Should we officially praise the top performers and tell the laggards that they should shape up? Telling the truth through differentiated performance evaluations should help motivate employees who are falling behind to put in their best efforts. On the other hand, being harsh on low-performing employees could further demotivate them.
So, what works best to improve employee performance? The naked truth or sugarcoating it?
A series of research articles reviewed in Kampkoetter and Sliwka gives us some guidance on the topic based on academic research.
Here are three lessons we can glean from their results:
1. In general, more differentiation in performance ratings increases employees’ performance.
The evidence shows that, typically, the vast majority of employees get the same performance rating. Yet, several studies have shown that teams with managers who deliver widely varied performance ratings experience higher overall employee performance. This suggests that, even though harsh ratings have the potential to reduce performance, the overall effect on the team’s performance is positive. HR managers should therefore consider introducing “grading on a curve,” especially in large enough teams. If teams are small, pooled evaluations where managers jointly rank their subordinates can help with grading on a curve.
2. differentiation in performance ratings can hurt performance through sabotage.
There are also cases, however, in which an increase in differentiation has decreased performance, and this is particularly true for lower-level occupations. One potential explanation for this negative effect is sabotage, i.e,. employees trying to improve their relative rank by betraying their co-workers. To test the relevance of this concern, researchers have performed an experiment in a lab. In the experiment, they made it possible for employees to hinder the performance of co-workers by paying a small cost to the employees’ own performance. The results of this experiment confirm that employees are more likely to engage in sabotage when performance evaluations are more differentiated. The lesson for HR managers is that differentiation in performance ratings should be limited when the opportunities for employees sabotaging each other are plentiful. Or that one should be particularly wary of sabotage when performance ratings are highly differentiated.
3. Differentiation in performance ratings works better when objective performance is easier to measure.
Another insight from the research is that differentiation is more conducive to performance if there are more objective performance measures managers can use. If there are limited objective elements to base the performance evaluation on, employees are more likely to feel managers are treating them unfairly by giving them low ratings. Therefore, whenever possible, making objective elements available for the manager to discuss will contribute to performance appraisals improving rather than sapping employee morale and performance.