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Research on performance appraisal
1. Research on performance appraisal
Performance management is often portrayed as the most strategic of core talent management
processes. It has captured the attention of C level leaders with the following value promises:
• Focus all employees on priorities and maximize individual productivity
• Provide a foundation and process for improving the overall capabilities of
organizational talent
• Align individual efforts with the business unit and organizational goals to maximize
efficiency and effectiveness of organizational execution
• Align rewards and recognition with performance outcomes to ensure retention of key
performers
However, the question needs to be asked, "How well has performance management delivered
on these promises?" Survey data have not been encouraging. Consider the following findings:
• It is an inconsistently implemented process - A recent study by Mercer found that just
one third of survey respondents said they had had a formal performance appraisal in
the last year.
• It has had little impact on performance improvement - The same study by Mercer also
found that nearly half of those that had received a formal performance appraisal
indicated that it did not help them identify actions they could take to improve.
• There is little alignment with organizational goals - A recent Performance
Management Practices Survey Report published by Development Dimensions
International found that "Aligning performance management to support organizational
goals and to integrate with other systems proved to be the least common quality of
performance management systems".
• Aligning pay with performance has been only marginally successful - A recent survey
of American Compensation Association members found that the majority of members
felt that merit pay plans tying pay to performance were only marginally successful.
Does It Deliver Value in Best of Class Organizations?
If the value realized from performance evaluation systems has been modest for most
organizations, one would wonder if there is greater value for best of class organizations.
These data are much more encouraging:
• Organizations exercising world-class enterprise performance systems, including
widespread dispersal of the tools, enjoy 2.4 times the three-year equity market returns
of typical companies in their industry (BusinessWeek Research Services 2008)
• Organizations in which employees are measurement-managed were identified as being
in the top one-third of their industry. Performance measurement was the single most
important measurement area that separates successful firms from less successful firms
(Towers Perrin 2002)
The Keys to Delivering Value
If value is delivered in best of class organizations, what are they doing differently than most
organizations? Various authors and research studies have attempted to identify what are the
2. key drivers in delivering real value from their performance processes. A summary of key
findings are offered below:
• Avoid making it too complicated - Many organizations make the mistake of creating
too many goals and gathering too many metrics in their performance evaluation
process. The result is tremendous time investment and employee confusion.
BusinessWeek Research Services (2008) found that "Determining the appropriate
number of goals and types of metrics was considered the number one performance
management success factor."
• Provide a supportive culture - Performance appraisal has to be supported by senior
executives. They need to foster a supportive culture in order to realize real value. The
same study from BusinessWeek Research Services (2008) found that "The biggest
obstacles to widespread execution of performance management are "lack of
accountability" and "a culture that does not support measurement."
• Make it widespread and consistent - Performance evaluation needs to be an enterprise
wide practice in order to realize full value. This was a finding supported by
BusinessWeek Research Services (2008). This study indicated that, "The biggest
return comes from extending performance management to front line workers".
Typically, technology is needed to provide widespread access and use. However,
remember rule #1 to keep it simple. Lot's of bells and whistles not only results in
difficult and costly implementations, the added complexity also results in line
managers and front line workers rejecting the technology.
• Don't forget foundation skills - Performance management is more than standardizes
processes and measurements. Real value is dependent on the interactions between
employees and managers. In an international cross study of performance practices
published in SASCOM magazine (4th qtr. 2006), the authors concluded "Overall the
research shows that successful efforts combine the measurement process with
appropriate infrastructure, skills, and culture." Managers need to have basic skills to
manage performance effectively. These skills include:
o Setting Performance Goals
o Monitoring Performance
o Providing Performance Feedback
o Conducting Performance Reviews
o Conducting a Developmental Planning Meeting
• Align individual performance goals with organizational goals - Linking the goals of
an individual with the broader goals of a business unit or an organization is called
cascading. In order to optimize strategic value, performance processes should help
ensure that the efforts of all employees are in alignment with the goals of the
organization. Aligning performance management to support organizational goals and
to integrate with other systems proved to be the most critical differentiator in system
effectiveness (DDI - Performance Management Practices Survey Report).
