Performance appraisals take place in every organization whether there is a formal program or not. Managers are constantly observing the way their employees carry out their assignments and thereby forming impressions about the relative worth of these employees to the organization. Most organizations, however, do seem to use a formal program.
The success or failure of a performance appraisal program depends on the philosophy underlying it and the attitudes and skills of those responsible for its administration. Many different methods can be used to gather information about employee performance. However, gathering information is only the first step in the appraisal process. The information must then be evaluated in the context of organizational needs and communicated to employees so that it will result in high levels of performance.
Performance Appraisal Programs
Formal programs for performance appraisal and merit ratings are by no means new to organizations. The federal government began evaluating employees in 1842, when Congress passed a law mandating yearly performance reviews for department clerks. From this early beginning, performance appraisal programs have spread to large and small organizations in both the public and private sectors. Advocates see these HR programs as among the most logical means to appraise, develop, and thus effectively utilize the knowledge and abilities of employees. However, a growing number of observers point out that performance appraisals frequently fall short of their potential.
Recent interest in total-quality management (TQM), for example, has caused numerous organizations to rethink their approach to performance appraisal. The late W. Edward Deming, a pioneer in TQM, identified performance appraisal as one of seven deadly diseases of U.S. management. While most managers still recognize the benefits of performance appraisal, TQM challenges some long-standing assumptions about how it should be conducted. Motorola, General Motors, and Digital, for example, have modified their appraisal systems to better acknowledge quality of performance (in addition to quantity), teamwork (in addition to individual accomplishments), and process improvements (in addition to performance outcomes).
Purposes of Performance Appraisal
A performance appraisal program can serve many purposes that benefit both the organization and the employee. The Travelers Insurance Company has the following objectives for its performance appraisal program. They are similar to the objectives of other organizations.
1. To give employees the opportunity to discuss performance and performance standards regularly with their supervisor
2. To provide the supervisor with a means of identifying the strengths and weaknesses of an employee's performance
3. To provide a format enabling the supervisor to recommend a specific program designed to help an employee improve performance
4. To provide a basis for salary recommendations
The list below shows the most common uses of performance appraisals. In general, these can be classified as either administrative or developmental.
USES OF PERFORMANCE APPRAISAL
Identification of individual strengths and weaknesses
Documentation of personnel decisions
Recognition of individual performance
Determination of promotion
Identification of poor performance
Assistance in goal identification
Decision in retention or termination
Evaluation of goal achievement
Meeting legal requirements
Determination of transfers and assignments
Decision on layoffs
Identification of individual training needs
Determination of organizational training needs
Reinforcement of authority structure
Identification of organizational development needs
Establishment of criteria for validation research
Evaluation of personnel systems
From the standpoint of administration, appraisal programs provide input that can be used for the entire range of HRM activities. For example, research has shown that performance appraisals are used most widely as a basis for compensation decisions. The practice of “pay-for-performance” is found in all types of organizations.
Performance appraisal is also directly related to a number of other major HR functions, such as promotion, transfer, and layoff decisions. Performance appraisal data may also be used in HR planning, in determining the relative worth of jobs under a job evaluation program, and as criteria for validating selection tests.
Performance appraisals also provide a “paper trail” for documenting HRM actions that may result in legal action. Because of government EEO/AA directives, employers must maintain accurate, objective records of employee performance in order to defend themselves against possible charges of discrimination in connection with such HRM actions as promotion, salary determination, and termination.
Finally, it is important to recognize that the success of the entire HR program depends on knowing how the performance of employees compares with the goals established for them. This knowledge is best derived from a carefully planned and administered HR appraisal program. Appraisal systems have the capability to influence employee behavior, thereby leading directly to improved organizational performance.
From the standpoint of individual development, appraisal provides the feedback essential for discussing strengths and weaknesses as well as improving performance. Regardless of the employee’s level of performance, the appraisal process provides an opportunity to identify issues for discussion, eliminate any potential problems, and set new goals for achieving high performance.
Newer approaches to performance appraisal emphasize training as well as development and growth plans for employees. A developmental approach to appraisal recognizes that the purpose of a manager is to improve job behavior, not simply to evaluate past performance. Having a sound basis for improving performance is one of the major benefits of an appraisal program.
Reasons Appraisal Programs Sometimes Fail
In actual practice, and for a number of reasons, formal performance appraisal programs sometimes yield disappointing results. The primary culprits include lack of top-management information and support, unclear performance standards, rater bias, too many forms to complete, and use of the program for conflicting purposes.
