IBM Analytics

White Paper

Performance reviews – prevalent but

not popular
Research insights into the current status of performance evaluation

Haiyan Zhang Ph.D.


Performance reviews provide employees with feedback and
are intended to improve employee motivation and
contributions, but lately they have received a great deal of
criticism with some calling for organizations to “kill
performance reviews”1. A few companies such as General
Electric and Microsoft are reportedly abandoning their
performance evaluations altogether.2,3 How widespread is
this movement away from traditional performance reviews?
Based on IBM Kenexa’s recent survey to North America
HR practitioners from 508 organizations, the IBM Smarter
Workforce Institute analyzed performance evaluation
practices and future plans of the organizations. The results
provide timely insights into the status of performance
evaluation.
Research method
The analyses are based on responses from HR
practitioners in 508 organizations, a subsample of the IBM
Kenexa 2015 Compensation Trends survey that represents
21 industries, multiple ownership types (public, private,
joint venture, non-profit and government), and different
company sizes (fewer than 500 employees to greater than
25,000 employees) across US and Canada (See Appendix
for more information).
Performance reviews – prevalent but not popular
Executive summary
• Despite high-profile criticism of performance evaluation
systems, almost all organizations surveyed (97 percent)
conduct some form of performance evaluation. Eighty-
two percent use formal rating or ranking approaches,
and just 13 percent use a system without any prescribed
approach.
• One quarter (26 percent) of organizations are
considering changing their current performance
evaluation practices. Among those (74 percent) who are
not planning on changing:
– Only 9 percent are satisfied with their current
practices.
– Twelve percent have recently changed their
performance evaluation approaches.
– Most have other reasons for maintaining their
current arrangements – they see no better
alternatives (35 percent), it would be difficult to
change their current approaches (16 percent), or
they have specific concerns (e.g. budget issues,
potential legal implications, etc.) (10 percent).
• Performance evaluations are more likely to be reported
as being effective in organizations that use prescribed
approaches and provide formal training to managers on
how to conduct performance evaluations.
• The use of forced distributions or rankings does not
result in better identification of top and bottom
performers.
2
 Performance reviews – prevalent but not popular

How prevalent is performance Figure 1: What evaluation methods are commonly used?
evaluation?
Despite the headlines about organizations moving away
from formal performance reviews, the vast majority of our
No performance
respondents (97 percent) still conduct some form of evaluation 3% Other 2%
performance evaluation. As shown in Figure 1, 82 percent
No prescribed
evaluate employee performance with formal rating or approach 13%
ranking approaches, while 13 percent of organizations
undertake performance reviews, but do not have a
57%
prescribed approach. The commonly used rating and
ranking methods include:
• Rating without forced distribution (57 percent) Formal rating
or ranking 82% 19%
• Rating with forced distribution (19 percent)
6%
• Ranking or paired comparison (6 percent)

Rating without Rating with Ranking or paired

forced distribution forced distribution comparison
Common rating and ranking methods
• Rating without forced distribution means a manager
assigns a score to employees based on certain absolute Source: IBM Kenexa 2015 Compensation Outlook Survey (N=508).
criteria.
• Rating with forced distribution requires a manager to
evaluate each individual, and rank them typically into one
of three categories (excellent, good, poor). Managers are
guided on the percentage of employees that should fall
into each category (distribution). Eighty-two percent of organizations use
• Ranking or paired comparison is when a manager rates
an individual employee’s performance by comparing his/
formal rating or ranking approaches to
her performance with that of others. performance management.

3
 Performance reviews – prevalent but not popular

When we factor in the size of companies, it is perhaps
unsurprising that the larger the organization, the more
likely they are to conduct performance evaluation. Not
only that, but they are also more likely to implement
prescribed approaches. As shown in Figure 2, just one in
one hundred large enterprises do not have performance
evaluations compared to six percent of small businesses; 88
percent of large enterprises use formal rating and ranking
approaches, while 68 percent of small businesses use formal
approaches, a 20 percentage-point difference.i
Figure 2: Performance evaluation methods used by different sized
organizations
We might conclude that organizations are sticking with
their current approaches because they are happy with
them. A closer look at the data reveals this to be an
incorrect assumption. In fact, of the organizations sticking
with what they have, less than one in ten (9 percent) are
satisfied with their current practices. Another 12 percent
have recently changed their performance evaluation
approaches.
If the majority of our respondents are unhappy with their
current performance evaluation processes, we might
reasonably ask why more aren’t making changes. Our
analyses reveal some significant barriers to change:
• There are no better alternatives (35 percent)

• Current processes are culturally ingrained and difficult to

Small
51% 4% 13% 24% 6% 2% change (16 percent)
Business
• They have specific concerns, e.g., budget issues,
Small-Medium 55% 16% 7% 17% 2% 3% potential legal implications (10 percent).
Business
Medium 62% 19% 5%10% 2%2% Figure 3: Are you considering changing your current performance
Business evaluation practices?
Large
Enterprises 54% 28% 6% 8% 1%3%

Rating without forced distribution Rating with forced distribution

Ranking or paired comparison No prescribed approach 35%
No performance evaluation Other 18%
Why no?

