Employers can avoid the biases common in performance rating systems by articulating what good, average and poor performance looks like, says Right Management's Rosemarie Dentesano.
Employers most commonly use three types of ratings, and "there are pros and cons for all of them", she told HR Daily.
Firstly, a three-point scale is "very simple - they're either high or low or in the middle", and this doesn't place much burden on decision making.
"But the challenge is that it doesn't allow for enough differentiation [between employees]," she says.
Next, an even-number rating scale is one that gives the rater, for example, four or six ratings to choose between.
"What that does is it moves people away from down the middle. But it also omits the ability to say whether people are performing above or below the neutral point, because we've omitted the neutral point."
A five-point scale, on the other hand, "gives you a mid-point and gives you the opportunity for differentiation".
Problems can arise with any of these systems if managers aren't clear about what each number refers to, says Dentesano, who leads Right Management's talent management practice in Australia and New Zealand.
"The thing that makes a difference with a rating scale is that you actually need to articulate what a one, two, three, four or five equates to."
If a manager is rating a salesperson, for example, who had a revenue target of $1 million but achieved $800,000, they need an objective way to decide where that rates in terms of performance.
"It's not a five, because they didn't get to $1 million, but is it a four, or is it a three?"
Employers need to clearly articulate what equates to performance in a role, versus over-achievement.
"Employers should say what does a one equal, what does a two equal, what does a three equal... so that when the manager is doing the performance review they can very objectively state that an achievement of $800,000 against a target of $1 million was actually not acceptable."
The biases that can occur when rating employees can be avoided by articulating a value against key performance metrics, she adds.
"I would say that you need to have pretty specific, measurable performance indicators and articulated performance expectations. That allows you to stay away from your "halo" or your "horn" effects, because you're using hard data."
(Halo and horn effects occur when one positive - or negative - attribute in an employee distorts a manager's overall perception of them.)
A further thing managers can do to avoid bias in their ratings is ensure they keep notes about employees' performance.
"The best preparation, on a monthly basis as you're catching up with people, is to keep notes on what the good performance looks like; what the poor performance might look like; or what the performance challenges have been in the role.
"Quite often you'll get emails from others in the organisation thanking you or acknowledging the work that somebody has done. So the ability to keep track, to keep a journal of performance throughout the year, allows you to go back and remember the good, the bad, and the indifferent, rather than the week before, thinking 'Oh, what do I remember Mike achieving?'"
From 360 to 720-degree ratings
It is becoming much more common for employers to conduct 720-degree, rather than just 360-degree reviews of employees, Dentesano says.
"Typically people will use 360s to rate an individual from a behavioural point of view rather than from a pure measurement. Where we see 360s being effective is where... they look at whether a person is working to the values of the organisation."
A 720-degree review adds feedback from external stakeholders to the traditional mix of manager, peer and subordinate views, she says.
"Where there's an ability to get some external feedback we think that's important, but it also needs to be valid to a role. So if you're in a role where you don't have any interaction with the external, then it's not relevant. But if you're in a client-facing role, I think that external feedback into the organisation is pretty useful."
These "soft" measures are important, she says, because performing to hard measures doesn't always provide an accurate view of someone's contribution to the organisation.
"You can have someone who's over-achieving their sales target, but in the process they're leaving a trail of destruction behind them because their behaviour isn't aligned to the values of the business".
"So maybe you have someone who's great at going out and doing all the client stuff, but when they come back into the business they don't properly share information; they don't properly induct people into the opportunity that they've been successful in selling to the client.
"Delivering on the work and being good at the performance metrics [is important], but the way that you go about it is just as important. There needs to be a balance between the hard measures and the soft measures."
Rosemarie Dentesano will speak in detail about best-practice performance systems at half-day seminars HR Daily is hosting in Sydney and Melbourne. To learn more and register your place, click here.