Tuesday, April 23, 2013

How to reduce Subjective Rating in Performance Evaluations

Most companies use Feedback and Ratings from their employee performance appraisals to drive decisions around compensation, promotions and training, then ensuring consistency in their employee reviews is critical. Even if they’re not using performance evaluation data to make these decisions, employees need to perceive a sense of fairness in their reviews. A perceived lack of fairness quickly translates into employee dissatisfaction and disengagement.

Many companies use subjective performance appraisal systems due to lack of objective performance measures. In these cases, supervisors usually have to rate the performance of their subordinates, using such systems, it is a well established fact that many supervisors tend to assess the employees too good (leniency bias) and that the appraisals hardly vary across employees of a certain supervisor (centrality bias). We explain these two biases in a model with a supervisor, who has preferences for the utility of her inequality averse subordinates, and discuss determinants of the size of the biases. Extensions of the basic model include the role of supervisor’s favoritism of one particular agent and the endogenous effort choice of agents. Whether inequality averse agents exert higher efforts then purely self-oriented ones, depends on the size of effort costs and inequality aversion.

But how do you achieve fairness across the board, or even within a particular role, when so much of the evaluation is subjective?.

Since managers are individuals, and bring different experience and expectations to their role, it’s important to give them some guidance, and a framework to work within to eliminate some of their subjectivity from the equation. Here are some techniques we use with Clients, which has helped in reducing the Subjective Feedback from the PMS.

1.       Providing ongoing trainings to both Appraisee & Appraiser about the PMS

2.       Multi-rater feedback for if possible for all roles or at least critical roles in the company

3.       Secondary manager or third-party reviews

4.       Detailed behavioral descriptions of competency demonstration

5.       Creating a Dictionary of Subjective Ratings to choose from as part of the PMS tool

6.       Have Even Number Scale to reduce the Central Tendency Error

It’s also a great idea to have your HR team compare ratings between departments, especially for individuals performing the same function. It’s not hard to spot trends in ratings when you look at the bigger picture. In the same way you could tell how “tough” a teacher was by looking at their class average, you can get an idea of how consistent and fair your appraisals are by comparing scores between departments, and year over year. Your HR team can then intervene to ensure greater consistency and fairness.