Using Employee Performance Ratings: Experts Weigh in on the Pros & Cons

Only 14% of employees strongly agree that their performance reviews help them grow. 

That means most organizations are using employee performance ratings incorrectly. Or not using them at all.

But how should organizations use employee performance ratings correctly? 

More importantly, should you stick to using performance ratings or more free-flowing forms of qualitative feedback?

We talked to a couple of HR and People Ops experts to get their take on the pros and cons of employee performance ratings and best practices for building them.

If performance ratings aren't something you're considering, we're also looking at alternatives. 😉

🔢 What are employee performance ratings?

Employee performance ratings are a standardized method of evaluating an employee's job performance against a set of predetermined criteria or expectations. 

These ratings help organizations gauge how well employees perform their job duties and contribute to the company's goals. 

As a result, managers can quantify employee performance in terms of effectiveness, input, and output. 

Plus, managers can set clear performance goals and action checklists by putting performance on a scale. These goals provide employees with concrete direction for completing tasks and developing skills.

Performance ratings typically involve using a scale or scoring system to measure various aspects of an employee's performance, such as productivity, quality of work, communication, teamwork, problem-solving, adaptability, and adherence to company values. 

The rating scales can vary but often include numerical scores or descriptive categories like "exceeds expectations," "meets expectations," "needs improvement," or "unsatisfactory."

Performance ratings can also be instrumental in making decisions about:

• promotions; 
• salary increases; 
• training; 
• succession planning;
• terminations.

Common rating scales you should consider

One of the most popular employee rating scales you should consider adding to your "tool stack" is the numerical rating scale. The most common scale ranges from one to five (1-5), where one represents the worst score, and five is the highest grade given. 

Managers will want to use a numerical rating scale as it offers a quick, standardized method of evaluating employee performance across job roles or departments.

The Likert scale for employee performance is another choice with ratings in the form of statements like Strongly disagree, Disagree, Agree, and Strongly agree. These are better suited for clearly measuring beliefs or emotions on a specific topic or issue.

What are competency rating scales?

Competency rating scales are an employee performance measurement method that targets specific competencies or skills. These are perfect for assessing if a job candidate or employee meets the demands of their role. 

For example, they're ideal if you're looking to provide better training opportunities to your team and if you want to make a new hire or promote someone. 

Each scale is tailored to the specific job role and measures employee competencies in areas such as adaptability, communication, problem-solving, and more. 

Apart from reviewing performance, rating scales can also help employees identify their career goals by looking closely at what they need to work on to develop professionally.

Competencies ratings can follow a five or four-point scale such as this one:

1 - Needs improvement

2 - Below expectations

3 - Meets expectations

4 - Exceeds expectations

5 - Expert (sets a new standard)

What are behaviorally anchored rating scales?

Behaviorally anchored rating scales (also known as BARS) is a lesser-known method of employee performance evaluation that aims to give you an objective measurement of your employees' performance. It uses multiple criteria and a more detailed scale [compared to Likert or 1-5 scales] that ranges from excellent to unsatisfactory to rate employee work.

BARS aim at providing more accurate, objective, and reliable evaluations of an employee's job performance by focusing on specific, observable behaviors directly related to the job requirements and desired outcomes.

In other words, it's a more event-specific scale that touches upon exact performance behaviors. 

For instance, instead of broad statements such as "doesn't meet expectations," the scale statement will get detailed, like so: "doesn't follow guidelines when communicating with clients."

🔍 Should you rate employee performance?

But when's the best time to rate your employee's performance? And why should you do it?

Performance management is a pillar of any talent management or people strategy. 

Hayley Jayne, Founder + Principal Coach at Cultsure.co, notes that:

"Using rating scales establishes a sense of comfort, clarity, and expectation for employees.

It can give validity and credibility to the entire process and data produced. Offering employees validation and a strong understanding of the what, why, and how can drastically improve buy-in and commitment to change."

But rating performance isn't the same as measuring performance.

Vanesa Cotlar, VP of People & Culture at PolicyMe, says that deciding whether to rate employee performance or not depends on your particular situation:

"When it comes to employee assessment, what's most important is transparency and clarity. What do the ratings mean? How will they be used? What's their purpose and value?

