PERFORMANCE APPRAISAL AND
Performance appraisal is a process by which organizations evaluate employee performance based on preset standards. The main purpose of appraisals is to help managers effectively staff companies and use human resources, and, ultimately, to improve productivity. When conducted properly, appraisals serve that purpose by: (1) showing employees how to improve their performance, (2) setting goals for employees, and (3) helping managers to assess subordinates' effectiveness and take actions related to hiring, promotions, demotions, training, compensation, job design, transfers, and terminations.
In the early part of this century performance appraisals were used in larger organizations mostly for administrative purposes, such as making promotions and determining salaries and bonuses. Since the 1960s, however, companies and researchers have increasingly stressed the use of employee evaluations for motivational and organizational planning purposes. Indeed, for many companies performance appraisal has become an important tool for maximizing the effectiveness of all aspects of the organization, from staffing and development to production and customer service.
That shift of focus was accompanied during the 1970s, 1980s, and 1990s by a number of changes in the design and use of appraisals. Those changes reflected new research and attitudes about organizational behavior and theory. In general, employee evaluation systems have recognized the importance of individual needs and cultural influences in achieving organizational objectives. For example, traditional appraisal systems were often closed, meaning that individuals were not allowed to see their own reports. Since the mid-1900s, most companies have rejected closed evaluations in favor of open appraisals that allow workers to benefit from criticism and praise.
Another change in appraisal techniques since the mid-1900s has been a move toward greater employee participation. This includes self-analysis, employee input into evaluations, feedback, and goal setting by workers. Appraisal systems have also become more results-oriented, which means that appraisals are more focused on a process of establishing benchmarks, setting individual objectives, measuring performance, and then judging success based on the goals, standards, and accomplishments. Likewise, appraisals have become more multifaceted, incorporating a wide range of different criteria and approaches to ensure an effective assessment process and to help determine the reasons behind employees' performance.
Performance appraisals and standards have also reflected a move toward decentralization. In other words, the responsibility for managing the entire appraisal process has moved closer to the employees who are being evaluated; whereas past performance reviews were often developed and administered by centralized human resources departments or upper-level managers, appraisals in the 1990s were much more likely to be conducted by line managers directly above the appraisee. Because of the movement toward more decentralized approaches, performance appraisals also began to involve not only lower-level managers, but also coworkers and even customers. Known as multirater feedback or 360 degree feedback, this form of performance appraisal uses confidential assessments from customers, managers, coworkers, and the individual employees themselves. Furthermore, the appraisal process has become increasingly integrated into complementary organizational initiatives, such as training and mentoring.
In addition to reflecting new ideas about personal needs and cultural influences, performance appraisal systems evolved during the late 1900s to meet strict new federal regulations and to conform to labor union demands. A flurry of legislation during the 1970s and 1980s, for example, prohibited the use of performance appraisals to discriminate against members of selected minority groups. Other laws established restrictions related to privacy and freedom of information. The end result of new laws and labor demands was that companies were forced to painstakingly design and document their appraisal programs to avoid costly disputes and litigation.
Finally, with the booming economy in the late 1990s, many managers throughout the country began to move away from performance appraisals, according to Marilyn Moats Kennedy in Across the Board. Because of high employee turnover during this period, managers felt that conducting performance appraisals was not worth the effort since appraisals have the potential to irritate and drive off badly needed employees and since employees' time at a company might be short-lived. Moats argued, however, that managers should continue to conduct appraisals to assess and retain competent employees, because appraisals inform employees of how they can improve their skills, how they can advance within a company, and how their skills have improved (or failed to improve) over time.
Competent appraisal of individual performance in an organization or company serves to improve the overall effectiveness of the entity. According to D. McGregor, author of The Human Side of Enterprise, the three main functional areas of performance appraisal systems are: administrative, informative, and motivational. Appraisals serve an administrative role by facilitating an orderly means of determining salary increases and other rewards, and by delegating authority and responsibility to the most capable individuals. The informative function is fulfilled when the appraisal system supplies data to managers and appraisees about individual strengths and weaknesses. Finally, the motivational role entails creating a learning experience that motivates workers to improve their performance. When effectively used, performance appraisals help employees and managers establish goals for the period before the next appraisal.
