The effectiveness of performance appraisal systems

The concept of performance appraisal had existed informally for as long as work has existed. Its development according to Grint (1993) dates back to the third century Chinese appraisal assessment. Randell (1994) while citing Cole (1925), reported the use of “silent monitors” where a piece of wood was mounted over a machine with one of four colours (white for excellent, yellow, blue and then black for poor performance) to denote daily performances was one of the early applications of performance appraisal systems. However, the practice of performance appraisal has evolved over the years and has become widespread in a number of organizations. This essay will assess the effectiveness of performance appraisal systems for both the employer and the employee by means of a critical analysis of the whole appraisal process including its use in practice. In order to achieve this, the main concepts of performance appraisal (PA) which includes its definition, theories and types of appraisal will be discussed. The purpose of appraisal, its advantages and disadvantages, problems associated with its use will also be examined as well as its major criticisms. The conclusion will discuss its effectiveness for the employee and the employer and attempt to answer the question of whether performance appraisal really works in practice.

Performance appraisal is a formal method of assessing how well an individual employee is doing with respect to assigned goals. It is the evaluation of an employee’s current and or past performance along with his or her performance standards (Dessler, 2009). The ultimate purpose of performance appraisal is to communicate personal goals, motivate good performance, provide effective feedback and set the stage for an effective development plan. It has also been identified as a part of the series of techniques used by employers to obtain employee commitment and at the same time exercise detailed control over their behavior (Bach, 2000). An important part of the appraisal process is assessment and this involves the collection and review of data on an individual’s past and current work behavior (Bratton and Gold 2007).

Performance appraisal is not the same as performance management but is an integral part of the process and one of the many tools used to manage performance and the data produced from it can be put into other elements of performance management (CIPD, 2010). According to (Luecke, 2006) appraisal is one part but an important part of the larger system of performance management. While appraisal is an operational, short to medium term event that is concerned with the individual and their performance (CIPD, 2010), performance management is a continuous long term process of identification, measurement, evaluation and development of the performance of individuals and teams and aligning them with the achievement of organizational goals (Dessler, 2009). According to Mondy et al. (2002), performance appraisal focuses on the past at the expense of the future making data from evaluation become a mere historical document. However, performance management ,being a more strategic and holistic approach to organizational and individual performance (Fletcher, 2004) addresses this short coming through the process of assessment of employee potentials and continuous development to achieve organizational goals.

There are a variety of purposes that employers aim to achieve while conducting performance appraisal. Grint (1993) citing Longenecker and Gioia (1988), recognized them to include increasing motivation, fostering productivity, improving communications encouraging employee growth and development (Longenecker and Gioia, 1988). It is used for career counseling, planning successions and setting goals and targets. However, the question of whether appraisal systems achieve all of the above mentioned, still remains. Additionally, it can also be used as a basis for compensation in the form of pay for performance, selecting people for promotion, transfer, termination as well as identifying training and development needs (Bratton and Gold, 2007). The conflict that exists between the development -driven and the reward- driven approach to appraisal has been a source of constant debate. The linking of performance to appraisals to pay and reward has also been under a lot of criticism in recent times and as Fletcher (2004) argues, this can create many pitfalls in the construction of an effective appraisal system and ultimately lead to demotivation on the part of employees.

Performance appraisal was originally between line managers, supervisors and their subordinates. However, appraisal done by immediate supervisors may not give an all round measurement of the employee and the danger of bias for or against the employee may also exist (Dessler, 2009) since he may not be in a position to really appraise all aspects thus recent developments have led to the introduction of various forms of conducting appraisal. The various methods of conducting performance appraisal are generally expected to be subjective and based on competence (Redman and Wilkinson 2009) but this is not usually the case as according to Longenecker et al (1987), it has been found to be subject to manipulations for political purposes. The amount of resources available to the firm, their experience as well as size also determines the method to be used in conducting appraisal as formal appraisal is not very popular with smaller firms due to cost and the process is still largely dominated by informality (Cassell et al, 2002). Larger organizations on the other hand, employ more sophisticated approaches.