For example, if an appraisal program is used to provide a written appraisal for salary action and at the same time to motivate employees to improve their work, the administrative and developmental purposes may be in conflict. As a result, the appraisal interview may become a discussion about salary in which the manager seeks to justify the action taken. In such cases, the discussion might have little influence on the employee's future job performance.
TOP 10 REASONS PERFORMANCE APPRAISALS CAN FAIL
Manager lacks information concerning an employee’s actual performance.
Standards by which to evaluate an employee’s performance are unclear.
Manager does not take the appraisal seriously.
Manager is not prepared for the appraisal review with the employee.
Manager is not honest/sincere during the evaluation.
Manager lacks appraisal skills.
Employee does not receive ongoing performance feedback.
Insufficient resources are provided to reward performance.
There is ineffective discussion of employee development.
Manager uses unclear/ambiguous language in the evaluation process.
Other reasons why performance appraisal programs can fail to yield the desired results include the following:
Managers feel that little or no benefit will be derived from the time and energy spent in the process.
Managers dislike the face-to-face confrontation of appraisal interviews.
Managers are not sufficiently adept in providing appraisal feedback.
The judgmental role of appraisal conflicts with the helping role of developing employees.
Performance appraisal at many organizations is a once-a-year activity in which the appraisal interview becomes a source of friction for both managers and employees. An important principle of performance appraisal is that continual feedback and employee coaching must be a positive “daily” activity. The annual or semiannual performance review should simply be a logical extension of the day-to-day supervision process.
One of the main concerns of employees is the fairness of the performance appraisal system, since the process is central to so many HRM decisions. Employees who believe the system is unfair may consider the appraisal interview a waste of time and leave the interview with feelings of anxiety or frustration. Also, they may view compliance with the appraisal system as perfunctory and thus play only a passive role during the interview process. By addressing these employee concerns during the planning stage of the appraisal process, the organization will help the appraisal program to succeed in reaching its goals.
Developing an Effective Appraisal Program
The HR department ordinarily has the primary responsibility for overseeing and coordinating the appraisal program. Managers from the operating departments must also be actively involved, particularly in helping to establish the objectives for the program. Furthermore, employees are more likely to accept and be satisfied with the performance appraisal program when they have the chance to participate in its development. Their concerns about fairness and accuracy in determining raises, promotions, and the like tend to be alleviated somewhat when they have been involved at the planning stage and have helped develop the performance standards themselves.
Establishing Performance Standards
Before any appraisal is conducted, the standards by which performance is to be evaluated should be clearly defined and communicated to the employee. These standards should be based on job-related requirements derived from job analysis and reflected in the job descriptions and job specifications. When performance standards are properly established, they help translate organizational goals and objectives into job requirements that convey acceptable and unacceptable levels of performance to employees.
In establishing performance standards, there are four basic considerations: strategic relevance, criterion deficiency, criterion contamination, and reliability.
This refers to the extent to which standards relate to the strategic objectives of the organization. For example, if a TQM program has established a standard that “95 percent of all customer complaints are to be resolved in one day,” then it is relevant for the customer service representatives to use such a standard for their evaluations. Companies such as 3M and Rubbermaid have strategic objectives that 25 to 30 percent of their sales are to be generated from products developed within the past five years. These objectives are translated into performance standards for their employees.
A second consideration in establishing performance standards is the extent to which the standards capture the entire range of an employee’s responsibilities. When performance standards focus on a single criterion (e.g., sales revenues) to the exclusion of other important but less quantifiable performance dimensions (e.g., customer service), then the appraisal system is said to suffer from criterion deficiency.
Just as performance criteria can be deficient, they can also be contaminated. There are factors outside an employee's control that can influence his or her performance. A comparison of performance of production workers, for example, should not be contaminated by the fact that some have newer machines than others. A comparison of the performance of traveling salespersons should not be contaminated by the fact that territories differ in sales potential.
Reliability refers to the stability or consistency of a standard, or the extent to which individuals tend to maintain a certain level of performance over time. In ratings, reliability may be measured by correlating two sets of ratings made by a single rater or by two different raters. For example, two managers may rate the same individual and estimate his or her suitability for a promotion. Their ratings could be compared to determine interrater reliability.
Performance standards will permit managers to specify and communicate precise information to employees regarding quality and quantity of output. Therefore, when performance standards are written, they should be defined in quantifiable and measurable terms.
For example, “ability and willingness to handle customer orders” is not as good a performance standard as “all customer orders will be filled in 4 hours with a 98 percent accuracy rate.” When standards are expressed in specific, measurable terms, comparing the employee's performance against the standard results in a more justifiable appraisal.
