisfactory,” and only one had been rated “marginal.” Clearly, such uniformly glowing appraisals are useless in evaluating the relative merits of staff members.”

Calibration

While rating systems vary from company to company, some element of performance calibration can help to determine more accurate and fair ratings. Karen N. Caruso outlines the methods of calibration in A Practical Guide to Performance Calibration:

Step 1: Appraisal: managers learn about the performance standards and measuring scales, understanding the rating scale definitions before providing performance rating appraisals.

Step 2: Calibration: Senior leadership and HR review the completed appraisals, following up with calibration meetings and discussions of individual performance.

Step 3: Feedback: with a fuller understanding of the appraisals process and standards, managers can now engage in one-on-one performance review meetings with their employees.

Google also recommend using calibration processes, holding meetings where managers gather to review people as a group. This has the added benefit of being good for the company's culture, allowing people to reconnect and affirm the values the company holds.

(For more information on how Google handle performance management, including their approach to the 5 point rating scale, check out How To Manage Performance The Google Way)

The problem with forced rankings

One approach to ratings is to impose forced rankings, also known as “rank and yank”. Forced rankings split appraisals into a top 20 percent known as “superior”, the next 70 percent as “standard” and a final 10 percent as “underperformers”. The last category are told to improve or face a “prompt exit” package, and advocates of the system believe that these rankings force superiors to make the tough decisions they would otherwise avoid as being too unpleasant.

The (perhaps obvious) problem with this is that some employees must fall into the bottom 10 percent, even if their performance has been satisfactory. “Poor” performers in a given department may actually be above average if they had been listed in another department. The method can also undermine teamwork and create unhealthy levels of competition.

The fact that Enron was a leading champion of forced rankings shortly before their demise should serve as a timely warning about the potential shortcomings of this system.

Open peer reviews

When it comes to appraising performance of management, using open peer reviews is a good method for maintaining transparency and accountability. With employees often unwilling to criticise their managers for fear of retaliation, this method gives them the opportunity to rate any manager anonymously, with the ratings published online and available for anyone who has submitted a review to see.

Start, Stop, Continue

A simple, actionable method for assessing performance and developing a plan for moving forwards is the start, stop, continue retrospective.

The process goes like this:

Start: the activities and processes which the employee or team will begin doing in the next cycle. These should be geared towards reducing waste, optimising performance and have an overall positive impact.

Stop: identifying what didn't work from the previous cycle and putting an end to them. Inefficient practices and anything which has a negative impact should be discarded.

Continue: recognising what works well and continuing to implement them by integrating them as a part of the core processes.

One of the key benefits to this technique is its raw simplicity – it's an easy way to clarify issues and understand what improvements are required while empowering teams to focus on iterating improvements to their approach to work.

A case for abandoning rating scales

QUOTE The merit rating rewards people that conform to the system

The lengthy process of annual appraisals combined with the potential unreliability of scoring formats has led a number of high profile corporations to ditch rating scales entirely. Instead, companies such as Amazon and Deloitte have been switching to alternative approaches.

Amazon developed a feedback system in which weekly or monthly reviews are held in which employees are held accountable for a wide selection of metrics. Additionally, Organization Level Reviews see top and bottom performers meet with the board of managers to discuss bonus and firing decisions.

Deloitte's approach has been to simplify their performance management processes by combining four statements to build a “Performance Snapshot”.

The questions are:

      1. Given what I know of this person’s performance, and if it were my money, I would award this person the highest possible compensation increase and bonus. This features a five-point scale from “strongly agree” to “strongly disagree” and measures overall performance and a person’s unique value to the organization.

      2. Given what I know of this person’s performance, I would always want him or her on my team. This uses the same five-point scale and measures ones’ ability to work well with others.

      3. This person is at risk for low performance. Using a yes/no responses, this identifies problems that might harm the customer or the team.

      4. This person is ready for promotion today. This asks for a yes/no response, measuring potential.

Deloitte compliments this with regular check-ins and avoids using the term “ratings”, aiming to make it easier for managers to assess performance in a clear, concise manner while also saving time on extensive meetings and endless paperwork.