Performance Reviews

The Pros and Cons of Ratings in Performance Reviews

July 12, 2023
November 7, 2023
  —  
By 
Catherine Tansey and Lesley Chen
Lattice Team

HR teams face a lot of decisions when creating a performance management strategy, and one choice they have to make is whether or not to use ratings. While the merits of performance ratings have been debated for decades, ratings themselves aren’t inherently good or bad. Rather, it’s how you construct, communicate, and implement them that determines whether or not ratings can be used to make decisions fairly and transparently. Here’s what you need to know about performance review ratings, how to pick the right rating scale, and what else to keep in mind.

Key Takeaways:

  • The efficacy of performance ratings depends on how you design and implement them.
  • When done well, ratings provide the data needed to make informed decisions about compensation, promotions, and development opportunities.
  • Descriptive rating scales provide more context than numerical ones for raters and employees alike.
  • Calibrations are the final check and a critical step to combat bias when using rating questions.

Performance Ratings Help Businesses Make Decisions About People

Performance ratings have a long history in the modern workplace, though their efficacy has been debated. Ultimately, high-performance organizations need ways to evaluate employees' work performance, and ratings — when done well — deliver the insight needed to make decisions about people. “High-performance orgs come with the clarity and transparency needed to make hard decisions, and ratings support that,” said Amanda Myton, principal strategist, talent management practice lead at Lattice’s People Strategy Group

Performance ratings are derived from questions that use rating scales on performance evaluations. Rating scales can be numeric, descriptive, or both, and are typically a five-point scale.

Reasons Companies Use Rating Scales

  • Using ratings as part of an employee performance review can help standardize review discussions and give managers more guidance.
  • Ratings require employees and managers to assign a clear descriptor or value to their response, which increases transparency and visibility about performance — for the individual employee and the company.
  • Requiring managers and employees to assign a rating also gives them a clear path to discussing where they are aligned and where they need to regroup.
  • Ratings provide quantitative data that HR teams and leaders can draw on when making decisions around talent development, merit raises, and promotions

Additionally, data shows that managers struggle when ratings aren't an option, with manager conversation quality declining by 14%, because in the absence of those ratings it’s difficult to explain how employees performed in the past and what steps they should take to improve future performance. 

Another issue with getting rid of performance ratings? Companies still end up ranking employees, they just keep it a secret. 2019 McKinsey research on performance management found that “When these organizations scrapped the performance ratings, they found a need for a form of annual documented administrative evaluation to make employment decisions, such as promotions and raises. To address this need, these organizations often implemented ‘ghost’ ratings — a system of evaluation that is, ultimately, just another annual performance rating.”

The Pros and Cons of Rating Questions

There are different types of rating systems you can choose from, but whether you introduce a rating system at all is the more vital decision. To figure out what’s right for your organization, consider the pros and cons.

Pros of Rating Questions

  • Provide invaluable data. Rated questions supply useful, actionable data. This kind of data is easy to compare, aggregate, and contrast for a fully measurable view of employee performance — data that HR can translate into high-stakes decision-making, like compensation and succession planning.
  • Support more effective management. Many managers find it difficult to have direct conversations with their employees about weighty subjects like pay decisions, performance, and areas for improvement. Performance appraisal questions with rating scales equip managers with clear data to shape these conversations, making for more effective managers.
  • Identify top performers with ease. Your high-performing employees have an outsized impact on your bottom line. But again and again, leadership teams say they struggle to identify top performers, according to Myton. Performance ratings can help HR spot the team members who are setting a new standard across the organization. This makes it easier to engage top talent and ensure there is a clear path forward for them at the company

