General Electric (GE) has decided to overhaul its performance review system in favor of more flexibility in compensation.
In the past 2 years, around 30,000 GE employees have tried rating-free reviews. An internal study found that many managers said a performance review system without a rating was more motivating which triggered the company’s decision to scrap its 40 year old five-point scale appraisal system.
“Managers told us they were still able to make talent decisions. So going forward we will no longer use the rating as part of performance development,” Susan Peters, GE’s senior vice president of human resources, said in a memo to employees seen by Bloomberg on Tuesday.
Following the trend of going mobile, GE has recently introduced the PD@GE smartphone app which allows employees to assess subordinates and superiors on an ongoing basis rather than an annual appraisal.
The new system asks employees and managers to exchange frequent feedback via the app in person or by phone. The messages are compiled into a performance summary at the end of the year. The new appraisal system will apply to GE’s 200,000 salaried employees.
GE’s previous five-point scale has been widely imitated by other companies. It assigned employees labels such as “role model”, “strong contributor” or “unsatisfactory” as part of their annual performance review and was a popular system adopted by many firms.
Before the five-point scale, GE employed a hardcore appraisal system which require managers to grade employees against one another, with those in the bottom 10% encouraged to leave the company.
“Scrapping ratings led to more meaningful, richer conversations that were not getting distracted by a label,” Janice Semper, a GE human-resources executive told the Wall Street Journal.
Employees might feel less pressure without a having to worry about scores, but research suggests managers may have a hard time dealing with the new system.
A survey of 9,000 managers and employees by advisory firm CEB found that the employees felt concerned about the quality of the review conversations suffered significantly, because managers struggled to explain to workers how they performed in the past and ways to improve.
GE executives said the company is training managers how to get better at providing feedback consistently.
In an interview with Wall Street Journal Brian Finken, a Italy- based operations leader in GE’s oil and gas business said a rating really oversimplifies something that is much more complicated. ” Some people get obsessed with the score, focusing more on the category than on the review discussion,” he said.
Lately, many companies including Adobe, Goldman Sachs Group, Deloitte, and Accenture have taken a similar path by replacing numeric ratings with ongoing qualitative assessment .