Individual appraisals are usually conducted by supervisors to assess the performance of their subordinates. The performance management survey carried out by the CIPD in 2009 showed that 81% of companies made use of the individual appraisal. The degree of objectivity of individual appraisal ratings however, is usually questionable as it has been argued that the supervisor may not be in a position to appraise all aspects of the employees performance since they are not in contact at all times (Grint, 1993). The use of peer appraisal involves the appraisal of an employee by his or her peers. This process has been found to be effective in improving communication between peers (Dessler, 2009) but can also lead to conflict particularly if appraisers involve emotions in rating their peers.

Team-based appraisals are common in organizations where employees function in teams and are appraised as such. Team members are given equal ratings irrespective of performance (Redman and Wilkinson, 2009). Weaker team players have been found to like this while the hard workers do not appreciate it. The rank and yank approach was developed by the United States based former energy giant, Enron (Redman and Wilkinson, 2009). Employees are ranked such that the top 10% are categorized as superior performers, the middle 80% are good while the bottom 10% are the under-performers. This last category of employees are usually encouraged to rise through the ranks after which failure to do so, may lead to termination. This approach was designed to encourage team building and improve employee performance but people began to play the individual game and it became a case of the survival of the fittest thereby losing its effectiveness for both the organization and the employees.

Recent developments in performance appraisal have however led to the introduction of more innovative approaches such as upward appraisal, 360 degrees appraisal or feedback and the competency-based appraisal. Curtis (1996) argues that upward appraisal is designed mainly to achieve action for change. It acts as a complement to the more common appraisal of subordinates by providing the opportunity for the subordinates to point out how their superiors could have behaved differently to enhance the effectiveness of their relationship and performance. Upward appraisal involves subordinates rating their managers through the use of anonymous questionnaires. The appraisal of teachers and lecturers by their students also falls under this category. Studies have shown that upward feedback is capable of improving a manager’s performance, effectiveness and leadership abilities (Dessler, 2009 and Redman and Wilkinson, 2009). Managers alternatively, do not particularly appreciate upward appraisal because in some cases it may be a career threatening tool and as described by Grint (1993), “the honest opinions of subordinates look more like barbs on a whale harpoon than gentle and constructive nudges.”

The 360-degree appraisal or feedback is becoming more popular especially in high performance work systems. It is the combination of information received from self-appraisal, subordinate appraisal, peer appraisal as well as feedback from other internal customers. It also includes external suppliers and customers (Bach, 2000). The employer in this case, collects performance information all around the employee which is generally used for developmental purposes as against reward (Dessler, 2009). The process involves the completion of online appraisal surveys by the appraiser, the feedback is then compiled and the employee reviews it with his or her supervisor with a view to developing self – improvement plans. There are however, mixed reactions to this approach of feedback. Studies conducted by Curtis (1996) suggest that employers appreciate 360-degree feedback. It was seen to provide much more focus for individuals on areas which they needed to concentrate to achieve personal development and enhance effectiveness. The use of 360-degree feedback can also close and quantify perception gaps. It is also thought to give managers and individuals better information about skills, performance and working relationships (CIPD, 2009). Alternatively, critics of this approach such as Grint (1993) suggest that the subjectivity of one appraiser is replaced by the subjectivity of multiple appraisers.

