Performance review rating and ranking defined

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One of the subjects I write about frequently is the performance review. Then I casually toss out ratings and rankings comments – but I’ve never really defined them.

The differences between the two, though are significant. Let’s take a look at the definitions – and implications.

Performance Review Rating defined

Most companies rate their employees on some sort of scale. It can be text (“meets expectations”) or numbers (“3”). The scale then goes from high to low (or, for that matter, from low to high…) where “1” is the best and “5” is the worst. Or “Needs immediate improvement” means you are almost out the door to “outstanding.”

Usually, the scale balances out like a bell-shaped curve with few people being the best, few people being the worst, and most people in the middle.

Rating implications

Ratings, besides indicating your work performance, also directly impact budgets and expense. That’s because people’s raises (assuming they are allowed given the economics…), bonuses, stock options, restricted stock awards and anything else relating to employee pay is based on ratings.

And the budget feeds into the ratings. If a manager only has $10,000 to provide for a bonus to his or her team, do you think that $10,000 is distributed equally? No. More of it goes to higher rated individuals. Usually none of it goes to anyone rated worse than “satisfactory” or “meets expectations.” One doesn’t reward individuals that need improvement.

Thus, ratings are used to put people’s performance into different buckets. Then money and stock are provided by the manager to people within those buckets.

Ranking defined

Ranking, on the other hand, is a strict numerical assignment of each individual person within a work group (which could also be across multiple managers). This assignment is from best to worst. If you have 14-people being ranked, your name is by a single, unique number somewhere between one and fourteen. Unlike ratings, there are no “buckets;” there is only your position within all people in the work group.

Rating implications

Rankings, like ratings, can also be used for budget purposes associated with the performance review. For example, let’s say a manager has 3-people rated “outstanding” and $6,000 to hand out as a performance bonus to that “outstanding” group.

Yes, the manager could give $2000 to each outstanding person. But if the manager has ranked his or her employees, the bonus could look like this instead:

Ranked 1: $3,000
Ranked 2: $2,000
Ranked 3: $1,000

Same $6,000, right? But now distributed differently.  Your rank of three in the group – even though all of you were rated “outstanding” — has cost you $2000. How you rate gets you into a budget category for your performance. Your rank can help or hurt your paycheck within that budget category.

The other way ranking is used is to determine who should be laid off from their position. This is the only layoff situation where your performance makes a difference as to whether or not you are the person laid off.  (The other two: if the company closes a site or shuts down a department and you happen to be in the site or the department, you’re gone no matter your rating or ranking).

So if a manager has ten employees and the company says you need to reduce your headcount by 20%, the people ranking numbers nine and ten are out the door. One through eight are “safe.” Whatever safe is these days…

Bonus tip:

Make sure you understand how your manager is talking about your performance – is it your rating? Or your ranking?

A great question to ask during your performance review meeting after getting your rating – “What’s my ranking in the work group?” The answer will  tell you if your manager ranks. Plus tell you where your contribution is perceived to be for the group.

How’s your rating and ranking doing this year?

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