Getting performance

ratings right
A guide for effective
performance evaluation
Contents

Introduction.............................................................................................................2

Performance evaluation process....................................................................3

Performance ratings and definition........................................................ 4

Performance rating distribution................................................................5

Performance rating calibration................................................................ 6

Calibration session preparation...................................................................... 8

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Introduction

Willis Towers Watson research shows that 60% of employers

do not believe that managers fairly evaluate employee
performance in their final ratings. And, only 44% of employees
believe there is a clear link between their job performance Goal setting
and pay. So, what’s wrong?

The answer to that question could be that the performance

management process led by HR for the organization is falling Bonus
Ongoing
short somewhere along the line. Performance management and other
feedback and
is a systematic approach comprised of planning, monitoring, compensation
coaching
assessing, rewarding and improving individual performance decisions
to drive business performance. It is a process that should
cascade throughout the organization, from the executive level
down to the individual level.

Employees have a reasonable expectation that their job

performance will be fairly evaluated and compensated. This Performance Performance
document addresses one key element of the overall process feedback evaluation
— performance evaluation for the defined period — and how
to get ratings right.

In addition to this guide, you’ll want to consult our toolkits:

ƒƒ
Getting the Performance Feedback Experience Right for Employees
ƒƒ
Getting the Performance Feedback Experience Right for Mangers
ƒƒ
Getting Goal-Setting Right

Getting performance ratings right 2

Performance evaluation process
To ensure that performance reviews and ratings are
accurate and fair, organizations should determine an
evaluation approach or approaches that can be implemented
consistently across the organization or consistently
across similar types of roles. The table below outlines the
different approaches typically in use. As organizations move
from a basic “foundational” approach to one that is more
“transformative” for certain roles, the focus can shift from
exclusively looking back at results for the past period to
looking forward at potential future business impact resulting
from the past period accomplishments.

Measuring “tasks” and Measuring achievement

Functional
activities (inputs) of “goals”

Measuring today’s
Measuring goal achievement performance (goals and
Transitional
and competencies behaviors), existing skills
and knowledge

Measuring a combination of
Measuring contribution and
sustained performance,
Transformative impact including, the
potential and criticality of skills
probability of achievement
to future business performance

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Performance ratings and definitions
While headlines may highlight those organizations that have abandoned ratings, our research shows that, in reality, only a few
organizations have gone down that path in recent years. Rating structures are alive and well, and the table below provides an
overview of some typical approaches.

Advantages Disadvantages Positive labels

ƒƒ
It fits most closely with total quality ƒƒ
It may not allow for clear levels of difference in ƒƒ
All Star/
management assumptions. performance. Exemplary
ƒƒ
Managers can easily identify performers who ƒƒ
The lowest level is rarely used. ƒƒ
Meaningful
Three ratings

far exceed standards and those who fail to ƒƒ

Managers may unofficially alter the system to Contributor/
meet minimum expectations. provide a category between the top two levels Solid
ƒƒ
Appraisers, given fewer choices, tend to be (i.e., creating a fourth rating level). Performer
more consistent. ƒƒ
It does not allow for recognizing the truly top ƒƒ
Unsatisfactory
ƒƒ
The middle category usually denotes performers (5 to 10% of population).
“expected” performance, not “average” ƒƒ
It does not distinguish between those who can
performance. improve and those who should be terminated.
ƒƒ
It eliminates a “middle of the ground” position, ƒƒ
It may cause an upward shift in appraisal ƒƒ
Exemplary/
thus eliminating the “average” rating (aka ratings. Outstanding
central tendency). ƒƒ ƒƒ
Four ratings

Managers may resent not being able to rate Commendable

ƒƒ
It provides for sufficiently fine discriminations average performers as such. ƒƒ
Meaningful
for most jobs. ƒƒ
The lowest level is rarely used. Contributor
ƒƒ
It may not distinguish between those who can ƒƒ
Did Not Meet
improve and those who should be terminated. Goals/Needs
Improvement
ƒƒ
Most managers believe they are capable of ƒƒ
Appraisers may not be able to explain specific ƒƒ
Exemplary/
making five-point performance distinctions. differences in performance between levels. Outstanding
ƒƒ
It allows for truly outstanding performers to be ƒƒ
The lowest level is rarely used. ƒƒ
Commendable
Five ratings

recognized. ƒƒ
The middle rating is frequently considered ƒƒ
Meaningful
ƒƒ
It is more consistent with bell curve distribution. as representing average or mediocre Contributor
ƒƒ
It has the highest degree of familiarity and performance. ƒƒ
Approaching
acceptability among appraisers and employees ƒƒ
It may encourage central tendency. Competent
and is most commonly used by organizations. ƒƒ
Unsatisfactory

Consider the rating scale

There is debate on whether forced distribution guidelines/
ƒƒ
A rating-less system is more prevalent outside of North relative ranking, rating scales, guidelines — or no rating at all
America. — is the best way to handle assessments. The reality is most
organizations need some kind of assessment approach to
ƒƒ
A three-point rating scale is more prevalent among
make reward and talent management decisions. Almost any
financially high-performing firms.
assessment technique can succeed or fail depending on how
ƒƒ
The five-point rating scale is the most common scale. it is executed.
ƒƒ
Performance rating scales with an even number of ratings
(and no midpoint) have a greater impact on the pay value
and pay fairness perceptions.

