Are Performance Ratings Really a Thing of the Past?

Published: April 2019


In recent years, the news has been filled with anecdotes and examples of companies shunning performance ratings and moving to a more evolved approach to performance management. Some examples of first movers include Adobe, Deloitte, Goldman Sachs, Accenture, and Cargill—companies with a long-standing presence (some from the mid-19th century) and strong reputations around the world. HR practitioners across economies, sectors, and industries are taking this as a sign of things to come, but is it really time to drop traditional performance ratings?

Which companies are moving away?

From our observation, only mature and evolved companies appear to be moving away from traditional performance ratings. This is because companies at the protracted maturity stage have witnessed several business and macro-economic cycles, leadership changes, and restructuring.

These firms have a wealth of experience, advanced HR governance, and high levels of people manager capabilities, which enables them to effectively implement the concept of what we like to call, continuous listening. This means performance discussions and reviews happen through ongoing, everyday conversations between manager and employee, instead of once or twice per year.

Where do financial services firms stand?

With today’s heightened concern regarding changes to performance management and newly emerged technologies, McLagan’s Talent Pulse Study revealed that the two most challenging aspects of performance management for financial services firms pertain to managers: Feedback and coaching and holding managers accountable. Managers have historically relied on bonus payouts as a proxy for managing performance—so, how do firms instill the need for actual performance and feedback conversations? Shockingly, less than half of firms provide manager training on feedback and coaching and only a quarter articulate people management as a competency and specifically rate managers on it.

To face this challenge head on, financial services firms must first define a clear and compelling strategy that defines what they are trying to achieve through performance management. Once a simple process is designed that meets business priorities, firms should provide people managers with the latest tools, apps, and resources to bring this vision to life. Throughout all of this, it’s essential for firms to have the courage to hold managers accountable to use these resources to their advantage and take sufficient action to meet all expectations.

Here are some ways we are seeing financial services firms move closer towards supporting these critical steps associated with a formal and effective performance management system:

Although firms are at different stages, having some form of performance assessment or rating is clearly prevalent in the financial services industry. However, the utility for consequence management varies from front office to infrastructure functions. This chart highlights key approaches to assessment that front vs. back office functions typically take.

What does Asia look like?

Close to half of global growth and 3/4 of the global workforce is constituted of / contributed by Asia. This growth will be shared among large MNCs betting on big economies, such as India and China, as well as the homegrown companies in these economies and high-growth markets, such as Malaysia and Indonesia. For firms that have already implemented new performance management processes, their biggest challenge will be to communicate them to employees, train managers, and govern execution of the processes in diverse cultures and operating environments.

On the other hand, local firms in emerging markets in South East Asia are mostly entrepreneur- or promoter-led and are not likely to have the same proportion of professional managers to successfully adopt the continuous listening approach. Therefore, traditional performance ratings remain an effective tool for determining rewards, recognition, and career progression opportunities.

What’s on the horizon?

Aon’s Workforce Mindset Study reveals that only 46% of employees feel that the way their company measures performance is effective, yet 64% believe that a performance review should involve a rating. This number is significantly higher for top performers and millennials, with 88% and 64% of employees respectively expressing a desire to be rated. For financial services, McLagan’s Talent Pulse Study found that over 80% of firms have some form of a rating and only 10% are considering eliminating them.

In the haste of burying the dreaded bell curve, performance indicators should not be taken to the grave as well. On the contrary, these should be made more measurable, and in real time, to enable higher productivity and better performance conversations all year round. An objective assessment of people manager capabilities is also critical before making a call on transforming existing performance ratings and systems.

In the Asian talent market, where rewards and careers are key engagement drivers, we believe ratings will continue to weigh in heavily on performance pay, identification of high-potential employees, and development. The managerial capability gap in Asia gets amplified in financial services, as is also the case for other industries. Rapid, unabated economic growth (the global financial crisis had limited impact on Asia) and increasing competition throughout the financial services industry has pushed people management responsibilities onto leaders relatively early. In addition, financial services firms in regional centers like Hong Kong, Singapore, and Dubai have the added complexity of cultural diversity, coupled with the need to hire talent from other industries to fulfill the new demands associated with technology convergence. How their ratings are determined and calibrated in terms of solid KPIs and robust discussions on behaviors, respectively, will put more trust in the rewards management process.

To learn more or get advice on your organization’s performance assessment strategy, please contact our team.


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