2078781 - Rating Scales Best Practices - Performance Management

• This KB article explains why you should use a rating scale and the best point spread recommended.
• Why is a 5-point scale the best choice?

SAP SuccessFactors Performance Management

Why use a numeric scale at all?

• A numeric scale is preferred over a text/verbal scale because it’s more consistent, quantifiable, and uses a standard metric (numbers) that can be applied in exactly the same way to multiple employees.
• Text scales introduce too much vagueness into an evaluation. People can use different words to describe the same level of accomplishment, or choose words that can be perceived as excessively positive or negative, which make it difficult to compare employee performance.
• Numeric scales clearly define what each rating means, so the rating is universally understood by both the evaluator and employee.
• Additionally, numeric scales are quantifiable, which allows you to compare all ratings to determine how performance is distributed across the entire workforce (that is, percentage of employees over-performing, under-performing, or meeting expectations), and if necessary calibrate the distribution.
• Numeric scales also provide justification for pay-for-performance decisions because the standardized ratings allow you to compare and rank employee performance. 

Why use a 5-point scale?

• The greatest advantage of using a 5 point rating scale is that it has a midpoint and allows for just enough differentiation without introducing scores that are too close to be of much value. In a 5 point scale, 3 is a neutral midpoint. One score up means better, two scores up means best. 
• With a 7 point scale, there’s too much differentiation. The extra scores aren’t as clearly defined based on the midpoint. Evaluators must artificially determine for themselves how much better that neutral and how much less than best each extra scores means, which introduces inconsistencies. 
• In contrast, a 3 point scale doesn’t allow for enough differentiation. The evaluator can only choose either neutral or best, which completely leaves out potential better scores, introducing inaccuracies. This rating scale often results in too many employees rated as neutral. 
• A 4-point scale lacks a neutral midpoint, forcing evaluations to be lopsided towards one end or the other. Generally, evaluations veer toward the high end, resulting in excessive positive evaluations.

The following is a typical recommended guideline for a 5 point scale distribution across a large organization (1000 or more employees):

1s and 2s (does not meet expectations): 5% to 10%
3s (solid performer): 40%
4s (high performer): 30% to 45%
5s (exceptional performer): 10%

• A recommended use for a 5-point scale is to treat the 1 and 5 as exclamation points which means a discussion should take place immediately and the need for action is imminent. All employees who are rated a 1 are candidates to be aggressively worked out of the organization “there is SUCH a problem here we should probably act now”.
• Conversely, employees rated as a 5 are “so good – this person is one of the best I have seen; we should aggressively plan for this person’s future here”. The key is to create real implications for managers who chose to rate employees as 1s or 5s. You can’t just rate them and leave them as is.

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