If an organization sees a real need and impact from having them and uses them well, they can be an effective tool. However, without a strategy and clear communication, they can be highly ineffective. For example, managers can use the ratings differently: a top performer could receive a sub-par score and then become demotivated and more."

Shimrit Paley Markette, Chief People Officer at Second Nature, also notes that "if the primary goal of performance reviews is to give actionable performance feedback (and it should be), tying performance reviews and ratings to compensation decisions can often detract from that focus."

On the same note, Cynamon Voe Scott, a People Operations Expert, says she wouldn't consider rating and measuring performance the same thing:

"Rating systems can measure performance, but it is not the only form of measurement available. Rating is typically based upon the subjective opinions of others, therefore the subjectivity of the data would make rating a form of measurement open to many uncontrolled variables that come with individual perspectives."

➡️ Learn why performance measurement is only a step for managing performance.

🏆 The benefits of using rating scales for employee performance

Using scales to rate employee performance has its fair share of advantages and disadvantages. We're first discussing five core pros of employee performance scales and how experts are getting the best possible results.

They make it easier for managers to translate and analyze the data 

70% of employees say they don't get to master the skills they need to do their jobs.

On this, Cynamon Voe Scott advises using data to support personnel decisions: "Rating scales can support personnel decisions whether it be a promotion for positive performance or a performance improvement plan for lacking performance."

Cynamon also points out that performance data is necessary to ensure leaders drive employee performance equitably and focus on employee performance factors, not human profile factors. 

Focusing on objective data when evaluating performance will provide insights to improve their performance.

They help you identify top and low performers

Rating scales enable models like the 9-box grid, where managers can easily assign employees into groups based on levels of capability and potential.

With these groups, you can work with your people to create custom training plans for each group.

They support compensation and promotion decisions 

Managers can have an objective view of performance and job leveling by using a consistent rating system. 

In turn, this helps create consistency when assessing qualifications for promotions and pay raises, building trust between managers and employees:

"Performance data is also necessary to ensure that leaders are driving employee performance equitably and focusing on employee performance factors, and not human profile factors. Focusing on data for the evaluation of performance will provide insights to improve performance." Cynamon Voe Scott.

👻 The dark side of employee performance ratings

It's not all sunshine and roses when it comes to employee performance ratings.

That's because rating scales can be difficult to set up.

Let's see what common challenges other HR experts have faced and how they fixed them.

They can create bias

Shimrit Paley Markette says that performance ratings are not immune from subjectivity and feedback bias: 

"Without clear competencies and shared frameworks for evaluation, managers are often left to draw their own conclusions about how to rate the members of their team."

Panagiota Hatzis, Founder and CEO at Kati Kalo Consulting, recommends fighting bias by publishing a "why statement" when someone receives a promotion at work:

"When someone is up for a promotion, that person's direct supervisor fills out a form that validates the "why" behind the promotion. The supervisor pulls notes from reviews, how this employee has lived into the company values, what some of their greatest contributions are." 

Panagiota also notes that using this format helps protect against bias because direct supervisors provide sound reasoning for nominating and supporting an employee's promotion:

"Publishing this helps promote transparency so that everyone knows how to get promoted. It also allows for a true celebration of the person getting promoted. It supports the journey not just the outcome which I believe to be a pillar of a healthy culture."

They can lead to disagreements among raters

Evidence shows that constant disagreements are always bound to happen when evaluating employees. Most commonly, these occur due to pre-existing relationships between the ratees and the raters (e.g., a colleague rating their teammate might have a more positive view of them). 

On top of this, Cynamon Voe Scott says that subjectivity can lead to skewed data:

"Skewed data is a possible limitation when there is human interaction with the data input. The data from rating scales can become skewed during data collection, coding, calculation, analysis, or even during the presentation stage. 

Even if the data was collected virtually, there could still be limitations attributed to the many variables that could impact the data output such as broken computing and formulas, programming, and software issues that the receiver may not even be aware of."

They allow companies to skip training raters on the scales

Without properly instructing raters on using and measuring scales, their meaning is ultimately up to interpretation. 

As a result, you might have more disagreements in larger teams where multiple raters are involved in the review process.

