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Performance Rating: The good, the bad and the ugly

A performance rating is the step in the work measurement process in which the manager observes the employee's performance and records a value representing that performance relative to the concept to standard performance. Performance rating helps people do their jobs better, identifies training and education needs, assigns people to work they can excel in and maintains fairness in salaries, benefits, promotion, hiring and firing. Most employees want to know how they are doing  in their roles. It's important for employees to understand how they are performing at their job. Other than fundamental decisions about how to use competencies as part of the employee performance management process (core, leadership, functional,etc), and which specific competencies are important to the organisation/to a department or role. Deciding what is the best fit for the organisation is challenging.

Here are some guidelines to help determine the needs of the organisation and select an appropriate rating method for the performance appraisal process.

Questions management should ask:

  • How important is the skill to the role
  • Do other employees across the organisation demonstrate similar competencies in the same way?
  • Do employees need to specifically understand what their core competencies are or should be?
  • how many rating levels should be documented (i.e. performed yes/no; pass/fail; 1 to 5 rating, etc).
  • Will ratings drive compensations or employee rewards?

Whichever employee rating scheme is selected, a rating scale needs to be decided. It may be easier to select a universal rating to evaluate all competencies; however there may be times when different scales are better suited to different types of competencies. the rating scale can be as simple as “achieved/not met” or can also include several levels of performance “5 = superstar; 4 = good, 3 = average, 2 = to be improved, 1=off track. When choosing an appropriate rating scale, first think about the use of the rating information and then decide how many data points. If the organisation is using competency ratings to drive compensation or employee rewards, a large enough scale to differentiate between levels of performance. (5 point scale is typically effective). However, if the company does not need to differentiate between levels of performance, a simple 2 point rating scale should suffice.

Every performance rating, whether it be a 2-point scale; or a 5 point scale, should have objective comments accompanying each. The comments should be reflected in the rating and should be written in a way that  positive or constructive. If the employee has not performed to the standards expected of him/her, the manager should give a comment that assists the employee to rectify the problem areas.


We brought together some voiced to comment on the good, the bad and the ugly of performance ratings. 


Performance ratings fall into three categories, and often blend aspects of these.

The first gauge what was accomplished, and tend to focus on tangible milestones and measurable achievements. The second focus on employees' skills. Is the employee fully competent at their tasks? Have they been improving and picking up new talents? The third style of performance rating has to do with how others perceive their attitudes and efforts.

Performance ratings can be very useful. Some people, myself included, like to encourage people and aren't always as direct as possible about the negatives. Regular performance reviews force people to be more direct about the challenges an employee might face. And on the other end of that, they can force an employee to recognize a performance problem they otherwise might not notice. That problem can be a tangible shortcoming, or it can be an issue in how others perceive their attitudes and efforts – which can be just as dangerous.

The biggest downside of performance reviews is that by establishing a set time and a place for evaluation and criticism, they can limit that kind of analysis to once or twice a year. Managers should be giving employees regular feedback, and performance reviews are no substitute for recurring constructive criticism on the good and bad. By creating a specific time of year for that discussion, companies should make sure they continue to offer regular feedback throughout the year.

performance ratings by marc prosser

Marc Prosser is the co-founder and managing partner of Marc Waring Ventures, a firm which develops specialty internet properties for high value audiences. The company’s portfolio of websites includes Fit Small Business, which provides product and service reviews for small business owners, and Fit Biz Loans, which connects small business owners with the least expensive loans possible. Prior to starting Fit Small Business, Marc was the CMO of FXCM for ten years. He joined as FXCM's first employee and grew the company to more than 700 employees.

Sometimes Performance ratings do not directly represent an employee's performance

I am the CEO of a company who does performance reviews every year. We do not, however, find that our business setting is great for purely number ratings. We think performance time is a great time to do reviews and give, as well as solicit, feedback. Providing a set 'rating' or grade, I believe, is not as productive (at least in a smaller business environment). We have 40 employees and I believe that performance reviews can be a great way to establish goals for the upcoming year, as well as to review successes (or not) on the prior year.

Our company was formerly owned by a publicly traded company under which we provided specific performance ratings that equated directly with raises. This could sometimes be demoralizing because the ratings also were subject to change based upon allocation of funds associated with raises. Sometimes they did not directly represent a particular employee's performance, but rather how they related to their peers. That can be beneficial, but it can also create a rather competitive, unhealthy environment.

In our smaller business environment, I believe it's important to give reviews and to look back, as well as forward, to set expectations and measure. Good discussions about goals and achieving those goals is important and can be a good gauge for employee morale and adjustments that need to be made in the new year.

I feel that good employment ratings (1) assess the employee's goals from the prior year and success against those goals; (2) goals for the upcoming year; (3) contributions to the company; (4) overall attitude, approach; (5) reliability. I also find it helpful to do a 360 review where other employees are reviewing the employee. While we do not do this every year (our turnover is very low), we do find it useful on occasion to get a good sense not only of management's perspective of the employee, but also fellow employees' perspectives.

Written by Deborah Sweeney

Deborah Sweeney is the CEO of MyCorporation, a document filing service which she purchased out of Intuit in 2009. She is an attorney, former partner of a Los Angeles-based law firm and a mother of two young boys. She believes in focusing on a positive, and profitable, work environment.