16%
Yes 26% No 74%
Source: IBM Kenexa 2015 Compensation Outlook Survey (N=508). 12%
4
Note: Business size : Small business =fewer than 100 employees, 10%
Small-Medium business=100-999, Medium businesses=1,000-9,999,
Large enterprises=10,000 or more. 9%

No better alternative Just made changes

Are organizations considering a change?
Other (e.g. budget reasons,
While we know that most organizations have yet to Do not know potential legal implications)
abandon performance reviews, it could be a change they
Difficult to change Satisfied with current approaches
are considering in the future. However, our analyses reveal
that three quarters (74 percent) of organizations are not
even thinking about changing their current performance Source: IBM Kenexa 2015 Compensation Outlook Survey (N=508).
evaluations. See Figure 3.

i
For the large enterprises, 88 percent is the total of 54 percent (rating without forced ranking), 28 percent (rating with forced ranking), and 6 percent
(ranking or paired comparison). For the small businesses, 68 percent is the total of 51 percent (rating without forced ranking), 4 percent (rating with forced
ranking), and 13 percent (ranking or paired comparison).

4
 Performance reviews – prevalent but not popular

Of those organizations considering change, the detail of
exactly what changes will be made varies. Almost a quarter
(22 percent) want to remove formal rating and ranking (i.e.,
rating with forced distribution, rating without forced
distribution, or ranking or paired comparison); 19 percent
plan to change the rating criteria or scales; 14 percent plan
to change the process or frequency of reviews; and 8
percent plan to implement new systems or tools (Figure 4).
As shown in Figure 1, one in five organizations use rating
with forced distribution, a method that is claimed to
effectively differentiate between top and bottom
performers by its proponents.5 However, our results do not
find significant differences between rating with forced
distribution and rating without forced distribution in
differentiating top and bottom performers (73 percent vs.
76 percent) (Figure 5).

Figure 4: What changes are organizations considering? Figure 5: Effectiveness of various performance evaluation methods

Remove rating and ranking 22% 73%

76%
Change rating criteria / scale 19% Identifying high and
low performers* 81%
Change process / frequency 14% 54%

Implement new system / tool 8% 65%

Correcting unsatisfactory
60%
performance* 68%
Source: IBM Kenexa 2015 Compensation Outlook Survey, subset of
respondents considering changes to their current performance evaluation 36%
system (N=108).
Rating without Rating with
forced distribution forced distribution
Which evaluation method works better?
As revealed above, the view that there is no better Ranking or No prescribed
paired comparison approach
alternative is one of the major reasons that organizations
are reluctant to move away from their current practices. In
light of this, an understanding of the relative effectiveness
Source: IBM Kenexa 2015 Compensation Outlook Survey (N=463).
of different evaluation methods could help organizations
decide on the best approach for them. Note: The chart shows the percentages of employees who agree or
strongly agree with the statements of My organization’s current
performance evaluation approach is effective in identifying high and low
Compared to no prescribed approach, formal rating and performers and in correcting unsatisfactory performance. *Differences
between the formal approaches and no prescribed approach are
ranking approaches are more likely to be reported as significant (P<0.05).
effective in identifying top and bottom performers (73 to
81 percent vs. 54 percent) and for correcting unsatisfactory
performance (65 percent to 68 percent vs. 36 percent)
(Figure 5).

5
 Performance reviews – prevalent but not popular

Our analyses further reveal that when organizations train Conclusion

managers on how to conduct performance evaluations, the While some high profile examples of organizations moving
evaluations are more likely to be seen as effective, in the away from performance reviews have been reported, the
following ways (Figure 6): vast majority of organizations have yet to follow suit.
• Encouraging communication between managers and However, this does not appear to be a result of high levels
employees (75 percent vs. 58 percent) of satisfaction with the system, but rather a view by many
• Reinforcing favorable performance (71 percent vs. 60 that there is simply no better alternative.
percent)
• Correcting unsatisfactory performance (66 percent vs. 53 For those organizations using ratings with forced
percent) distributions to differentiate high and low performers, one
• Identifying training and development needs (57 percent option is to do away with the forced distribution
vs. 39 percent) component. Our findings indicate no incremental ability to
differentiate with this approach.
Figure 6: Performance evaluation seen as more effective when
organizations provide manager training
Organizations looking for a more dramatically different
way to evaluate employee performance may benefit by
learning about new approaches and outcomes that have
Encouraging communication 75% been tried by others. A recent Smarter Workforce Institute
between managers and
employees* 58% research paper on the impact of a non-traditional
performance evaluation system could provide helpful
71% insights. Download the white paper, Can performance
Reinforcing favorable
performance* 60% management inspire? at http://www-01.ibm.com/software/
smarterworkforce/institute/publications/
Correcting unsatisfactory 66%
performance*
53%

Identifying training and 57%

development needs*
39%

Manager training No manager training

Source: IBM Kenexa 2015 Compensation Outlook Survey (N=508).

