Benefits and Compensation, HR Management & Compliance

How Eliminating the Performance Appraisal Impacts Recruiting

There has been a great deal of debate in recent years about eliminating the performance appraisal, as well as confusion about what steps various companies have already taken.

The focus when evaluating the current system is usually on employee engagement. Missing from most conversations, however, is what impact eliminating the performance appraisal potentially has on employee recruitment.

To Review or Not to Review

A number of employers have eliminated annual performance reviews altogether.
However, doing away with performance reviews presents challenges that must be addressed. These include:

  • Training managers on how to discuss employee performance on an ongoing basis
  • Establishing guidelines for these conversations
  • Ensuring that conversations are documented
  • Determining criteria for salary increases and bonuses
  • Conveying salary increases and bonus criteria to managers
  • Ensuring that employees understand the connection between performance and salary increases/bonuses

In other words, some type of performance review system, whether more frequent, less formal or otherwise, must take the place of the current system.

To Rate or Not to Rate

In lieu of eliminating the traditional performance appraisal, some employers have chosen to eliminate performance ratings.
Organizations expect that removing ratings will drive employee performance, according to consulting firm CEB, now part of Gartner. They expect performance will rise because 1) employees will become more engaged; 2) managers will have more time to spend on informal conversations; 3) the quality of manager conversations will improve; and 4) managers can better differentiate pay.
Yet, CEB research finds that removing performance ratings actually reduces performance by 10 percent. What’s more, lack of ratings reduces employee perceptions of manager conversation quality by 14 percent.

What Employees Want

Reasons for doing away with performance appraisals, or with ratings, usually center on management. Although performance improvement is cited, managers, when polled, say performance reviews are time-consuming and that providing negative feedback makes them uncomfortable.
Employees, on the other hand, value these reviews, even as they want more frequent feedback. Performance reviews, from an employee standpoint, also serve as the basis for salary increases and bonuses.

When Recruiting and Hiring

Similarly, when a job candidate considers a company as an employer, he or she wants to know how the company evaluates performance and determines salary increases. This is real-world, practical information—information that is a major factor when it comes one of candidates’ top priorities: career opportunities.
The performance appraisal, like it or loathe it, is a tool for advancement and a tool for salary increases.
This doesn’t mean there aren’t other ways of evaluating performance. But if a company wants to attract today’s talent, it should be able to explain its system—and make sure recruiters and hiring managers can do the same.

Paula Paula Santonocito, Contributing Editor for Recruiting Daily Advisor, is a business journalist specializing in employment issues. She is the author of more than 1,000 articles on a wide range of human resource and career topics, with an emphasis on recruiting and hiring. Her articles have been featured in many global and domestic publications and information outlets, referenced in academic and legal publications as well as books, and translated into several languages.