If you want to go the extra mile to ensure that all raters are on the same page, implement a calibration step in your performance evaluations.

They can rely on weak criteria for evaluating ratings

Criteria can often be too vague and weak for rating employee performance accurately. 

For example, this may include soft skills such as communication and collaboration that can be difficult to measure objectively:

"Data is often evaluated without complete context, and employee ratings can be used unfairly against employees without it. In the workplace, the lack of cultural or diversity data typically protects a specific group. Still, without that context, the data itself can only tell a limited story. 

Oftentimes significant assumptions are made from limited data represented in workplace employee performance measures." Cynamon Voe Scott.

So, you must provide your raters with clear evaluation criteria when using performance ratings. And strive to collect snippets of qualitative data to add the context that Cynamon stresses so much.

You don't want to demotivate valuable employees. 

They can deter employees

Humans are drastically different and unpredictable. By harnessing this in the workplace, we can optimize our pivot power and predictions for success.

On this topic, Hayley Jayne advises:

"Sometimes, scales, structured interviews, and one-size-fits-all features can deter employees. 

In my experience, boxes (predetermined criteria and scales) can not cut important components out of the process and challenge innovation. Plus, people don't enjoy being put in them. This results in less commitment to the process and the resulting data."

🆚 Pros and cons of employee performance rating scales in a nutshell

➡️ Need more best practices for your performance reviews? We rounded up science-backed advice for running strategic performance evaluations.  

📈 How to choose the best performance review rating scale

If you decide that performance ratings are the right choice for your organization, it's time to pick the exact scale that will work in your case! 

When to choose Likert scales

Choose them when you want to rank things such as the level of task difficulty, available resources, an employee's ability to adapt to change, and more. 

They're great for quantifying employee performance ratings and a person's attitude toward a topic or challenge.

➡️ Create your performance appraisal form that will enable meaningful conversations and growth. 

When to choose 1-5 rating scales

You can use this scale to measure an employee's accomplishments accurately. 

It's well suited for high-pressure or fast-paced jobs requiring quick decision-making or new roles in which success isn't clear yet.

For example, a small to medium-sized programmatic marketing agency where teams collaborate on various projects such as content creation, social media campaigns, and digital advertising can benefit from this scale.

In this situation, a 1-5 rating scale can help assess employees' performance in key areas such as:

1. Creativity: The ability to generate innovative ideas and concepts for client campaigns or projects.
2. Collaboration: Working effectively with team members, sharing ideas and resources to achieve common goals.
3. Time management: Prioritizing tasks, meeting deadlines, and managing multiple projects simultaneously.
4. Technical skills: Using relevant tools and software to create high-quality marketing materials and analyze campaign performance.
5. Client communication: Communicate effectively with clients, understand their needs, and provide appropriate solutions. Use a client portal, a live chat, and other means to assist customers every time they face issues.

When to choose competency rating scales

You should turn to competency rating scales whenever you need to objectively compare employee performance (e.g., during annual reviews or promotions). They incentivize employees to review their roles, understand their performance standards, and actively strive to develop their skills.

When to choose behaviorally anchored rating scales

Use BARS if you need a complete breakdown of how employees contribute to their team's overall success and if they're on track to meet their pre-set targets.

For example, you can use BARS to assess your customer support team on various dimensions, such as communication skills, problem-solving abilities, empathy, and adherence to company policies. 

This evaluation method will help ensure that employees provide excellent customer service and meet the organization's standards.

You can also use BARS for evaluating project managers. You can focus on project planning, risk management, stakeholder communication, and project execution. 

BARS can help the organization identify areas for improvement and provide targeted support for project managers to enhance their skills.

When to choose open-ended questions

Scales aren't a must. You can get similar positive results with open-ended questions as well. 

These provide your employees more freedom to play with their answers without being constricted by the options you offer. 

These questions aren't quantifiable but give you a more detailed look at employee performance and feedback.

Here's an example of a question meant to get a clear look at what skills every employee has acquired at their job over a specific timeline: 

Name three unique strengths you developed in your current position during the last three months.

➡️ No matter what rating scale you choose, we support it! And we might even provide some templates to help you with that.

😕 If not performance ratings, then what?