• Focus on both the "what's" and the "how's" of performance - Job performance is not
one-dimensional. Focusing only on what was accomplished ignores the importance of
how the results were achieved. Adding goals for competencies that are needed to
support results in the plan ensures both aspects of performance are considered.
Performance against competency goals can be reliably tracked using multi-rater or 360
3. data. These data along with appropriate development content and support processes
also help drive individual development planning. In spite of the value received from
including competencies, the DDI Performance Management Practices Survey Report
found only 38% of organizations followed this practice.
• Make it a process not an event- In most organizations, the Performance Review is
typically treated as a single event, looking backwards rather than forward. Making it
an ongoing process requires anticipating problems and focusing on the present or
future. This means that managers need to have frequent ongoing discussions through
out the year planning and communicating with employees to improve current and
future performance.
• Focus on development and improvement, keep pay discussions separate - Rensis
Likert offered this critique of the performance review discussion in the July 1959 issue
of the Harvard Business Review, "The aim of reviewing the subordinate's performance
is to increase his effectiveness, not to punish him. But apart from those few employees
who receive the highest possible ratings, performance review interviews, as a rule, are
seriously deflating to the employee's sense of worth... not only is the conventional
performance review failing to make a positive contribution, but in many executives'
opinions it can do irreparable harm." Samuel Culbert, a professor of management at
UCLA and Lawrence Rout, a senior editor at the Wall Street Journal concur in their
book, "Get Rid of the Performance Review!," These authors contend that the typical
performance review discussion derails due to differences in the mindsets of the two
participating parties. The employee is concerned about the impact of the review on
his/her pay. This leads to the employee focusing on defending mistakes, justifying
actions, promoting their accomplishments, and challenging the manager's evaluations.
At the same time the manager is trying to engage the employee in a discussion of how
performance could be improved. The net result is that both parties feel frustrated by
the discussion.
The purpose of performance review discussions should be on development and improvement.
Discussions about pay should occur separately and recognize that pay decisions are only
partially informed by performance. Organizational performance, the employee's position
within their pay range, and external supply and demand factors also contribute significantly to
pay decisions.
Summary Conclusions:
It appears that performance management practice does not deliver on the promise of real
value for most organizations. Best in class organizations are realizing real value and it is the
direct result of applying best practices. In these organizations, senior leaders consider
performance evaluation a key aspect of the organization's culture and drive enterprise-wide
usage. They provide visibility to organizational goals and ensure that employee goals are
linked to broader business goals to accomplish focus and alignment of efforts.
Wide spread and consistent practices are enabled by practical, simple, and easy to use
technology. In addition to simplicity in technology, there is discipline in only focusing on
those goals and metrics that truly matter to keep administrative overhead to a minimum.
4. In addition to infrastructure, measurements, and processes, there is recognition that managers
need training in specific performance management skills. Effective organizations provide
ready access to core training and just in time refresher skill training.
There is a balanced approach to managing performance. Result goals are important but
competency performance is also considered a necessary component of the process.
Competency development is supported by multi-rater or 360 surveys, formal developmental
planning, and ready access to developmental content, processes, and forms.
Following these best practices should allow all organizations to realize the value promise of
performance management.
References:
The Payoff of Pervasive Performance Management, BusinessWeek Research Services (May,
2008).
Performance Management Do's and Don'ts, SASCOM magazine (4th qtr. 2006).
Mercer Survey results cited inPerformance Appraisals: some improvement needed -
Executive Briefing (HR Magazine (2003).
Performance Management Practices Survey Report, Development Dimensions International
(1997).
Patrick Hauenstein, Ph.D.
President, Omni Leadership
http://performanceappraisalebooks.info/ : Over 200 ebooks, templates, forms for
performance appraisal.