Appraisees, appraisers (managers), and companies all reap benefits from effective performance appraisals. Appraisees benefit in a number of ways; for example, they discover what is expected of them and are able to set goals. They also gain a better understanding of their faults and strengths and can adjust behavior accordingly. In addition, appraisals create a constructive forum for providing feedback to workers about individual behavior, and for allowing workers to provide input to their managers. Finally, appraisees are (ideally) given assistance in creating plans to improve behavior, and are able to get a better grasp on the goals and priorities of the company.
Appraisers gain from evaluations as well. They are able to effectively identify and measure trends in the performance of their employees, and to more accurately compare subordinates. They also get a better understanding of their workers' needs and expectations. Managers are able to use the information to assist their subordinates in planning long-term and short-term goals and career objectives, and to tailor their job responsibilities to make fuller use of their skills. Importantly, the appraisal process helps managers to make informed decisions about promotions and assignments based on applicable facts.
Chief benefits that can accrue to the entire organization from the appraisal process include: improved communication, which results in more cooperation and better decision making; greater staff motivation; and a more informed and productive workforce, which leads to a greater organizational focus on comprehensive goals. Specifically, the performance appraisal process allows the organization to achieve a more productive division of labor, develop training and education programs, eliminate bias and irrelevant data from evaluations and decisions, and design effective compensation and reward systems.
Most effective systems of appraising performance are: (1) pragmatic, (2) relevant, and (3) uniform. Pragmatism is important because it helps to ensure that the system will be easily understood by employees and effectively put into action by managers. Appraisal structures that are complex or impractical tend to result in confusion, frustration, and nonuse. Likewise, systems that are not specifically relevant to the job may result in wasted time and resources. Indeed, most successful appraisal programs identify and evaluate only the critical behaviors that contribute to job success. Systems that miss those behaviors are often invalid, inaccurate, and result in discrimination based on nonrelated factors. Finally, uniformity of the appraisal structure is vital because it ensures that all employees will be evaluated on a standardized scale. Appraisals that are not uniform are less effective because the criteria for success or failure becomes arbitrary and meaningless. Furthermore, uniformity allows a company to systematically compare the appraisals of different employees with each other.
Keeping in mind the three key traits of effective performance appraisal programs, companies must address four decisions when structuring their appraisal systems: (1) What should be assessed?; (2) Who should make the appraisal?; (3) Which procedure(s) should be utilized?; and (4) How will the results be communicated? In determining what to evaluate, designers of an appraisal system usually consider not only results, but also the behaviors that lead to the results.
The actions and results that are measured will depend on a variety of factors specific to the company and industry. Most importantly, criteria should be selected that will encourage the achievement of comprehensive corporate objectives. This is accomplished by determining the exact role of each job in accomplishing company goals, and which behaviors and results are critical for success in each position. Furthermore, different criteria for success should be weighted to reflect their importance. Some performance appraisal analysts recommend concentrating assessment on productivity and quality, which can be objectively measured and compared. Focus on these two factors enable companies to determine if workers are performing their tasks at an acceptable pace and if they are performing their tasks at an acceptable level of quality. By assessing these factors, evaluators also can avoid biased appraisals.
In determining who should address performance, managers of the performance appraisal system usually select an employee's immediate supervisor to provide the assessment, which is then reviewed by a higher-level manager or the personnel department. In addition, other appraisers may be selected depending on: their knowledge of, and opportunity to observe, the appraisee's behavior, their ability to translate observations into useful ratings, and their motivation to provide constructive input about the employee's performance. Other evaluators may include coworkers, subordinates, customers, or even the employees themselves.
