Reference no: EM131691364

General Electric Co. is getting rid of ratings.

The industrial giant's salaried employees will no longer be given one of five labels--ranging from "role model" to "unsatisfactory"--as part of their annual performance review. The changes, to be announced to employees Tuesday, breaks with a system GE has used in some form or another for the last 40 years.

Chief Executive Jeffrey Immelt is undertaking a bid to refocus on the company's core industrial business. To spur these efforts, GE has spent the past few years reimagining the way its 310,000 employees work, placing new emphasis on experimentation and risk-taking. A new performance-management system asks employees and managers to exchange frequent feedback via a mobile app called PD@GE, in person or by phone. The messages are compiled into a performance summary at the end of the year.

For GE, a longtime standard-bearer for corporate management, the shift reflects the realities of a new work climate in which employees expect more feedback from bosses and peers--companies, in turn, expect employees to act quickly on that feedback.

Numerous firms, including Goldman Sachs Group Inc., have recently dropped employee ratings, citing evidence that boiling a year of performance down to a single category does more harm than good for many. Yet, such ratings remain the norm for most workers. Consultancy Aon Hewitt found that 90% of 880 surveyed tech employers in a recent survey used performance ratings, with a small minority considering ending the practice. Roughly 30,000 GE employees have tried rating-free reviews in the last couple of years. An internal study found that bosses could dole out pay and promotions effectively, and employees and managers preferred the new approach. At a meeting last month, about a dozen senior executives finally decided to dispense with the past practice.

Scrapping ratings "led to more meaningful, richer conversations that were not getting distracted by...a label," said Janice Semper, a GE human-resources executive. She adds that the changes apply to GE's 200,000 salaried employees. Hourly workers may eventually be included if labor contracts allow.

Without ratings, pay and bonus decisions may become more nuanced, according to company leaders. Though high performers can still be rewarded with annual raises and bonuses, managers can make finer distinctions among employees who fall in the middle of the spectrum. Managers say more detailed feedback may spur middle-of-the-road employees to aim higher.

GE shook up the way it evaluated performance about a decade ago, when it dropped its well-known forced ranking system. The rankings, favored by longtime CEO Jack Welch, asked managers to grade employees against one another, with those in the bottom 10% encouraged to leave the company.

Some employees may be happier without ratings, but research suggests managers have a trickier task. A survey of 9,000 managers and employees by advisory firm CEB found that the employees felt the quality of review conversations suffered significantly , because managers struggled to explain to workers how they performed in the past and provide specific steps for improvement.

GE executives said the company is training managers to improve regular feedback conversations. Managers acknowledged that some employees may prefer the simplicity and familiarity of the old categories.

A rating "really oversimplifies something that is much more complicated," said Brian Finken, a Florence, Italy- based operations leader in GE's oil and gas business, adding that "some people get obsessed with the score," focusing more on the category than on the review discussion.

Mr. Finken, who oversees seven direct reports, says he's "glad I don't have to spend time codifying feedback into one score. I can focus on the conversation instead."

In keeping with GE's new style, Susan Peters, the company's HR chief, will announce the shift to employees via a message on the PD@GE app.

Write to Rachel Emma Silverman at

1-What type of performance management system did GE used to use? Define the performance management system and use evidence from the article to illustrate that type of performance management.

2-What type of performance management system is GE using now? Define the performance management system and use evidence from the article to illustrate that type of performance management.

3-What are some of the advantages of the new performance management system?