Employee performance ratings could be challenging to use in specific situations such as: 

1. Complex job roles: When an employee's role involves multiple responsibilities, skills, or competencies that are hard to quantify or evaluate, it can be challenging to assign a fair and accurate rating.
2. Subjective performance criteria: If the performance criteria are subjective or open to interpretation, it may lead to inconsistencies in ratings and potential biases.
3. Small teams or flat organizational structures: Employees may have less defined roles and responsibilities in small teams or organizations with a flat structure, making it challenging to create standardized performance ratings.
4. Short-term or temporary roles: It may be difficult to gather sufficient data or observations to provide a meaningful performance rating for employees in short-term or temporary positions.
5. Remote or virtual work: In cases where employees work remotely or virtually, it can be challenging for managers to observe their performance directly, which may affect the accuracy of the ratings.

Let's dig into some of the best alternatives!

Offering continuous employee feedback

Continuous employee feedback gives managers helpful insights from each team member, providing invaluable evidence-based data and insights that help the decision-making process.

As an added benefit, managers who understand the needs and wants of their employees can actively build programs to increase engagement and eliminate any feelings of disconnection that could lead to dissatisfaction or burnout.

The method in practice: Cisco breaks their continuous employee feedback system into a couple of regular core activities like daily check-in meetings, mid-year career discussions, their very own monthly Performance Snapshot session, and more.

➡️ Find out whether performance reviews or continuous feedback processes are better suited for your organization.

Using multi-rater feedback 

Also known as 360-degree feedback, this alternative lets you move from a manager-owned process to a multitude of insights you can get from peers, customers, and even the reviewees themselves. 

This data gives you a complete view of employee strengths and weaknesses so you can track their progress over time. 

By getting feedback from multiple sources, you'll support greater employee engagement because: 

• It encourages participation beyond their direct supervisor. 
• It allows employees to better understand how others perceive them (and their work).

Fun fact: Netflix completely ditched their annual performance reviews in favor of 360-feedback reviews. This way, they built a holistic performance management system that relies on insights from the employee's peers, direct reports, and managers.

Choosing competency-based evaluations 

Competency-based performance appraisals help managers fairly assess the skills and knowledge of their employees. 

Rather than looking at individual tasks, competency-based evaluations focus on broader areas such as technical skill proficiency, leadership ability, interpersonal communication, and problem-solving. 

Through this type of evaluation system, employees receive more objective feedback based on a predetermined set of criteria rather than subjective opinions.

Managing by objectives 

Adobe's first step in its performance management framework is setting the right goals and expectations.

Managers and employees set, track, and review clear objectives regularly. They then get together frequently to: 

• Clarify roles. 
• Define success criteria.
• Document expectations and deliverables.

The result of this objective-based plan? 

Everyone stays on the same page and can access real-time insights.

➡️ Drive high performance and growth with Zavvy

Ratings or no ratings, Zavvy is the go-to partner for driving performance and growth. 

Run best-in-class performance reviews with ready-made templates from our learning scientists.

Unlock new people insights by identifying top performers and talent density, filling in your 9-box grid with valid data, spotting toxic leaders, and more!

Zavvy also lets you easily reward good performance and create talent development plans to help your employees grow.

• Set up company-wide development cycles.
• Define career progression and competencies.
• Build plans that combine goals and actual measures.
• Make progress visible at all times to motivate employees.
• And more features to keep your team empowered and active through all employee journey stages!

Want to get your managers ready?

We also offer training courses on giving and receiving feedback to ensure that meaningful feedback flows in all directions and drives significant behavioral changes. 

Book a demo of our Zavvy feedback and performance rating suite today!

❓ FAQs

What is the best performance rating scale?

One of the best options managers have is a five-point scale, which considers the full range of job performance from excellent to unsatisfactory. It also provides enough detail to give managers insight into their employees' work better than other rating scales such as ten-point. The five-point system is ideal for managers who want to easily see and evaluate contributions, allowing them to make informed decisions on future employee development or promotion plans.

What rating scale is most used?

The five-point rating scale is the best and most popular solution for evaluating employee performance. 

This scale has become the go-to system for managers who want to understand their team members' various skill sets and identify improvement areas. 

Additionally, HR managers use them to identify good results and promote growth, making overall better organizational decisions.