Whether a business model is built on gigabytes, interest rates or the latest innovations in aluminium siding, every company ultimately depends on its people – some more than others. Businesses of any size have stars that drive productivity and get results, but look beyond those high achievers – the break room might be one place to check – and you’ll find others who drag the company down with shoddy performance.
Despite many efforts, no one has been able to come up with a rating system that can reliably discern which companies are blessed with a deep bench of high performers and which brim with mediocrity. You certainly can’t tell simply by looking at the bottom line.
Pulakos cites a 2012 report that gathered more than 23,000 employee ratings from 40 companies and found no sign that ratings had any effect on profits or losses. “Performance ratings have no relation to organizational performance whatsoever,” she says.
The growing body of research questioning the value of performance reviews has encouraged many companies to rethink their approach. Dell, Microsoft, IBM and other big business names such as the Gap, Accenture and General Electric have ditched the process, a move at times fanfared in press releases and headlines. But a 2018 survey by the research firm World at Work found that 80% of companies still used formal performance reviews. “Behaviour change in organisations is really hard,” Pulakos says.
Out of 100 employees, there might be three or four who are struggling so mightily that they need an intervention or a career change. At the other end, there might be five or so excellent employees who should get special treatment because they drive the company’s success.
A 2012 study by Aguinis and co-author Ernest O’Boyle Jr. found that the top 1% of workers account for 10% of a company’s productivity. The hardworking, competent but unexceptional workers in between the extremes — Adler calls them “the Mighty Middle” — are going to make about the same contribution to a company’s bottom line regardless of how much time they spend in performance reviews.