Organizations spend millions of dollars and burn countless hours conducting performance reviews and designing checklists to assess their staff, and business academics have been researching the topic with great urgency and intensity.
According to Elaine Pulakos, a management specialist and CEO of PDRI, a management consulting company based in Arlington, Virginia, formal attempts to rank workers do not seem to significantly improve employee performance or provide organizations with any kind of competitive advantage.
"They end up being incredibly costly and have no productivity effect," she says. In a 2018 issue of the Annual Review of Organizational Psychology and Organizational Behavior, Pulakos addressed the theory of employee assessment.
No one has been able to come up with a rating system, despite many efforts, that can reliably distinguish which companies are blessed with a deep high-performance bench and which brim with mediocrity. By simply looking at the bottom line, you definitely can't tell.
Pulakos cites a 2012 survey from 40 organizations that received more than 23,000 ratings of employees and found no evidence that ratings had any impact on profit or loss. She explained that ratings for results have nothing to do with organizational efficiency. Pulakos also noted that the dreaded annual or semi-annual performance reviews are especially unhelpful and potentially harmful out of all the tools used to assess and grade employees.
According to Herman Aguinis, Avram Tucker Distinguished Scholar and Professor of Management at George Washington University in Washington DC, formal annual performance assessments can be extremely damaging to a company culture.
The growing body of research questioning the value of performance reviews has caused many companies to reconsider their approach. Dell, Microsoft, IBM, and other big business names including Gap, Accenture, and General Electric have dismantled the process, a move that has sometimes been fan-fared in press releases and headlines.
But a survey conducted by the research firm World at Work in 2018 showed that 80% of businesses still used standardized performance reviews. Pulakos says that it's really hard to change attitudes in companies.
Former Google executive Laszlo Bock reveals that the organization routinely pays high-performing workers five or six times as much perhaps even more, as other employees at the same point. He also cites examples such as one worker earning a stock bonus of $1 million while another got just $10,000.
In many respects, Google is a business outsider. Pulakos states that the company relies on data and has rating and ranking systems for workers that just wouldn't work anywhere else. That's one of the major lessons of modern business scholarship: to get the most out of its workers, each organization has to work out its own strategy.
It's best to keep things simple while rating staff, says Seymour Adler, a talent and compensation partner at a London-based management and HR consulting firm named Aon.
Ranking workers exclusively on objective measures such as sales numbers, days off, or customer calls may seem like a winning strategy, but such data points may be wildly misleading according to Adler. A seller with the highest sales may have a better territory or luck than others, not more skill or motivation.