After selecting performance appraisal criteria and evaluators, the designers of the system must determine which assessment techniques to use. Numerous methods may be applied depending on the nature of the industry, company, or job. As noted earlier, many organizations utilize a combination of several techniques throughout the organization. In general, the most popular rating techniques fall into one of four categories: (1) rating, in which evaluators judge workers based on different characteristics; (2) ranking, whereby supervisors compare employees to one another; (3) critical incidents, in which evaluators create descriptions of good and bad behavior and then assign those descriptions to employees; and (4) techniques that use multiple or miscellaneous criteria, such as employee-directed standards.
In addition to selecting evaluation techniques, managers of appraisal systems must devise a means of effectively communicating the results of assessments to employees. Often, the communication process is built-in to the appraisal technique, but sometimes it isn't. Feedback about performance is important for improving worker behavior. For instance, a worker who receives a very positive appraisal will likely become motivated to perform. On the other hand, a poor appraisal could have the opposite effect. For that reason, assessors have a number of feedback techniques at their disposal to help ensure that the end result of any assessment is constructive. Examples of feedback methods are written follow-ups, goal setting to overcome deficiencies, and allowing workers to have input into their appraisal to explain reasons for success or failure. Importantly, most feedback techniques stress a relationship between employees and their negative behavior (i.e., employee still have value, despite their inadequate behavior).
Furthermore, to be productive, the performance appraisal process must contain general three steps: evaluation and job analysis, appraisal interview, and post-appraisal interview. During the first step, both the appraiser and the appraisee should prepare for the interview by considering job performance, job responsibilities, employee career goals, goals for improving performance, and problems and concerns about the job. Sometimes both the appraiser and the appraisee will fill out forms with questions addressing the previously mentioned topics. Next, managers and employees meet to discuss what they have prepared and to establish goals for the period before the next performance appraisal. It is important that the appraisal interview be an exchange, not a speech. Both parties must be able to share their perceptions of the appraisee's performance. The third step, the post-appraisal interview, gives managers the opportunity to discuss salaries and promotions with employees. By not addressing this issue during the appraisal interview, both managers and employees can focus on performance and goal setting, instead of money. The post-appraisal meeting also can serve as a time for reiterating employee goals.
After appraising the performance of employees, an organization must evaluate the system itself to determine if it is helping to achieve designated organizational objectives (and conforming with legal guidelines, as discussed below). Managers of the appraisal system need to determine whether or not the system is being implemented properly:
- Are managers being rewarded for conducting appraisals?
- Are they being trained to perform the evaluations properly?
- Are evaluations based on specific job-related criteria?
Furthermore, they need to take action to determine whether or not the system is producing measurable results:
- Are the results of individual appraisals valid?
- Is the system producing consistent and reliable information for use in making decisions?
- Are employees developing and achieving goals as a result of appraisal and feedback?
Even when a performance evaluation program is structured appropriately, its effectiveness can be diluted by the improper use of subjective, as opposed to objective, measures. Objective measures are easily incorporated into an appraisal because they are quantifiable and verifiable. For example, fast-food workers may be rated on the number of cars they can serve at a drive-through window during an eight-hour period. Other objective measures commonly include error rates, number of complaints, frequency of failure, or other tangible gauges. In contrast, subjective measures are those that cannot be quantified and are largely dependent on the opinion of an observer. For example, an appraisal of fast-food workers' courteousness and attitude would be subjective.
Subjective measures have the potential to dilute the quality of worker evaluations because they may be influenced by bias, or distortion as a result of emotion. To overcome the effects of prejudice, many organizations train appraisers to avoid six common forms of bias: cross-cultural, error of central tendency, halo effect, leniency and strictness, personal prejudice, and recency effect. The recency effect is a corollary of the natural tendency for raters to judge an employee's performance based largely on his most recent actions rather than taking into account long-term patterns.