The use of customer appraisal is one that is frequent in the service industry particularly in banking and call centers. Standards are set for employees based on customer care indicators and customer service data are used to appraise employees (Redman and Wilkinson, 2009). The use of “mystery shoppers” is also prevalent under this approach as employers see it as being cost effective and presenting reasonably reliable ratings. Employees however, view the use of mystery shoppers as a show of lack of trust in them by the leadership of organizations describing them as spies and snoopers. Critics of this approach such as Shing and Spence (2002), argue that it is basically unethical, involving deception and the obtaining of information under false pretences. This absence of understanding therefore renders it ineffective most times for both parties. Another important aspect of the appraisal process is the appraisal interview. Here, employees engage in discussions with their supervisors to review the results of their evaluation and provide guidance on areas requiring improvement. However, studies have shown that lack of training on the part of line managers and supervisors, result in the ineffectiveness of the process and in most cases leading to demotivation of employees (Grint, 1993).

For an appraisal system to be effective for both the employer and the employee, it should include certain characteristics. It must be job related, performance expectations must be agreed in advance such that employees are aware of what they are being measured against and the inclusion of a standardized documented process which should protect against legal action (Mondy et al, 2002).Despite the various theories and modifications of the PA system that exist to ensure its effectiveness in organizations, its use in practice further reveal some downsides of appraisal which appear to inhibit the accomplishment of this purpose.

The rank and yank approach has been found to destroy stability of the workforce and has been criticized by Redman and Wilkinson (2009) as a veiled way of downsizing as someone must fall into the bottom 10%. It has also been found that older workers have a greater representation in this category hence experience tends to exit when firms adopt this approach. Alternatively, it may also be a strategy to get rid of older employees. Appraisals have also been found to increase stress in the workplace as Brown and Benson (2003) argue, that the attempt by employees to meet rising performance standards could lead to burnout. The fact that managers shy away from the responsibility of conducting appraisals is also a disadvantage and the tendency of managers to inflate ratings poses a great ethical question in the appraisal process. Studies conducted by Longenecker and Ludwig (1990) suggest the lack of objectivity and accuracy in appraisal ratings on the part of managers who justified their actions with the need to avoid confrontation with subordinates, prevent damaging work relationships and creating permanent documents which may later harm a subordinate’s career. This deliberate manipulation invariably renders the appraisal system ineffective.

Performance appraisal has been found to contain a lot of distortions which also affect its effectiveness in practice. The “halo effect” occurs when a manager decides to generalize one positive performance or incident to all aspect of employee performance (Mondy et al, 2002). The personal relationship between an appraiser and the appraised can result in the distortion of an assessment. In this case, it is referred to as the crony effect. The similarity of character between the appraiser and the appraised that is, if they have something in common, it affects the outcome of ratings (Grint, 1993) and the Veblen effect where all those appraised are rated averagely irrespective of their performance. The ‘recency bias’ according to Bach (2000) and Prowse and Prowse, (2009) is the tendency of managers to note only recent events rather than gathering and using evidence throughout the appraisal period. Grint (1993) by citing Smither (1988) argue that other issues such as gender have also been found to affect appraisals with studies showing that women have tendency to receive lower ratings for performance.

In conclusion, this essay has examined the development of performance appraisal by giving a brief overview of its history and how it has become widespread in recent years. The various definitions of performance appraisal have been examined and the difference between performance appraisal and performance management has been clearly spelt out. Furthermore, the various forms of performance appraisal have been reviewed while their advantages and disadvantages were discussed. The unending criticisms of performance appraisal were also pointed out as well as the distortions of the process that affect its effectiveness in practice for both the employer and the employee. There is no perfect appraisal system at the moment, effectiveness can however be achieved depending on how it is implemented in an organization. This will require commitment on the part of the employer and understanding of organizational goals in the case of the employee. In view of the above, and despite all the problems that bemoan performance appraisal, its use in performance measurement cannot be completely ruled. It is being recommended that further research be carried out to develop a permanent solution to the problem of subjectivity that characterize performance appraisal. and as Prowse and Prowse (2009) argue while citing Hartle (1997), “Despite all the criticism and evidence against performance appraisal, critics have failed to suggest an alternative for a process that can provide feedback, develop motivation, identify training needs and potential and give evidence that can justify potential career development as well as justify reward.”