Complying with the Law
Since performance appraisals are used as one basis for HRM actions, they must meet certain legal requirements. Performance appraisals are subject to the same validity criteria as selection procedures. As the courts have made clear, a central issue is to have carefully defined and measurable performance standards.
In light of recent court rulings, performance appraisals should meet the following legal guidelines:
Performance ratings must be job-related, with performance standards developed through job analysis.
Employees must be given a written copy of their job standards in advance of appraisals.
Managers who conduct the appraisal must be able to observe the behavior they are rating. This implies having a measurable standard with which to compare employee behavior.
Supervisors should be trained to use the appraisal form correctly. They should be instructed in how to apply appraisal standards when making judgments.
Appraisals should be discussed openly with employees and counseling or corrective guidance offered to help poor performers improve their performance.
An appeals procedure should be established to enable employees to express disagreement with the appraisal.
To comply with the legal requirements of performance appraisals, employers must ensure that managers and supervisors document appraisals and reasons for subsequent HRM actions. This information may prove decisive should an employee take legal action. An employer’s credibility is strengthened when it can support performance appraisal ratings by documenting instances of poor performance.
Deciding Who Should Appraise Performance
Just as there are multiple standards by which to evaluate performance, there are also multiple candidates for appraising performance. Given the complexity of today’s jobs, it is often unrealistic to presume that one person can fully observe and evaluate an employee’s performance. Companies such as US West, Westinghouse, and The Walt Disney Company have begun to use multiple-rater approaches to performance evaluation. These raters may include supervisors, peers, team members, self, subordinates, and customers.
Manager and/or supervisor appraisal has traditionally been the method of evaluating a subordinate’s performance. In most instances they are in the best position to perform this function, although it may not always be possible for them to do so. Managers often complain that they do not have the time to fully observe the performance of employees. The result is a less-than-objective appraisal. These managers must then rely on performance records or on the observations of others to complete the appraisal.
Manager and/or supervisor appraisal
Performance appraisal done by an employee’s
manager and often reviewed by a
manager one level higher
Where a supervisor appraises employees independently, provision is often made for a review of the appraisals by the supervisor’s superior. Having appraisals reviewed by a supervisor’s superior reduces the chance of superficial or biased evaluations. Reviews by superiors generally are more objective and provide a broader perspective of employee performance than do appraisals by immediate supervisors.
Sometimes employees are asked to evaluate themselves on a self-appraisal form. Self-appraisals are beneficial when managers seek to increase employees’ involvement in the review process. A self-appraisal system requires an employee to complete the appraisal form prior to the performance interview. At a minimum, this gets the employee thinking about his or her strengths and weaknesses and may lead to discussions about barriers to effective performance.
Performance appraisal done by the employee being
evaluated, generally on an appraisal form completed by
the employee prior to the performance interview
During the performance interview, the manager and the employee discuss job performance and agree on a final appraisal. This approach also works well when the manager and the employee jointly establish future performance goals or employee development plans.
Critics of self-appraisal argue that self-raters are more lenient than managers in their assessments and tend to present themselves in a highly favorable light. For this reason, self-appraisals may be best for developmental purposes rather than for administrative decisions. Used in conjunction with other methods, self-appraisals can be a valuable source of appraisal information.
Subordinate appraisal has been used in companies such as Xerox and IBM to give managers feedback on how their subordinates view them. Subordinates are in a good position to evaluate their managers since they are in frequent contact with their superiors and occupy a unique position from which to observe many performance-related behaviors. Those performance dimensions judged most appropriate for subordinate appraisals include leadership, oral communication, delegation of authority, coordination of team efforts, and interest in subordinates. However, dimensions related to managers’ specific job tasks, such as planning and organizing, budgeting, creativity, and analytical ability, are not usually seen as appropriate for subordinate appraisal.
Performance appraisal of a superior by an employee,
which is more appropriate for developmental than
for administrative purposes
Since subordinate appraisals give employees power over their bosses, the managers themselves may be hesitant to endorse such a system, particularly when it might be used as a basis for compensation decisions. However, when the information is used for developmental purposes, managers tend to be more open to the idea. Nevertheless, to avoid potential problems, subordinate appraisals should be submitted anonymously and combined across several individual raters.
Individuals of equal rank who work together are increasingly asked to evaluate each other. A peer appraisal provides information that differs to some degree from ratings by a superior, since peers often see different dimensions of performance. Peers can readily identify leadership and interpersonal skills along with other strengths and weaknesses of their co-workers. A superior asked to rate a patrol officer on a dimension such as “dealing with the public” may not have had much opportunity to observe it. Fellow officers, on the other hand, have the opportunity to observe this behavior regularly.