Cross-cultural bias is a consequence of an evaluator's expectations about human behavior. Those expectations often clash with the behavior of appraisees who have different beliefs or cultural values. For instance, an evaluator with an Asian heritage may be more likely to rate an older employee higher because he has been taught to revere older people. Likewise, personal prejudice results from a rater's dislike for a group or class of people. When that dislike carries over into the appraisal of an individual, an inaccurate review of performance is the outcome. For example, according to Kurt Kraiger and J. Kevin Ford writing in the Journal of Applied Psychology, studies have shown that black raters and white raters are much more likely to give high rankings to members of their own race.
Like cross-cultural and personal prejudice biases, the halo effect is caused by a rater's personal opinions about a specific employee that are not job-related. The term "halo" stems from the distortion that the appraisee, like an angel with a halo over its head, can do no wrong. This type of bias, however, also applies to foes of the rater. The effect is particularly pronounced when the appraisee is an enemy or very good friend of the evaluator.
Leniency and strictness bias results when the appraiser tends to view the performance of all of his employees as either good and favorable or bad and unfavorable. Although these distortions are often the result of vague performance standards, they may also be the consequence of the evaluator's attitudes. For example, some evaluators want their subordinates to like them (leniency bias) or want to feel like they are being a "tough judge" (strictness). Similarly, the error of central tendency occurs when appraisers are hesitant to grade employees as effective or ineffective. They pacify their indecisiveness by rating all workers near the center of the performance scale, thus avoiding extremes that could cause conflict or require an explanation.
In addition to bias, flaws in the execution of an appraisal program can be destructive. For instance, managers may be downgrading their employees because high performance reviews would outstrip the department's budget for bonuses. Or, some managers may be using performance appraisals to achieve personal or departmental political goals, thus distorting assessments. Problems are usually indicated, for example, by extremely high numbers of poor or positive appraisals, or by a general lack of individual improvement over the long term. In any case, appraisal managers must identify and overcome the causes of these flaws to ensure the usefulness of the system. This is typically accomplished through a formal process of evaluating the effectiveness of the appraisal program itself, as discussed above.
In addition to separating them into the four general categories discussed above, different performance appraisal techniques can be classified as either past-oriented or future-oriented. Past-oriented techniques assess behavior that has already occurred. They focus on providing feedback to employees about their actions, feedback that is used to achieve greater success in the future. In contrast, future-oriented appraisal techniques emphasize future performance by assessing employees' potential for achievement and by setting targets for both short- and long-term performance.
Some of the traditional forms of performance appraisals such as rating scales and checklists remain popular despite their inherent flaws. They entail an assessor providing a subjective assessment of an individual's performance based on a scale effectively ranging from good to bad or on a checklist of characteristics. Typically, basic criteria such as dependability, attitude, and attendance are listed. For the rating scale, the evaluator simply checks a box beside each factor to indicate, for example, excellent, good, fair, or poor. A value may be assigned to each level of success—a rating of fair, for instance, might be worth two points—and the appraisee's score totaled to determine his or her ranking. For the checklist, the evaluator simply marks statements such as "works well with others" believed to describe the worker being appraised. The obvious advantage of these techniques is that they are inexpensive and easy to administer. Primary disadvantages include the fact that they are: highly susceptible to all forms of bias; often neglect key job-related information and include unnecessary data; provide limited opportunities for effective feedback; and fail to set standards for future success. Furthermore, subjective techniques such as rating scales are vulnerable to legal attack.
A fairer approach to performance appraisal is behaviorally anchored rating scales (BARSs), which are designed to identify job-related activities and responsibilities and to describe the more effective and less effective behaviors that lead to success in specific jobs. The rater observes a worker and then records his or her behavior on a BARS. The system is similar to checklist methods in that statements are essentially checked off as true or false. BARSs differ, however, in that they use combinations of job-related statements that allow the assessor to differentiate between behavior, performance, and results. Therefore, BARSs can be more effectively utilized in the goal-setting process. The advantage of BARSs is that they are extremely job specific, easy to administer, and eliminate most biases. Nevertheless, they can be difficult and expensive to develop and maintain.