Getting performance ratings right 4

Performance rating distribution
The basic premise of a performance rating distribution is straightforward — employee performance varies around an average
(i.e., the middle ground), with some performing at a higher level and others at a lower level. The challenge becomes how
to ensure that performance for roles of similar responsibility is evaluated consistently by different managers across the
organization. Several approaches to achieving a fair rating distribution are in use, as illustrated below.

Flexibility Rigor

Provide distribution guidelines Calibrate performance ratings Force a distribution or ranking

Each approach is most appropriate when...

ƒƒ
Strong performance culture, tools ƒƒ
Performance culture is under ƒƒ
Drive change and raise
and processes in place, or development performance
ƒƒ
Forced ranking or distribution ƒƒ
Organization has tolerance for ƒƒ
Accountability is more important
viewed as too extreme process than teamwork
ƒƒ
Process is supported by clear
guidelines and strong leadership

Establishing a clear definition of desired performance that

best reflects the unique needs of the organization will be
important. Understanding the drivers of inflated ratings of
high-performers is the first step to improving the validity of
performance data, thereby increasing the ability to support a
real performance management process.

For many businesses it can be a struggle to get people

to comfortably accept that they fall into the “meets
expectations” category. Being average is increasingly
becoming a stigma, as companies push their workers to
become high performing individuals in a high-performing Am I average?
organization.
Communicate that the “middle” rating is not equivalent to a C
in school, but rather like shooting par in golf. Par doesn’t mean
perfect. Par also doesn’t mean average or mediocre or middle
of the road. What par represents is the number of golf strokes
considered necessary to complete a hole or course in expert
play. A pro golfer can often do better but par is what is expected
of an expert. The middle rating on a performance appraisal
also represents the performance and behavior that an expert is
expected to produce.

Use labels for the middle performance category such as “Solid

Performer,” “Meaningful Contributor” or “Fully Effective.”
People take greater pride in these designations than labels like
“Competent” or “Satisfactory” which denote mediocrity.

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Performance rating calibration
The most common way to apply consistent performance Additional possible session outcomes
standards across an organization is to use a calibration
process. Calibration is extremely beneficial to ensuring ƒƒ
Promote adherence to targeted rating distribution (if
that managers from different parts of the organization are applicable)
applying similar standards and that people performing at ƒƒ
Suggest development opportunities
similar levels will receive similar performance ratings and ƒƒ
Identify necessary redeployments (either within or outside
related compensation. Calibration helps organizations the organization) and/or PIPs
increase the visibility and accountability of performance
ratings and norms of performance with managers. It opens ƒƒ
Discuss potential promotions (if applicable)
the discussion among leaders and managers about what ƒƒ
Identify possible succession and recruitment requirements
constitutes a high performer and reinforces expected
standards of performance across the organization.
Typical calibration process
Performance calibration is typically accomplished through Leaders of the organization, managers and HR all have
sessions that include supervisors and managers who are important roles to play as part of the calibration process.
responsible for conducting performance appraisals and are The top executive is typically responsible for reviewing the
facilitated by the HR leader for that part of the business. organization-wide roll-up and providing strategic oversight. As
Often, the executive responsible for that area of the business part of the business unit planning, senior leaders set the rules
also participates to reinforce the expected standards of of engagement (such as peer groups, calibration method and
performance. The primary objective of calibration sessions is agenda). Managers provide input (e.g., performance history
to ensure that different managers apply similar standards in and identification of outliers), while HR generally facilitates
measuring and evaluating the performance of employees, and the process to drive to the desired outcome of fair and
neutralizing the effect of “tough graders” and “easy graders” consistent performance ratings.
on performance appraisal ratings.