Performance appraisal done by one’s fellow employees,
generally on forms that are compiled into a single profile
for use in the performance interview conducted by
the employee’s manager
One advantage of peer appraisals is the belief that they furnish more accurate and valid information than appraisals by superiors. The supervisor often sees employees putting their best foot forward, while those who work with their fellow employees on a regular basis may see a more realistic picture. With peer appraisals, co-workers complete an evaluation on the employee. The forms are then usually compiled into a single profile, which is given to the supervisor for use in the final appraisal.
Despite the evidence that peer appraisals are possibly the most accurate method of judging employee behavior, there are reasons why they have not been used more frequently. The reasons commonly cited include the following:
1. Peer ratings are simply a popularity contest.
2. Managers are reluctant to give up control over the appraisal process.
3. Those receiving low ratings might retaliate against their peers.
4. Peers rely on stereotypes in ratings.
When peers are in competition with one another, such as with sales associates, peer appraisals may not be advisable for administrative decisions such as salary or bonuses. Employers using peer appraisals must also be sure to safeguard confidentiality in handling the review forms. Any breach of confidentiality can create interpersonal rivalries or hurt feelings and bring about hostility among fellow employees.
An extension of the peer appraisal is the team appraisal. While peers are on equal standing with one another, they may not work closely together. In a team setting, it may be nearly impossible to separate out an individual’s contribution. Advocates of team appraisal argue that, in such cases, individual appraisal can be dysfunctional since it detracts from the critical issues of the team. To address this issue, organizations such as General Foods, General Motor’s Cadillac division, and Digital have begun developing team appraisals to evaluate the performance of the team as a whole.
Performance appraisal, based on TQM concepts, that
recognizes team accomplishment rather
than individual performance
A company’s interest in team appraisals is frequently driven by its commitment to TQM principles and practices. At its root, TQM is a control system that involves setting standards (based on customer requirements), measuring performance against those standards, and identifying opportunities for continuous improvement. In this regard TQM and performance appraisal are perfectly complementary.
A basic tenet of TQM is that performance is best understood at the level of the system as a whole, whereas performance appraisal traditionally has focused on individual performance. Team appraisals represent one way to break down barriers between individuals and encourage their collective effort. Frequently, the system is complemented by use of team incentives or group variable pay.
Also driven by TQM concerns, an increasing number of organizations use internal and external customer appraisal as a source of performance appraisal information. External and internal customers' evaluations are used for some time to appraise personnel. This evaluation incorporates salespeople, customer service, and the support departments.
Performance appraisal, which, like team
appraisal, is based on TQM concepts and seeks
evaluation from both external and internal customers
In contrast to external customers, internal customers include anyone inside the organization who depends upon an employee’s work output. For example managers who rely on the HR department for selection and training services would be candidates for conducting internal customer evaluations. For both developmental and administrative reasons, internal customers can provide extremely useful feedback about the value added by an employee or team of employees.
A weakness of many performance appraisal programs is that managers and supervisors are not adequately trained for the appraisal task and provide little meaningful feedback to subordinates. Because they lack precise standards for appraising subordinates' performance and have not developed the necessary observational and feedback skills, their appraisals often become nondirective and meaningless. Therefore, training appraisers can vastly improve the performance appraisal process.
Establishing an Appraisal Plan
Training programs are most effective when they follow a systematic process that begins with an explanation of the objectives of the performance appraisal system. It is important for the rater to know the purpose for which the appraisal is to be used. For example, using the appraisal for compensation decisions rather than development purposes may affect how the rater evaluates the employee, and it may change the rater’s opinion of how the appraisal form should be completed.
The mechanics of the rating system should also be explained, including how frequently the appraisals are to be conducted, who will conduct them, and what the standards of performance are. In addition, appraisal training should alert raters to the weaknesses and problems of appraisal systems so they can be avoided.
Eliminating Rater Error
Appraisal training should focus on eliminating the subjective errors made by managers in the rating process.
With any rating method, certain types of errors can arise that should be considered. The “halo error” is also common with respect to rating scales, especially those that do not include carefully developed descriptions of the employee behaviors being rated. Provision for comments on the rating form tends to reduce halo error.
Some types of rating errors are distributional errors in that they involve a group of ratings given across various employees. For example, raters who are reluctant to assign either extremely high or extremely low ratings commit the error of central tendency. In this case, all employees are rated about average. To such raters it is a good idea to explain that, among large numbers of employees, one should expect to find significant differences in behavior, productivity, and other characteristics.
