Overview
Few things in business today are as misused as, and perceived similarly to, the snake oil of the Wild West in the 1800's. Typical thoughts associated with performance appraisal systems include: useless, a pain-in-the-neck, too cumbersome, critical for improved performance but they are ineffective, and as the latest fad version emerges, fantastic. . . for the moment. Most organizations have tried many different versions including Management By Objectives (MBO), Behaviorally Anchored Rating Scales (BARs), Mutual Problem Solving (MPS), Forced Distribution, etc.
Often within the same organization large variances exist with regard to understanding the purpose or use of the performance appraisal, the frequency with which it is completed, and the quality of the information it contains. Why is it that something that has been around so long (probably since the Chan Dynasty, when a scribe for the city was told not to return to work the following day after misspelling Chan's nephew's name), and has the potential for being highly valuable to the organization, is in such disarray?
One significant contributor to the disarray is that the performance appraisal can be, and often is, used for many different purposes:
Unfortunately no single instrument or process has evolved that can efficiently and simply be responsive to all of those applications. As an organization's primary use of a performance appraisal system changes, they find their current (latest and greatest) process must also be changed. This accounts for the frequency of new processes managers often experience. Further, each new process usually requires the learning of a new type of rating scale (e.g., ranking, forced distribution, BARs) which often contributes to the ineffectiveness of the new process.
Because performance appraisal process outcomes qualify as "employment decisions," they are covered by current equal employment legislation and guidelines. Detail concerning performance appraisals and their legality is beyond the scope of this paper, suffice it to say that all of the provisions of the Uniform Guidelines on Employee Selection Procedures (1978) relating to adverse impact, fairness, and job-relatedness apply to performance appraisals.
Now that we have highlighted all of the fun parts related to performance appraisal systems, where do we go from here? The purpose of this paper is to put these issues in perspective by outlining a straightforward strategy for understanding, developing, and administering fair and valid performance appraisal systems.
Developing a Performance Appraisal Process
Any performance appraisal process should be directed at accurately and fairly assessing the accomplishments of employees in terms of job-relevant outputs (i.e., production information, timeliness of report production, etc.), and behavior (i.e., judgments of oral communication and leadership skills, etc.). Accuracy refers to the processes' ability to consistently identify and rate 'good performance' as good performance. Fairly refers to the processes' ability to focus on and respond to only job-related output and behavior.
In developing or refining a performance appraisal process, your organization must answer the following questions:
Usually performance appraisal processes fail because they have not thought through and answered each of these questions.
Before we briefly discuss these questions, one other complexity of performance appraisal processes needs to be reviewed. Virtually all performance appraisals in use are dependent on some person or persons having observed the employee's performance. As obvious as this sounds, and as necessary as it is, it presents some real limitations on the usefulness of the final performance appraisal. As the above figure shows, while much of what is done on a job is typically observable, little is normally observed by the evaluators. Even less of what is observed is usually documented for reference in preparing the performance appraisal. Unfortunately what often happens is the performance appraisal is written based on some poorly documented recollections.
Let's quickly review each question raised earlier:
Management must identify the one or two uses it wants to be responsive to before answering any of the other questions. If compensation is already pretty well determined by contractually agreed to scales, or there is typically very little money available to create a realistic difference between the highest paid "best" performer and the lowest paid "poor" performer, then don't tie the process to pay. Similarly, if promotion is a time-in-position triggered process, don't link it with the appraisal.
Once the purpose is agreed upon and understood by management, then the remaining questions can be appropriately answered. In essence many performance appraisal systems fail because there is no true relationship between them and anything that is meaningful to the employees, or, because even if there is a relationship it is either not well understood or not trusted.
Once the purpose is defined it should be formally communicated to both management and employees. This action will help build trust, understanding and buy-in to the new process.
While it is most desirable to use direct outputs (i.e., widgets produced, sales volume, collections made, etc.) as job performance criteria, it is usually necessary to assess other observable job-related activities and behavior to accurately and comprehensively assess individuals' performance. This becomes more the case as the position being evaluated moves from a technical or production based one to a managerial job. These types of behavior are typically labeled as oral communication, problem solving, leadership and coaching, etc.
Beyond answering this question, your organization must determine what standards will be applied to any job outputs (i.e., widgets produced) assessed, and what criteria will be applied to 'operationalize' any job-relevant activities and behavior (i.e., leadership skills) assessed.
In answering this question, your organization must consider the use of managers, supervisors, subordinate(s), peers, work teams, or some combination of the above as appropriate groups in the development and assessment of performance standards. Traditionally, performance appraisals have been conducted in a "top-down" fashion, with managers and supervisors both setting and appraising work goals.
With the movement to flatter organizational structures and increased reliance on pushing job responsibilities to lower levels of the organization (i.e., self-directed work teams), top-down performance appraisal systems are being replaced or supplemented with peer assessments, upward appraisals, and "360o" feedback processes.
Actually with some of the processes such as 360o appraisals, not only do subordinates and peers contribute to the evaluation, but often so do external (to the department as well as the organization) clients who interact with the manager. This approach is particularly valuable when a primary purpose of the process is development. Of course, no matter who sets and appraises work standards, employees should clearly understand what is expected of them and why.
