Types of performance rating scales: What’s best?

Performance review rating scales gained popularity when the system was championed by the CEO of General Electric. It adopted a numerical ranking system, and each individual was evaluated and ranked against peers. The bottom 10% would then be fired. GE followed the system for decades before shifting to another that was less formal, rigid, and promoted frequent feedback. With this decision, GE has joined companies like Adobe, Microsoft, and Accenture by dumping formal annual reviews.  

GE’s Head of Human Resources, Susan Peters, said, “…But we think over many years it had become more a ritual than moving the company upwards and forwards.” 

The words of Susan Peters confirm that any performance system that does not improve performance nor promotes a company’s growth, is better to get rid of or redefined. Even if you adopt the best appraisal method, it may not produce meaningful results. This can be attributed to the company’s culture and how encouraged employees are to give and receive feedback. It all boils down to how a system is adopted and implemented. 

As quoted by Josh Bersin, an Industry analyst,

Performance reviews often have a bad reputation. It mostly stems from bad design, data, and implementation. In fact, the rating system could be tailored to your organization. But why performance ratings? Read below.

Why should you have performance ratings? 

After General Electric implemented a rating system, most companies started adopting them as well – without consideration for their performance goals and work environment. Adopting this system in a wrong culture will lead to unplanned attrition and negative consequences.  

If the below signs describe your needs, adopt a rating system – but also invest equal time and resources in peer evaluations, self-evaluation, and continuous feedback, which are the backbone of any successful performance review system. You should have performance ratings if you want to: 

• To identify underperforming employees 

One major drawback of the ratings system is that it’s very subjective, but you can rely on these ratings for a fleeting period of time. In the above example, when General Electric fired its bottom 10% it witnessed best results immediately in the first few years. It was best suited for GE, which was holding on to its underperforming employees who were not a good fit and couldn’t improve. If you want to let go of underperforming employees by using this method, make sure to prepare specific criteria to rate.  

• To set standards for certain skills and behaviors  

Companies like Netflix and General Electric are widely known for setting standards for certain skills and behaviors. Netflix is a company that only hires candidates who meet its skill and performance standards. GE, on the other hand, let go of employees who weren’t meeting the standards. However, these companies also assume that most employees can continuously improve and grow.  

• To help employees reach those standards 

Once you have set certain standards in terms of skills and traits, you can use this information to help other employees reach them. Rate them on specific areas and identify where they need to improve. This helps understand the areas where each employee requires improvement. 

For example, an employee who has been rated high in terms of performance but low in decision-making ability, you can develop specific action plan for each employee. 

• To modify it to increase its benefits 

One primary reason why you should have performance ratings is you can modify it – add other practices, such as self-evaluation, continuous feedback, and 360-degree feedback to make it holistic. Fortunately, these practices are easy to implement and don’t require heavy investment. You can read on to learn how to modify this system to yield required benefits. 

While a rating system can be beneficial, it may not be suitable for certain companies and cultures. Read the following to know when you should not use a rating scale. 

When should you NOT use a rating scale? 

As stated above, performance review rating scales can provide short-term benefits, but eventually, they alone are not enough to promote a company’s growth. A single practice cannot fit all the performance expectations and needs of a company. 

Though the rating system did yield results for General Electric, its long-term usage of the same technique had an immense negative impact on employees. It led to low morale, increased frustration, unhealthy competition, and decreased communication within the organization. Even if employees were rated accurately, they were given no chance to improve.  

The following are the signs that the system either needs modification, or you should not continue using the rating scale. 

1. Job roles and responsibilities are inconsistent 

When employees are not clear about what is expected of them or when they are given overlapping responsibilities, it becomes hard to evaluate them using a rating scale. It’s difficult to compare performance because the rating scale is set on specific criteria, which may not be relevant to all employees in this case. Do not use a rating scale when there are unclear and inconsistent responsibilities as it may unwantedly lead to unfairness and a negative work environment. 

2. Too many aspects of an individual must be evaluated 

Consider you are a project manager. There are many tasks you undertake, such as planning and executing projects, managing resources, communicating with stakeholders, handling conflicts, motivating your teams, and many more. It might be difficult for a single person to evaluate you on all these aspects. 

A better approach here would be to incorporate a 360-degree feedback. Combined feedback from both your peers and manager would give you a comprehensive view of your performance and helps you improve. When it comes to 360-degree feedback, use a performance management system that also has features like OKR, continuous feedback, and 1:1s. One such software is Keka. To explore more, click here. 

3. Performance expectations of the role are not clear 

When an employee is unclear about what they’re supposed to do or when there are undefined standards, it becomes difficult for them to meet expectations. Clearly communicate the expectations, and if there’s something expected of them outside their usual role and responsibilities, communicate that as well. When employees receive lower rating, especially during appraisal season, you will be left with the remark, “Well, I did not even know I was supposed to do that!” 

Consequently, employees might become disengaged and can become disconnected from their work. It’s also important to have a proper post-appraisal management strategy in place. 

4. The requirements of a new role are undefined 

A new role can be challenging for an individual. It takes time for them to learn the ropes, understand expectations, and meet specific requirements. Using a rating scale early on discourages them from seizing new opportunities, taking risks, and trying new things. Give them enough time to learn, set clear expectations and goals, and provide regular feedback as they settle into their new role. Peer evaluations are a good option to consider in such cases. 

5. Accurate performance data is not available  

Performance data is usually captured via 360-degree feedback, performance reviews, self-assessment, and KPIs. If your organization doesn’t capture performance data because it’s too time consuming, expensive, and would rather rely on gut feelings and unnoted observations, rating scale is not a good option. Such ratings would be highly inaccurate, biased, and unhelpful.  