Cons of Rating Questions

  • Ratings are too subjective. While it’s great to have specific data that are easy to visualize and parse, a rating system is only as good as how those ratings are defined. While it may seem like a descriptive scale would be easy to interpret, that’s just the problem; managers may have different interpretations of what each rating represents. Since ratings are subjective, companies must calibrate ratings to address the differing perceptions of managers. 
  • Employees get too focused on the numbers. Because they are so black and white, ratings are easy to latch onto — making it easy for employees to overlook the constructive feedback that comes with the rating. To combat this, provide comment boxes alongside each rating question and train managers on how to provide helpful context.
  • They can increase employee anxiety. The performance appraisal process can be intimidating enough, but adding in a grading system can make it reminiscent of middle-school report card time, with much of the same stress attached. Companies can head off employee anxiety by ensuring that performance rating questions are just a sliver of a greater performance management strategy so employee evaluations mirror the feedback team members have already been receiving. 

Using Performance Ratings

Whether you’re implementing rating questions for the first time or retooling your current approach, here’s what to know about performance ratings. 

  1. Use ratings if your company is utilizing performance reviews as part of decision-making processes. Calibration remains an effective bulwark against bias, but it’s only possible to calibrate on quantitative data like rated questions. “Calibration is the best system we have for ensuring we’re mitigating bias and aligning and using the same definitions across the organization,” Myton said. Mitigating bias is especially important for decisions around pay raises and promotions. 
  2. Craft toward conversation in your questions. Choose questions that help direct reports and managers have a meaningful conversation. The easiest way to do this is to have some questions that both the manager and employee answer. Doing so provides a quick pulse check on alignment, which sets up the manager and employee for a more fruitful conversation. 
  3. Measure with purpose. Choose ratings where possible without sacrificing the conversation. And for every rating or multiple choice question, ensure you have a purpose for that data. “We don’t want to assess just for assessment’s sake, because that data doesn’t do us any good. Instead, we want to make sure it’s aligned with larger program business goals or philosophies that we have,” Myton said.
  4. Check that questions reflect priorities. Make sure your questions match desired outcomes. If your goal is to have a performance and impact-focused review cycle, you'll want to center the majority of the review questions and discussion around that.
  5. Limit the number of scaled questions on each review. Ideally, your organization opts for frequent, concise reviews rather than lengthy annual reviews so there are several chances throughout the year to collect data. Lattice People Strategy Group recommends at least one rated question in each review. But remember to keep things simple. Myton said, “We can’t have a great convo with employees about eight to ten topics.” Companies are better off narrowing their focus to yield better data. 
  6. Provide the opportunity to add context. Ratings alone rarely convey what a person did or didn’t do with enough detail to be meaningful. Include an open-text box on all rating questions so managers can add feedback and specific behavioral examples that help employees understand their ratings. 

How to Pick the Right Rating Scale

When designed thoughtfully, communicated effectively, and executed well, performance ratings can lend tremendous value to organizational decisions. Ratings provide a structure for assessing people against a consistent standard in a consistent way. Refer back to these three core ideas when creating your own rating scale. 

Use Descriptors Over Numbers

Descriptive options give employees a better chance at understanding whether or not they are consistently applying a behavior, and descriptors provide better info on how to grow, improve, and develop in their role. 

“We want to balance our desire for data with the reality that assigning numbers can cause individuals to focus solely on the number,” said Myton. Especially when that number is low(er), employees may leave reviews feeling dismayed or less motivated — the opposite of what we want.

Descriptors also combat bias. Numerical scales are too arbitrary, and it’s tough for managers to understand what the difference between a four and five is when it comes to a subjective competency like, say, teamwork or time management. With descriptive scales, the benchmark by which to rate performance is less ambiguous.

Descriptive options also increase the likelihood that managers will assign an honest rating, especially if it’s low. Just 1.3% do when ratings are numeric (e.g., “one”), and 10% when they’re descriptive (e.g., “needs improvement”), according to Lattice’s People Strategy Group.

Most Companies Opt for a Five-Point Scale

The five-point scale is the most popular choice among Lattice customers: 60% of users opt for a five-point scale, while 21% use a four-point scale. When it comes to other options, no other rating scale reached the 10% mark. 