Error of central tendency
Performance-rating error in
which all employees are rated
In contrast to central tendency errors, it is also common for some raters to give unusually high or low ratings. For example, a manager may erroneously assert, “All my employees are excellent” or “None of my people are good enough.” These beliefs give rise to what is called leniency or strictness error. One way to reduce this error is to clearly define the characteristics or dimensions of performance, and to provide meaningful descriptions of behavior, known as anchors, on the scale.
Leniency or strictness error
Performance-rating error in which the
appraiser tends to give employees either
unusually high or unusually low ratings
Another approach is to require ratings to conform to a forced distribution. Managers appraising employees under a forced-distribution system would be required to place a certain percentage of employees into various performance categories. For example, it may be required that 10 percent of ratings be poor (or excellent). This is similar to the requirement in some schools that instructors grade on a curve.
Some rating errors are temporal in that the performance review is biased either favorably or unfavorably, depending on the way performance information is selected, evaluated, and organized by the rater over time. For example, when the appraisal is based largely on the employee’s recent behavior, good or bad, the rater has committed the recency error.
Performance-rating error in which the appraisal
is based largely on the employee’s most recent
behavior rather than on behavior throughout
the appraisal period
Managers who give higher ratings because they believe an employee is “showing improvement” may unwittingly be committing recency error. Without work-record documentation for the entire appraisal period, the rater is forced to recall recent employee behavior to establish the rating. The recency error can be minimized by having the rater routinely document employee accomplishments and failures throughout the whole appraisal period. Rater training also will help reduce this error.
Contrast error occurs when an employee’s evaluation is biased either upward or downward because of another employee’s performance who was just evaluated previously. For example, an average employee may appear especially productive when compared with a poor performer. However, that same employee may appear unproductive when compared with a star performer.
Performance-rating error in which an employee’s
evaluation is biased either upward or downward because
of comparison with another employee just previously evaluated
Contrast errors are most likely when raters are required to rank employees in order from the best to the poorest. Employees are evaluated against one another, usually on the basis of some organizational standard or guideline. For example, they may be compared on the basis of their ability to meet production standards or their “overall” ability to perform their job. As with other types of rating error, contrast error can be reduced through training that focuses on using objective standards and behavioral anchors to appraise performance.
Similar-to-me error occurs when appraisers inflate the evaluations of people with whom they have something in common. For example, if both the manager and the employee are from small towns, the manager may unwittingly have a more favorable impression of the employee. The effects of a similar-to-me error can be powerful, and when the similarity is based on race, religion, gender, or some other protected category, it may result in discrimination.
Performance-rating error in which an appraiser
inflates the evaluation of an employee because
of a mutual personal connection
A host of organizations such as Sears, Weyerhauser, and Allied Chemical have developed formal training programs to reduce the subjective errors commonly made during the rating process. This training can pay off, particularly when participants have the opportunity to (1) observe other managers making errors, (2) actively participate in discovering their own errors, and (3) practice job-related tasks to reduce the errors they tend to make.
Finally, a training program for raters should provide some general points to consider for planning and conducting the feedback interview. The interview not only provides employees with knowledge of results of their evaluation, but it allows the manager and employee to discuss current problems and set future goals. Training in specific skills should cover at least three basic areas: (1) communicating effectively, (2) diagnosing the root causes of performance problems, and (3) setting goals and objectives.
A checklist can be used to assist supervisors in preparing for the appraisal interview. A checklist suggested by AT&T is shown below. The AT&T checklist reflects the growing tendency of organizations to have employees assess their own performance prior to the appraisal interview.
SUPERVISOR’S CHECKLIST FOR
1. Schedule the review and notify the employee ten days or two weeks in advance.
2. Ask the employee to prepare for the session by reviewing his or her performance, job objectives, and development goals.
3. Clearly state that this will be the formal annual performance appraisal.
Preparing for the Review
1. Review the performance documentation collected throughout the year. Concentrate on work patterns that have developed.
2. Be prepared to give specific examples of above- or below-average performance.
3. When performance falls short of expectations, determine what changes need to be made. If performance meets or exceeds expectations, discuss this and plan how to reinforce it.
After the appraisal is written, set it aside for a few days and then review it again.
Follow whatever steps are required by your organization's performance appraisal system.
Conducting the Review
1. Select a location that is comfortable and free of distractions. The location should encourage a frank and candid conversation.
2. Discuss each item in the appraisal one at a time, considering both strengths and shortcomings.
3. Be specific and descriptive, not general or judgmental. Report occurrences rather than evaluating them.
4. Discuss your differences and resolve them. Solicit agreement with the evaluation.
5. Jointly discuss and design plans for taking corrective action for growth and development.
6. Maintain a professional and supportive approach to the appraisal discussion.