Correcting for Grade Inflation on an Employee’s Annual Performance Review

January 13, 2015

It’s performance review season and time to kick off the New Year with formal staff feedback and goal setting for the upcoming calendar year.  But what if you find out that a manager on your team assigned the wrong overall grade to one of his employees?  Yes, it may seem hard to believe, but managers oftentimes inflate scores in order to avoid confrontation or otherwise attempt to “motivate” workers who aren’t performing at an acceptable level.

Grade inflation tends to be one of the greatest challenges throughout the performance review process because managers shoot themselves in the foot by assigning a passing grade when a failing grade would be more appropriate in light of the corrective action record that was put in place during the review year.  Then, when they ultimately try to terminate, their paper records work against them because the overall review validated an otherwise substandard performance year.  Here’s what it might look like on paper:

July 2014                    Documented verbal warning

August 2014               Written warning

November 2014         Final Written Warning

January 2015             Performance Review Overall Score: 3 (“Meets Expectations”)

February 2015             Manager recommends terminating employee for substandard job performance and/or inappropriate workplace conduct issues

Do you see the dilemma with the record that the manager inadvertently created here?  Despite the verbal, written, and final written warnings in the second half of the year, the overall score on the performance review reveals that the employee met expectations for the entire review period.  In that worker’s eyes, therefore, his job isn’t in jeopardy of being lost, and the review trumped the prior progressive disciplinary documents.  Terminating in February 2015 would be much more difficult because the last document on record confirms that the employee has been doing an acceptable job overall.

Battleships vs. PT Boats

You may ask, “Well, doesn’t all the corrective action count for anything?  Oh, and our company has a six month ‘active’ period for final written warnings, so we should be able to terminate at any time within that six-month window, shouldn’t we?”  Well, not so fast . . . First, understand that plaintiff attorneys will typically sell performance reviews to a jury as much heavier and weightier documents than written warnings.  After all, an annual review measures an entire year’s efforts and output, whereas a documented warning may simply result from one bad day in the office.

Therefore, expect plaintiff attorneys to position annual reviews like battleships in comparison to written warnings, which they’ll sell more like PT boats (i.e., much smaller and less significant employer interventions).  True, the purpose of those written warnings is to break the chain of positive reviews on file and create a new record that demonstrates that the individual is either unable or unwilling to do his job.  However, the plaintiff attorney will more likely than not focus on previous positive annual reviews (especially for longer-term employees), arguing that the series of corrective action notices that went out toward the end of that calendar year were atypical and clearly didn’t dissuade the supervisor from validating the individual’s entire year’s work and overall contributions.

The most practical solution in cases like this is to provide your managers with a simple guideline:  If you have anyone on your team who you suspect will probably not make it over the next year and whom you’ve disciplined during the previous review period, then assign an overall score to the performance review of either “partially meets expectations” or “fails to meet expectations.”  Because once you assign a “meets expectations” score, you’ll have placed a massive roadblock in your way in terms of your company’s ability to terminate (especially if that favorable annual review is the last record on file).

Dealing with the Current Problem of a Mis-assigned Grade

But what if you’ve already assigned the grade of 3 (“Meets Expectations”), communicated it verbally and in writing to the employee, and the individual already received a merit increase in a recent paycheck?  That’s always a sticky wicket, but you’ve basically got three choices:

(1) Say nothing because it’s too late to make any changes and may unnecessarily upset the worker.

(2) Reissue the review with a failing score and recoup the additional merit payments already made.

(3) Allow the employee to keep the money, but write an amendment letter for the record that documents that the review’s overall score was issued in error.

Under normal circumstances, either the second or third option typically makes the most sense.  After all, doing nothing about the problem and not even addressing the matter is short sighted, especially if you’re planning on moving to termination sometime in the near future.  But Option 3 may have better results than Option 2 because it appears to be fairer and less punitive: After all, trying to recoup the money under Option 2 may arguably smack of retaliatory action against the employee and could be considered to be in bad taste from a perception or corporate image standpoint.  (It was the company’s error, after all!)  But clarifying the record on paper under Option 3—while allowing the employee to benefit financially from the company’s mistake—shows the company to be wise, transparent, and constructive, which is always your goal when creating and correcting formal employee records.

If you opt to pursue this third option, then here’s a draft of what your written communication to the employee might look like:


The purpose of this letter is to establish a clear understanding of your path forward with our organization.

  • 2014 Annual Performance Review –The review you signed on 12/16/14 was completed erroneously by your immediate supervisor and delivered to you in error. Your performance rating for 2014 was entered at the “Meets Expectations” level, and you received a 2% merit increase.  However, as indicated by the numerous corrective actions that you received throughout the review year, and particularly in the last six months of 2014, the correct performance rating should have been a “Needs Improvement” score. As such, we wanted to take this opportunity to clarify the record.
  • Corrective Action Notices – You received three written warnings in various forms for failure to follow the directive of a supervisor and for insubordination, which occurred in July, August, and November 2014. This notice serves as a reminder that these corrective action items are still active in your employment record.  Furthermore, any future incidents of failing to follow the directive of a supervisor or otherwise engaging in inappropriate workplace conduct may result in further disciplinary action, up to and including dismissal. You are currently on a Final Written Warning, which remains active for six months from the date of issue on November 1st, 2014. This is your final opportunity to improve your conduct, or your position will be in immediate jeopardy of being lost.
  • 2014 Merit Increase Status – Your 2% increase will not be reversed or retracted.  However, the purpose of this memo is to clarify that your overall score for the 2014 review year was issued in error and that had it been issued correctly, you would not have been eligible for a merit increase this year.

In addition, as discussed with you during today’s meeting, I will remain available to help you and discuss areas where you require additional support. Please let me know what I can do to help you succeed in your role from this point forward.



Grade inflation occurs more often than you think, and companies have to find smart ways of clarifying the record and ensuring that employees have clear go-forward expectations when such errors are identified after the fact.  By correcting the record with a memorandum of understanding like the sample drafted above, you’ll not only have clarified the record in terms of the failing score: you’ll also have reset expectations regarding the final written warning remaining active, the individual’s job remaining in jeopardy, and the manager’s willingness and availability to help.  That approach will clearly place the company in the best light possible should you later need to terminate the individual’s employment despite the inflated annual review score.

You might also like Delivering Bad News in a Performance Appraisal. See also these books by Paul Falcone.

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Keeping your team honest helps you manage them better and keep them performing at the highest level. Learn more with these AMA resources and seminars.

About The Author

Paul Falcone is a human resources executive in Los Angeles and has held senior-level positions with Nickelodeon, Paramount Pictures, and Time Warner. He is the author of a number of AMACOM and SHRM bestselling books, four of which made SHRM's prestigious "Great 8" list: 96 Great Interview Questions to Ask Before You Hire, 101 Sample Write-Ups for Documenting Employee Performance Problems, 101 Tough Conversations to Have with Employees, and 2,600 Phrases for Effective Performance Reviews. His latest AMACOM book, 75 Ways for Managers to Hire, Develop, and Keep Great Employees, was released in 2016. Follow Paul on Twitter at @PaulFalconeHR and his website and blog at

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