Note: *Differences between the organizations who provide manager

training on performance evaluation and those who do not provide
manager training are significant (P<0.05).

6
 Performance reviews – prevalent but not popular

Appendix

Figure 7: Who participated in the survey? Figure 9: What size organizations participated in the survey?

Compensation & 34% 10%

99 or fewer
Benefit Professional

HR Mgr/Dir/Exec 22% 100-999 29%

Compensation &
18% 1,000-9,999 39%
Benefit Mgr/Dir/Exec

HR Pro 11% 10,000 or more 23%

Other Pro/Mgr/Exec 14%

Source: IBM Kenexa 2015 Compensation Outlook Survey (N=508)

Source: IBM Kenexa 2015 Compensation Outlook Survey (N=508).

Figure 8: What are the ownership types of the organizations in the

survey?

Privately owned 43%

Publicly traded 30%

Non-profit 18%

Government owned 7%

Joint venture 2%

Source: IBM Kenexa 2015 Compensation Outlook Survey (N=508).

7

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Performance reviews – prevalent but not popular
About the Authors
Haiyan Zhang Ph.D. is an Industrial/Organizational
Psychologist with the IBM Smarter Workforce Institute.
Her areas of expertise include qualitative and quantitative
methods, recruitment and selection, performance
management, employee motivation, and cross-cultural
research. She is particularly interested in how research
evidence can be used to inform HR practices. Her current
research focuses on the impacts of technology-enabled HR
transformation on employee attraction, engagement and
performance. She has presented and published research
findings at various conferences and peer-reviewed journals
nationally and internationally. She has also served as a
reviewer for a number of conferences and journals, and is a
member of Society for Industrial and Organizational
Psychology (SIOP). Haiyan received her Ph.D. in Human
Resource Management from the DeGroote School of
Business at McMaster University, Canada. Prior to her
doctoral study, Haiyan had extensive research and
management consulting experience in China.
Contributors
Sheri Feinzig Ph.D. is the Director of IBM’s Smarter
Workforce Institute, and has over 20 years of experience in
human resources research, organizational change
management and business transformation. Sheri has
applied her analytical and methodological expertise to
many research-based projects on topics such as employee
retention, employee engagement, job design and
organizational culture. She has also led several global,
multi-year sales transformation initiatives designed to
optimize seller territories and quota allocation. Additional
areas of expertise include social network analysis,
performance feedback and knowledge management. Sheri
received her Ph.D. in Industrial/Organizational
Psychology from the University at Albany, State University
of New York. She has presented on numerous occasions at
national conferences and has co-authored a number of
manuscripts, publications and technical reports. She has
8

served as an adjunct professor in the Psychology
departments of Rensselaer Polytechnic Institute in Troy,
New York and the Illinois Institute of Technology in
Chicago, Illinois, where she taught doctoral, masters and
undergraduate courses on performance appraisal, tests and
measures.
Louise Raisbeck is responsible for marketing
communications in the IBM Smarter Workforce Institute.
She has worked in the field of workforce research for more
than 10 years and is responsible for turning research
insights into engaging, thought-provoking and practical
white papers, reports, blogs and media materials. Louise is
a member of the Chartered Institute of Public Relations
and a former director of a top 10 PR consultancy in the
UK.
Acknowledgement
We would like to express our great appreciation to Alison
French for her valuable suggestions on survey questions
and assistance with data collection. We would also like to
extend our thanks to Jevons (Jianwen) Qin for his help in
preparing the data for analyses.
Performance reviews – prevalent but not popular
References
1 Ryan, L. (Feb., 2015). Let’s kill performance reviews in
2015. Retrieved from http://www.forbes.com/sites/
lizryan/2015/02/19/lets-kill-performance-reviews-
in-2015.
2 Adday, M.. (Aug., 2013) Here’s why GE is replacing
performance reviews with an app. Retrieved from http://
fortune.com/2015/08/13/performance-reviews.
3 Ovide, S. & Feintzeig, R. (Nov., 2013) Microsoft
Abandons ‘Stack Ranking’ of Employees Retrieved from
http://www.wsj.com/articles/SB1000142405270230346
0004579193951987616572.
4 Eastman, R. (Jan. 2010). Sizing up Small-to-Medium
Business (SMB). Retrieved from http://smbresearch.net/
sizing-up-smb.
5 Schleicher, D. J., Bull, R. A., & Green, S. G. (2008).
Rater reactions to forced distribution rating systems.
Journal of Management, 899-927.
9
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