Equally important is deciding on a procedure for noting performance throughout the performance appraisal cycle. Some organizations require a "drop file" where a brief note is completed monthly on performance during that month. These notes become the basis for completing the formal performance instrument. If no procedure is agreed upon, most managers will wait until the performance appraisal is due and attempt to complete it from memory. The obvious problem with this default approach is that one tends to recall the more recent and the more negative performance rather than representative performance.
There are many types of appraisal formats including: checklists, graphic rating scales, and behaviorally anchored rating scales. The choice to a large degree is determined by the intended use and your organization's culture. For example, concise behavioral descriptions based on the employee's performance are much more valuable to the employee for developmental purposes than any check list or graphic rating scale. On the other hand, checklist or forced rankings are often fully adequate if the primary application is for compensation purposes.
In developing an appropriate rating format, your organization must strike a balance between an overly burdensome instrument (i.e., too long, overly complex, etc.) and one that will be relatively painless to complete, without compromising accuracy.
This includes decisions regarding frequency (i.e., annually, semiannually, etc.), and location for conducting the performance review process. The most important factor is to ensure that the performance appraisal process is conducted in a consistent manner under standardized conditions.
It is always prudent to make sure that the performance review process is documented in writing. It is also a good idea to implement an employee appeal procedure. Employee appeals provide for checks-and-balances in the process, and help to ensure that the process continues to be fair and valid. In addition, formalized appeal procedures are helpful in defending the process when legal challenge is brought based on negative action (i.e., discipline, termination, etc.) resulting from the performance appraisal process.
As mentioned previously, performance appraisal systems can be developed to help in the decision making process for: pay increases, promotions and/or demotions, disciplinary action, career counseling, and future performance goals. Since these types of "employment decisions" can directly result from the performance appraisal process, it is important that the process is valid, and that it does not discriminate based on race, gender, age, and other employee characteristics that are protect by law.
Additional Areas of Importance
To be effective a performance appraisal process is dependent on two additional supporting areas: the job analysis system and the performance appraisal training program.
While this paper is not intended to provide a discussion on how to do a job analysis, it is important that organizations understand why it is essential to conduct a job analysis to develop a valid and fair performance appraisal process. Job analysis is the primary means by which organizations objectively gather and synthesize information about jobs and job families. This information includes the delineation of job competencies (i.e., knowledges, skills, abilities, and other attributes required to perform the job), essential job functions (for ADA requirements), linkages between jobs (for career pathing), and job outputs, just to name a few.
Perhaps the most important information obtained from a job analysis in terms of developing a performance appraisal process is the determination of the dimensions of job performance that should be assessed, and what the corresponding performance standards should be. The importance of this linkage cannot be overly stressed. It is typically either impossible or impractical to observe all behavior of the employee on the job; the job analysis can help focus the process on what should be observed.
You may be wondering why should you have a training program to support your performance appraisal system (especially if you have succeeded in coming up with a simple, easy-to-use one). The training program "signals" a commitment to the use of the new process. It will emphasize the proper way to complete the forms, when to complete the forms and how to effectively provide feedback. Training programs also provide an opportunity to raise questions about the process and allow the users to try it out in a "safe" environment before actually using it. Finally the training program provides a good time to revisit common evaluation errors such as "halo, leniency or strictness, use of irrelevant information," etc .
Maybe We Should Just Drop Performance Appraisals
After all of this some of you may be asking yourselves if it isn't better to just not have an appraisal process. Today this is not a logical option. Beyond the demonstrated value of providing feedback so employees can improve their performance and grow, there is another very important application. In recent years performance appraisal programs have taken on the added dimension of helping defend decisions of corrective action and termination. A well designed and followed performance process should provide the necessary documentation for job related decisions resulting in corrective action and/or termination. As we have outlined here, they will be based on five principles:
"OK" What Works?
Basically any system that is built on the above five principles. One type of performance appraisal process that we have found particularly useful for a number of our clients is based on a straight forward rating scale, anchoring each point on the scale with position specific behavioral examples, and finally requiring the rater to support their ratings with a brief behavioral statement reflecting the employee's performance over the rating period.
The following is an example of one area, Interpersonal Skills, from a performance appraisal based on this approach:
| INTERPERSONAL SKILLS Ability to effectively and fairly guide, assist, and assess performance of employees, and provide insight on how to complete tasks. | ||
| 1 | Not Ready. Fails to provide employees insight on how to complete tasks; unable to motivate employees to finish tasks; fails to notice when employees need help. | |
| 2 | Acceptable. Consistently shows new employees how to complete tasks; usually notices if employees need assistance; when asked, provides constructive feedback. | |
| 3 | Very Strong. Willingly provides guidance to all employees; always available to answer questions; willingly provides very effective feedback to employees. | |
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Notice the area being evaluated is operationally defined and anchors are provided for each rating scale point. The rating is to be supported by behaviorally based examples which are representative. Any one reviewing it should easily be able to see the relationship between the narrative and the actual rating.
The area was identified through a job analysis which also produced specific examples of representative observable behavior. These were used in the design of the performance evaluation form and the supportive training program. By focusing on examples of behavior, the instrument enhances feedback.
Summary
This paper briefly described the issues and questions that must be addressed to develop and implement a fair and valid performance appraisal process. The effective execution of the procedures described in this paper reinforce a win-win situation for both your organization and your employees. Remember it is a process, not just a static instrument. As your business strategies change, it should be reviewed to see if modifications are necessary to keep it viable.