A five-point scale gives the reviewer enough flexibility and nuance to provide detailed feedback. And since reviewers very rarely rate employees with the lowest score, a five-point scale is in effect a four-point scale. That is, the real number of options a reviewer interprets is one less than the actual scale.

Even so, companies may opt for a four-point scale to force a choice, which can help combat centrality bias where managers are more likely to rate everyone as average. 

Get Clear on Your Middle 

Five-point scales, which remain the most popular, typically use the following format:

Does not meet expectationsSometimes meets expectationsMeets expectationsConsistently meets expectationsExceeds expectations 

But Myton suggests there is reason to wonder how effective this classic scale is. “I don't think that matches the shape of most organizations,” Myton explained. “We wouldn't have very successful businesses if we had a third of our people down at one and two on that scale.”

For more nuanced data, Myton recommends getting clear on your middle as a company. “What we see in some organizations is that that midpoint is something like ‘Sometimes exceeds expectations,’ because that's what the company expects,” Myton said. 

A scale that more accurately reflects company expectations enables organizations to distinguish good performers from great ones or excellent ones. A five-point scale in such a case may look like this:

Inconsistently meets expectationsMeets expectationsSometimes exceeds expectationsOften exceeds expectationsConsistently far exceeds expectations 

Calibration Makes Ratings Fairer

Because managers often interpret performance rating scales differently, ratings should be calibrated to minimize the effects of bias in the performance appraisal process.

Calibration conversations are often facilitated by an HR team member and include department heads. The goal is to review and adjust employees’ performance ratings to:

  • Ensure managers are aligned on performance review standards.
  • Remove bias from the appraisal process.
  • Improve rating consistency and accuracy across managers, teams, and job levels.
  • Recognize and reward deserving talent.

Calibrations are non-negotiable if you want a fair snapshot of individual and overall performance. While human resources teams have several other ways of reducing bias in performance appraisals, calibrations are the final check and a critical step when using rating questions.

An animation featuring a user in Lattice's software dragging and dropping employee ratings in a performance calibration chart.
Above: Performance management software can make the often complicated process of performance calibration simpler for HR teams.

Other Tips for Getting Performance Ratings Right 

If you’re choosing to go forward with ratings, here are four ways to architect success using your other elements of performance management

1. Make employee performance ratings one part of a holistic performance management process.

When performance reviews go well, employees don’t learn anything they didn’t already know. Rather, effective reviews function as part of a greater performance review process that includes other inflection points for feedback, like regular check-ins, employee praise, and more. Not only does it allow your managers to stay on top of employee OKRs and course-correct as needed, but employees are more likely to trust that they’re being evaluated fairly.

2. Train managers and equip them with resources.

Performance ratings should be just another example in a long line of existing, documented feedback. Otherwise, recency bias — the tendency to consider more recent events, like employee wins or misses — is likely to skew how managers rate employees. To support managers and employees in combating recency bias, HR team members can:

  • Create templates for great one-on-ones.
  • Give employees a place to document their achievements.
  • Train managers and employees on how to set clear OKRs, and give them a place to track progress and achievement. 
  • Help managers add context to ratings with tips on utilizing the text box to write great comments. 

3. Get feedback from other sources.

Implement 360-degree reviews so the employee knows the review is influenced by a self-evaluation and peer reviews, and so they can provide upward feedback about how effectively they feel they were managed to succeed. This will help make ratings-based reviews not feel as one-sided and subjective as a simple manager review might.

4. Be transparent with employees about how data is used.

The world is trending toward data transparency, and the workplace shouldn’t be any different. Explain to employees which data are used at an individual level, which are used at an aggregate level, and how data are calibrated. “I don't think it has been as obvious or as used, but it's something that I think is really valuable, which will only make employees more likely to trust they’re being evaluated fairly,” Myton said. 

Performance ratings can lend tremendous insight and value to weighty company decisions — like merit raises, promotions, and development opportunities — but they must be done well. For support implementing ratings at your organization, schedule a demo of Lattice’s performance management software today.