Commentary by Jeff Neal
Founder of ChiefHRO.com
& Senior Vice President, ICF International

This column was originally published on Jeff Neal’s blog, ChiefHRO.com, and was republished here with permission from the author. This is the third post in his series on performance ratings. Find the first report here and the second here.

My earlier posts explained why I believe most performance rating processes are inherently flawed and unlikely to produce good results. There is another reason — most performance rating processes were designed without a clear purpose in mind. In the past year, I have talked with Chief Human Capital/Resources Officers, line managers, employees, union officials and HR practitioners about the subject of performance. One of the most striking facts is that most can explain the alleged benefits of their performance appraisal process, but few will claim they explicitly designed it with those ends in mind. Even fewer will claim it actually accomplishes those objectives.

Most federal HR leaders and practitioners will tell you they have the system they do because it is mandated by law (5 USC 4302). Section 4302 requires agencies to use the results of performance appraisals as a basis for training, rewarding, reassigning, promoting, reducing in grade, retaining, and removing employees. In other words, for almost all significant decisions regarding employees. Doing something solely because it is required by law is not enough to produce a good result. In fact, it tends to produce poor processes that are nothing more than compliance exercises. Current rating processes affect more than 1.8 million federal employees, cost a fortune, often harm morale and productivity, and generate few benefits.

Consider the time it takes for those folks to participate in the rating process, then add the time their supervisors and any other reviewers are consuming. If each employee spends only 5 hours annually in the process and each supervisor or manager spends 40 hours (very conservative estimates), the annual cost* of the current processes is more than $600 million. That does not include systems and other non-labor costs, nor does it include the cost of grievances, appeals, arbitration and lawsuits.

What does our $600+ million buy us? The vast majority of employees receive a rating at or above the mid-point. The number of marginal or less-than-satisfactory ratings is small. The number of unsatisfactory ratings is miniscule. Few managers, employees, union officials (or anyone else) will tell you the rating process serves a useful purpose. Many will say it is harmful. So, the federal government spends more than $600 million every year on a process that generates little positive return and most likely does harm.

A big part of the problem is lack of clear intent. A process that is not designed with a clear purpose in mind produces goodness only by accident. While we could be charitable and say the government has a clear intent — the legal requirement to use the ratings for training, rewarding, reassigning, promoting, reducing in grade, retaining, and removing employees, saying it doesn’t make it so. Let’s take a look at those requirements one at a time:

• Training. To be effective in indentifying training requirements for employees, an agency would need to link its training and rating processes. It would identify goals, performance deficiencies, the competencies that are lacking, courses or other training that might provide those skills, and a means of incorporating them into individual development plans. Some agencies have the component parts, but few agencies formalize procedures that link performance ratings to the training process. Training that results from a performance rating is likely to be in those rare cases where an employee is placed on a performance improvement period following an unsatisfactory rating.
• Rewarding. Most agencies link ratings and some awards, while others are attempting to decouple awards/bonuses from the appraisal process. The thinking is sound – ratings are done once each year and recognition for great work should be more proximate to the work being done. The dollar value of awards in the federal government is so small, that little meaningful difference exists between awards for above-average and top performers. Now that OMB has frozen awards as a result of sequestration, the question is, for the time being, moot.
• Reassigning. Reassignments based on performance ratings are virtually impossible to quantify, because there is no way to track them in current HR systems. Anecdotal evidence suggests they are uncommon, and when they do occur, they are in lieu of a more severe action, such as a downgrade or removal.
• Promoting. Most agencies factor the rating into the promotion process, but it is not the primary or even a key driver of promotion eligibility or selection. Some opponents of using performance ratings in the selection process make the argument that allowing the same people to assign ratings, then use the ratings they assigned as the basis for selections they will make is a type of pernicious double-dipping that is not in the public interest. For the most part, it is safe to say agencies do, to some degree, use ratings for promotion purposes.
• Reducing in grade. Downgrades for performance purposes are uncommon. The regulations governing such actions require an agency to prove the basis for the action, but do not provide for review of the type of action by the Merit Systems Protection Board. MSPB can review whether the agency followed the correct procedures and proved the employee did not meet approved performance standards. They cannot decide a demotion should have been one grade rather than two or more or a removal should have been a demotion. As a result, an agency that goes through the long process of taking a performance-based action is unlikely to stop at a demotion. Add to that the negative effects on morale that can result from a demoted employee still being in the workplace, and the rationale for downgrading versus removal is weak.
• Retaining. Retention decisions typically involve probationary periods, such as for new hires or newly promoted supervisors. How does that work out? New supervisors must complete a 1-year probationary period. MSPB’s 2010 report, A Call to Action: Improving First-Level Supervision of Federal Employees, found that less than 0.5 percent of supervisors are removed from their supervisory position during probation. In MSPB’s 2005 report, The Probationary Period: A Critical Assessment Opportunity, MSPB reports that 1.6 percent of competitive service employees are removed from their jobs in the first year of service. Clearly, little is being done with respect to retention decisions.
• Removing. Since 2008, between 7,488 and 8,187 full-time, permanent federal employees have been removed for performance or misconduct reasons each year. The majority of those are for conduct. If less than two-tenths of 1 percent of employees are removed for performance reasons, it is safe to conclude the performance rating process is not working for making removal decisions.

Federal HR professionals who administer these systems do not claim they are great systems. Many will agree they are frustrating, difficult to administer, generate far too many grievances and appeals, too costly for the benefits they return, and generally not satisfactory. They recognize it is difficult to design a process to accomplish significant results with respect to people issues. They know it is next to impossible to design a successful process that accomplishes many conflicting goals all at once. Imagine how difficult it is to design a process that accomplishes outcomes that were not in the process designer’s minds during the design process.

The Swiss Army Knife approach to rating processes is almost certain to fail. Conflicting goals, inconsistent messaging and employee pushback are the result when we claim our rating processes can do everything.

The only way to design an effective rating process is to set limited, very clear goals for what it will accomplish. It requires the discipline to throw out the Swiss Army Knife approach, determine what outcomes are most needed by the organization and its people, and establish clear measures to determine whether the rating process actually does what it is designed to do.

* Cost estimates are based upon 1.84 million full-time permanent employees with an average salary of $78,469 and approximately 150,000 managers and supervisors with an average salary of approximately $90,000. Because supervisors and managers also are employees for purposes of performance ratings, they are included in the count of employees as well.

Copyright 2013 by Jeff Neal. All rights reserved.

Jeff Neal is founder of the blog, ChiefHRO.com, and a senior vice president for ICF International, where he leads the Organizational Research, Learning and Performance practice. Before coming to ICF, Neal was the chief human capital officer at the Department of Homeland Security and the chief human resources officer at the Defense Logistics Agency.

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