6. No proper performance management system 

Rating scales cannot be a substitute for performance management. This process is broad and includes setting goals, providing feedback, and developing employees. Employees and managers will not know the criteria on which they are to rate/be rated and employees will not be able to improve their performance. Before implementing a rating scale, use a proper performance management system. 

Now that we have discovered if you should adopt a rating scale or not, let’s explore what should be considered so that you can choose a rating scale that’s best suited for the team and organization. 

What to consider before choosing the right rating scale? 

Before choosing a performance review rating scale, there are a few things you need to consider. This will help you not only decide if you should ditch your current rating scale, or if you should make a few modifications to it, but also in deciding if a rating scale is the right method for your company. 

Types of performance review rating scales: How to tailor them to your needs? 

Now that you know what to consider when choosing a rating scale or understanding why it’s not working, let’s dive straight into the types of rating scales. 

1. Dichotomous rating scale  

A dichotomous rating scale is a 2-option question that reveals the performance of an individual. Be careful when you are using this scale, as it cannot capture vague, qualitative information.  

For example, the statement “Employee ‘A’ has high self-esteem” cannot be answered with a simple Yes/No question. Instead, opt for a scale that provides 4 to 5 options ranging from strongly disagree to strongly agree, like the Likert scale. While having peers evaluate on the same would be better, consider adding an extra point to make it more accurate and fairer. 

This scale is the best fit when you are evaluating something quantitative. For example, the question “Did the employee meet the goals set for the previous quarter?” can be evaluated with a simple Yes/No. Consider adding your own dialogue box to provide specific feedback or descriptions. 

Is this what your rating scale looks like? Try interacting with it to find out if you should ditch it, modify it, or continue using it 

Dichotomous rating scales, in general, are not preferrable over Likert scales. They can, however, be used best for a few things as provided in the table above. 

2. Point rating scale  

You can use a point rating scale to observe, track, and evaluate a couple of things. For example, you can use it to measure whether something was accomplished using a 3-point scale. You can also use it to measure where an employee stands in terms of performance via a 4-point or 5-point scale. However, there are a few problems associated with this scale.  

• In case of a 3-point scale with ‘Not meeting expectations,’ ‘Meeting expectations,’ and ‘Exceeding expectations,’ it cannot be used to take decisions regarding bonuses, promotions, or improvement plans. In such cases, adding another rating balances it out. 

• When used incorrectly, it can be difficult to identify good performers from bad performers. 
• Sometimes, managers find it hard to identify skill gaps. This problem can be overcome by using descriptors when rating or implementing peer evaluations. 

These points can be extended up to 10, depending on the company’s requirements. The table below helps you understand if you should modify your current point rating scale or continue using it. 

Is this what your rating scale looks like? Try interacting with it to find out if you should ditch it, modify it, or continue using it 

You can modify your point rating scale by: 

• Adding an extra point (5 in case of 4-point) 
• Adding brief observations from others  
• Modifying the text 

 3. Semantic rating scale  

Semantic rating scales have two extremes, or bipolar adjectives, with a set number of options in between. These bipolar adjectives describe a person’s attitude, behavior, or performance. For example, if one of the adjectives is ‘Project management,’ clearly define the aspects that make a person a good project manager and bad project manager. You can also incorporate specific examples in the next section to remove any bias. 

There are no outside opinions but there are two options and it’s the rater’s decision how they want to define a person or performance. Typically, these scales have 5 to 7 options. 

Once again, semantic scales can be very subjective. The ratings may be influenced by the manager’s mood and relationship with the employee, which makes it unreliable and inaccurate. How to tackle this? Take a look at the table below. 

 4. Graphic rating scale 

Graphic rating scale include rating levels such as bad, good, and excellent. The rating could be on a single item or multiple items. It is commonly used with BARS, using specific examples to define each rating level.  

The Likert scale is a specific type of graphic rating scale where the parameters are the same for all questions and statements. The most used parameters are strongly disagree, disagree, neutral, agree, and strongly agree. You can remove the ‘neutral’ option to force the rater to decide on the employee’s behavior or performance.  

Is this what your rating scale looks like? Try interacting with it to find out if you should ditch it, modify it, or continue using it 

Best practices to pick the right rating scale 

When picking a rating scale for your organization, these are the best practices you can follow: 

1. Clearly define your company’s expectations. This includes what you want to measure, the goals, and how you will use this information to achieve business goals. 
2. Focus on behaviors rather than intentions. When framing questions or providing descriptions, state the behaviors observed rather than what their intentions could have been.  
3. When using numbers to rate, use descriptions as well. Focusing solely on numbers will leave employees feeling dissatisfied. It will also be easier for managers to rate based on specific examples/descriptions. To get the best of both rating scales and descriptors, look at the following example: 

   4.  Be mindful of bias. Try to make the process more objective by setting standards, using behavioral examples, and incorporating 360-degree feedback.

Are performance rating scales bad for your culture, after all? 

Most companies ditch rating scales when they negatively affect employees and deteriorate culture. Some companies do not dump them but adopt more modern methods, such as continuous feedback, 360-degree feedback, BARS, and other combinations of appraisal methods. These methods, along with ratings, help the management to take decisions. It’s also important to ensure you have a culture that already supports such improvements in the performance system. For example, if you have a culture where unhealthy competition and distrust is the norm, implementing 360-degree feedback may not yield many results. This would be the same if you are trying to rate certain traits and aspects, but the company’s culture and values have not been communicated to each employee.  

If you don’t take into account such considerations, it may lead to unplanned attrition. To understand where your culture stands and which method you should adopt.