Forced-choice appraisals consist of a list of paired (or larger groups of) statements. The statements in each pair may both be negative or positive, or one could be positive and the other negative. The evaluator is forced to choose one statement from each pair that most closely describes the individual. An example of a pair of statements might be "Always on Time" and "Never on Time." By incorporating several question groups that test different levels or degrees of the same behaviors, evaluators are able to generate an accurate representation of the individual's learning ability, interpersonal competence, drive, and other characteristics. Forced-choice appraisals are typically easy to understand and inexpensive to administer. But they lack job relatedness and provide little opportunity for constructive feedback.
Critical incident evaluation techniques require the assessor to record statements that describe good and bad job-related behavior (critical incidents) exhibited by the employee. The statements are grouped by categories such as cooperation, timeliness, and attitude. An advantage of this system is that it can be used very successfully to give feedback to employees. Furthermore, it is less susceptible to some forms of bias. On the other hand, critical incident assessments are difficult because they require ongoing, close observation and because they do not lend themselves to standardization and are time consuming.
Field review appraisal techniques entail the use of human resource professionals to assist managers in conducting appraisals. The specialist asks the manager and sometime coworkers questions about an employee's performance, records the answers, prepares an evaluation, and sends it to the manager to review and discuss with the employee. This type of system improves reliability and standardization because a personnel professional is doing the assessment. For the same reason, it is less susceptible to bias or to legal problems. But field reviews are generally expensive and impractical for most firms, and are typically utilized only in special instances—to counteract charges of bias, for example.
One of the most popular future-oriented performance appraisal techniques utilizes the management by objectives (MBO) approach. In MBO, managers and employees work together to set goals. In fact, MBO is usually goal oriented, with the intent of helping employees to achieve continuous improvement through an ongoing process of goal setting, feedback, and correction. As a result of their input, employees are much more likely to be motivated to accomplish the goals and to be responsive to criticism that arises from subsequent objective measurements of performance. To be successful, MBO depends on specific and measurable goals and a definite time frame. Although it achieved fad status in the late 1970s and into the 1980s, critics of MBO cite its propensity to focus on objectively measured behaviors, such as quantity of output, at the expense of subjective criteria, such as quality of output. The result can be employee frustration or lackluster performance.
Assessment center evaluation is a more complex assessment method that is usually applied to managerial or executive prospects. It is a system of determining future potential based on multiple evaluations and raters. Typically, a group meets at a training facility or evaluation site. They are evaluated individually through a battery of interviews, tests, and exercises. In addition, they are evaluated within a group setting during decision-making exercises, team projects, and group discussions. Psychologists and managers work together to evaluate the employees' future management potential and to identify strengths and weaknesses. Assessment centers are susceptible to bias, have been criticized as not being specifically job related, and are extremely costly. But they have also proven effective and have achieved broad appeal in the corporate world.
Psychological tests are a much less intricate method of determining future potential. They normally consist of interviews with the employee and his supervisors and coworkers, as well as different types of tests and evaluations of intellectual, emotional, and work-related characteristics. The psychologist puts his or her findings and conclusions in a report that may or may not be shared with the employee. Psychological testing is slow and costly, and must be administered extremely carefully because of the long-term implications of the evaluation on the employee's future. Success is largely dependent on the skill of the psychologist.
Another appraisal technique included in the future-oriented category is self-appraisal, which entails employees making evaluations of their own performance. Although self-assessment techniques may also be coordinated with past-oriented evaluations, they are particularly useful in helping employees to set personal goals and identify areas of behaviors that need improvement. The advantage of such appraisals, which may be relatively informal, is that they provide an excellent forum for input and feedback by superiors. In addition, they allow supervisors to find out what employees expect from themselves and from the organization or department. Furthermore, because the employee is much less defensive about the criticism, self-improvement is much more likely.