Preliminary Final Business

Business performance Calibration performance unit
unit planning evaluation & session evaluation & executive
ratings ratings approval

Getting performance ratings right 6

Typical calibration session
The approach to the session can vary depending upon the When they reach consensus on what quality of performance
size of the group to be reviewed and the time allotted. At is represented by the different performance ratings,
a minimum, all managers should describe for others the managers can then revise, as needed, their employee ratings
performance of their benchmark employees at each rating to be in line with the ratings for similar levels of performance
level. Others then ask questions about how the performance for other employees. HR, as facilitator, can drive to the right
was determined — in other words, what factors other outcomes and help managers with the decision-making.
managers took into consideration in deciding on the rating —
and can offer opinions about how that performance related to Performance management is an important business
that of other employees. By developing a common picture of process, as an organization’s very existence is dependent
the quality of performance at each level, managers can make on consistent, positive, sustained performance generated
good judgments about how the performance of each person from the collective activities of many individuals. HR’s role in
in their work group should be rated to ensure consistency and leading this process and its continuous improvement is vital
fairness. to an organization’s success. While much more can be said
about driving a successful performance management process
Managers also talk about performance rating challenges and performance culture, central to the process is getting
during these meetings. For example, there could be the ratings right. We hope you’ve found this document helpful in
opportunity to ask other raters how they would assess the developing the evaluation step of your overall performance
performance of an individual who succeeded brilliantly in all management process.
areas except one, where that one area was a colossal failure.
Managers can compare notes to see if they are being too soft
or too tough.

Check out the Calibration Session Planning Tips on the following

pages and consider using some of our performance management
toolkits to further enhance your process:

ƒƒ
Getting the Performance Feedback Experience Right for Employees
ƒƒ
Getting the Performance Feedback Experience Right for Mangers
ƒƒ
Getting Goal-Setting Right

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Calibration session
preparation

Planning the session

ƒƒ
Select managers and/or other reviewers to participate in ƒƒ
Ensure that performance calibration sessions are held
calibration session covering the unit’s employees — make before managers conduct individual performance review
sure all participants are at similar level in the organization meetings with employees and, certainly, before related
given discussion of other employees. compensation decisions are made.

ƒƒ
When at all possible, plan for in-person meeting ƒƒ
Ensure managers have completed draft performance
participation versus a conference call or Skype meeting. appraisals on their direct reports and are prepared to
Meaningful discussion of performance requires human discuss their ratings with their peer managers in a group
interaction and dynamics. setting.

ƒƒ
Inform participants of selection, schedule calibration ƒƒ
If a suggested performance distribution will be used,
sessions in advance and publish a timeline with key dates communicate the desired distribution in advance so that it
and expected outcomes so that participants understand does not come as a surprise during the calibration meeting.
expectations and come prepared. Include a date by which
all managers should submit their individual employee ƒƒ
Prepare to facilitate by compiling and examining
ratings to HR in preparation for their facilitation of the performance data for the overall organization and at the
calibration session. business unit/manager level, including average ratings
across critical factors, performance distributions, and the
identification of outliers. Do this not only for the current
year but also previous years to identify trends, etc.

Getting performance ratings right 8

Analyzing performance data

Step 1 Step 2 Step 3

Review the aggregate Compare the ratings given by Look for individual outliers
distributions of ratings for individual managers
departments/functions If you have a succession plan in
Once you have examined the place, are those who have been
Compile the necessary reports so ratings at the department or identified as HIPOs being rated
that you can identify significant functional level, consider the accordingly, and/or are those not
rating differences between groups patterns of ratings provided by identified as HIPOs being provided
(e.g., departments, functions, individual managers. Employees ratings that suggest they should
business units). In examining in similar roles with different be on this list? Identifying those
the differences between groups, managers who perceive with particularly high or low ratings
consider: inconsistency in ratings can result will spark conversation among
in a great deal of dissatisfaction. participants who may have had
ƒƒ
How the pattern of ratings aligns Significant differences across interaction with said individuals and
with the objectives and results of managers could indicate a can confirm or debate the rating.
each group manager who tends to rate all
ƒƒ
Some groups may have employees higher or lower than
experienced a great deal others for a variety of reasons,
of change or taken on new including:
employees
ƒƒ
The rater biases of central
A group’s higher or lower ratings tendency, severity or leniency
relative to others may reflect the ƒƒ
Inexperience or poor skills
actual performance of the group in conducting performance
— or the expectations placed upon appraisals
them by the business unit leader. or
ƒƒ
Misunderstanding of the
rating scale, criteria and/or
the resulting consequences of
ratings

Remember, the purpose of

calibration meetings is to better
ensure that different managers
apply similar standards in
measuring and evaluating the
performance of subordinates; i.e.,
better ensure a level playing field
by neutralizing the effects of tough
graders and easy graders.

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 Willis Towers Watson is not a law firm and therefore cannot provide legal or tax
advice. This document was prepared for information purposes only and it should not
be considered a substitute for specific professional advice. In particular, the contents
of this document are not intended by Willis Towers Watson to be construed as the
provision of specific legal, tax or other professional advice or recommendations of any
kind. As such, we recommend that you discuss this document with your legal counsel
and other relevant professional advisers before adopting or implementing its contents.
This document is based on information available to Willis Towers Watson as of the
date of issue, and does not account for subsequent developments after that date. This
document may not be reproduced or distributed to any other party whether in whole or
in part, without Willis Towers Watson’s prior written permission.

About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions
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