HR Administration

What Are Drawbacks and Advantages of Performance Appraisals Without Rating Scores?

By Staff Report

Jun. 28, 2012

Dear Rate or Not to Rate:

If you are addressing pay, then an overall rating probably makes sense. However, the best way to allocate base salary is to determine current pay relative to overall performance. Typically, pay lower in range is reflective of “learning curve” performance, whereas higher pay reflects sustained levels of high performance. Many organizations use a matrix that bases pay increases on performance rating and pay position relative to a standard (e.g., market rate or salary range control point). If this approach is used, some determination of performance is required. Most organizations use between three and five performance categories, with the middle rating defined as meeting full job expectations.

The issue with performance relates to whether it is relative to others or based on absolute standards of performance. For development and performance improvement, it is best based on performance compared with pre-determined standards of performance. If a rating is to be used for pay purposes, it should be relative to others in similar jobs or job categories. This helps avoid the “Lake Wobegone syndrome” in which all employees are deemed above average.

The best practice is using performance appraisals both to boost employee performance and development and to determine pay. However, the one objective often works counter to the other. A person paid low in the range who is developing nicely but who still has things to learn should probably have a bigger increase than a higher-paid person who is meeting full job standards. Therefore, best practice is to assess performance by category relative to an absolute standard for development purposes. And for pay purposes, it should be based on performance relative to where on the development curve a person is and how other employees within this range are paid.

SOURCE: Jim Bowers, Hay Group, Philadelphia

LEARN MORE: Register to download a free white paper, Best Practices in Performance Management, from Workforce Management. Also, please read How Do We Correlate Performance Management and New Training?

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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