In addition, evaluators often combine various future- and past-oriented techniques, forming hybrid approaches to performance appraisal, according to Patricia King in Performance Planning and Appraisal. Using several different techniques enables managers to measure both behavior and results and to set goals for employees to improve their performance and to increase their motivation. For example, an evaluator might use both the BARSs and MBO techniques to reap the benefits of both and compensate for the drawbacks of each.
Federal laws related to performance appraisals, such as the Civil Rights Act of 1964 and the Equal Employment Opportunity Act of 1972, and a plethora of court decisions have turned the evaluation process into a legal mine field for many companies. Most of the federal laws are enforced by the Equal Employment Opportunity Commission (EEOC), which was created by the Civil Rights Act. In addition, surveys indicate that employees in the late 1980s had a greater awareness of their legal rights, since employees were three times as likely to sue employers during this period as they were in the early 1980s, according to the Rand Corporation.
Because appraisals are used to make promotions and demotions, give raises, establish salaries, and terminate and transfer workers, they must conform to strict EEOC Uniform Guidelines on Employee Selection Procedures. Specifically, the law requires that performance appraisals: (1) are job related and utilize behavior-oriented, rather than trait-oriented, criteria; (2) use tests, measurements, scales, feedback, and other evaluation tools derived from an analysis of each individual job; (3) not reflect a bias based on race, color, sex, religion, age, or nationality; and (4) be conducted by persons that have distinct knowledge of the position.
In addition to explicit federal guidelines, court cases have also had an impact on appraisal processes. For example, court decisions have demonstrated that, even if it designs its appraisal system according to legal guidelines, a company may be at fault if the numeric results of its appraisal system reflect bias against a protected minority group. Suppose, for example, that statistics showed that a company's appraisal system resulted in a disproportionate number of employees of Mexican descent receiving promotions and raises, while a disproportionate number of African American workers did not receive the same rewards. Unless the organization could prove that its decisions were based only on specific job-related factors, its appraisal system could be judged as biased in the courts. Therefore, managers of appraisal systems must be careful to monitor results as well as structure.
In addition to legal ramifications related to bias, numerous other laws affect appraisal systems. Evaluations must conform to a battery of privacy laws, for example. Companies are not allowed to divulge personal information to outside sources, for instance, and are required to make most information gathered during the evaluation process available to employees at their request. Likewise, evaluators must be careful to steer clear of protected personal information that does not relate specifically to the ability of the worker to perform his or her job. Such questions include inquiries about pregnancy, age, sexual practices, family, and health. For instance, a company would be leaving itself open to legal attack if it asked an employee whether or not she planned to have children in the near future and then made a decision not to promote her based on that answer.
An organization could opt out of conducting any type of appraisal program as a way of avoiding litigation risks. But even that option becomes risky if the company's promotion/salary practices can be shown to be statistically discriminatory (because the company is left with no documentation to prove the legal validity of its decisions). A safer approach is to structure the performance appraisal system in accordance with EEOC guidelines, and to:
- Carefully record all decisions related to staffing, promotions, bonuses, and other actions impacted by appraisals.
- Create specific job requirements and evaluate objective criteria.
- Share appraisals only with staff members and people who have an interest in the assessment that is specifically related to the job.
- Document and follow procedures that eliminate bias and errors from the process.
- Conduct periodic evaluations of the program to ensure that the appraisal process is producing unbiased results.
- Have an attorney review appraisal policies and procedures.
[ Dave Mote ,
updated by Karl Heil ]
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Kennedy, Marilyn Moats. "The Case for Performance Appraisals." Across the Board, February 1999, 51.
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Latham, Gary P., and Kenneth N. Wesley. Increasing Productivity through Performance Appraisal. 2nd ed. Reading, MA: Addison-Wesley, 1994.
McGregor, D. The Human Side of Enterprise. New York: McGraw-Hill, 1960.
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