At the surface, performance appraisal (PA) systems seem quite simple. They encourage employee performance by setting clear goals at the beginning of a designated period and ultimately assess how well those goals were met. When done well, they assist poor performers, reinforce those who are doing well and increase subsequent individual performance (Dipboye & Dipboye, 2018). Yet, the words "annual performance appraisals" can provoke some pretty heavy sighs around the office and there is no doubt that the quality of PAs varies from organization to organization. This post aims to provide a few words on why good PA systems are important for organizations and what factors contribute to successful systems.
Benefits of a Good PA System
There is a body of research that credit PAs with increases in employee performance and productivity (Rodgers and Hunger, 1991; Taylor and Pierce, 1999). This is an obvious benefit to the organization as they can steer this performance towards corporate goals. Likewise, this process should also provide benefits for the employees in the form of opportunities for feedback, development, and rewards (Claus & Briscoe, 2009). Furthermore, high-quality systems have been linked to higher job satisfaction, organizational commitment, and less turnover (Brown, Hyatt, and Benson, 2009). This is an important point to keep in mind because, in order for the above-mentioned gains to come to fruition for the organization, their PA system needs to be designed in a way that is viewed favorably by its members. Also, it should be clear as to why it is the case that PAs have an effect on these factors, after all, appraisals are often the doorway to higher pay, advancement, and acknowledgment of their contributions. So, what makes a high-quality PA system?
Markers of an Effective PA System
First and foremost, it is important to remember that the system needs to fit your organizational culture. As Scott and Einstein (2001) point out in their assessment of appraisals in team-based organizations, there is no single model that can be applied to all situations. There is a long list of things to consider when creating an effective appraisal system. To this end, Ikramullah, Van Prooijen, Iqbal, and Ul-Hussan (2016) suggest the four-quadrant competing values framework shown below.
Source: Ikramullah et al. (2016). Effectiveness of performance appraisal. Personnel Review, 45(2), 341.
For a full review of this framework, I highly recommend you read the complete paper. However, the key points of each quadrant will be highlighted here. First, the Human Relations Model focuses primarily on the development of employees and the strength of relationships between members of teams/groups. Having an appraisee's participation in the process of decision-making decreases risk or dissatisfaction with the end results. Additionally, it is important to have accessible development programs that employees can use to overcome their weaknesses or further develop performance. Also in this same sphere, coaching and counseling from supervisors serve to support those workers who are having a tough time with the inevitable challenges of their work. It is necessary that superiors promote these developmental tasks, which, as stated before, is one of the main purposes of a PA system in the first place. Through such tasks, subordinates can develop stronger relationships and greater trust in the people they report to, thereby increasing confidence in their own decisions as they now have the support of those around them (Colquitt, 2001).
In the top right, the Open Systems Model hones in on flexibility in performance targets to mitigate unpredictable challenges that inevitably arise in a modern workplace. The authors argue that this promotes a better focus on innovation, creative problem solving, and adaptability to a changing workplace. If workers are appraised on a singular, immovable goal, they are much less likely to take steps to think outside the box or look at the big picture scenarios. In the same vein, the appraisals should consider individual job attributes as opposed to an overarching model for all employees. Individual role definitions need to evolve as the skills and requirements to perform tasks evolve. The global setting that most companies find themselves in is ever-changing and appraisals need to adapt as their employees adapt. For instance, if a once manual task is now being done in a different way due to advancements in technology, the PA needs to reflect those details. Finally, both appraiser and appraisee need to be satisfied with the quality of the system. For obvious reasons, there should be feedback measures in place that ideally cater to gathering opinions from both parties.
The bottom-right Rational Goal Model emphasizes the importance of goal setting, planning, and then the execution of plans to accomplish these goals. Employees obviously need to know what to do and how to do it (Rizzo, House, & Lirtzman, 1970). It is important that the goals set by the PA are clear and monitored over time to achieve higher performance. Furthermore, once goals are set there should be supportive feedback provided on their performance throughout the process of reaching these goals (Jawahar, 2006). A key thing to take away from is that appraisals are not a one-and-done deal that is shelved until the next scheduled review. Whether it's annually, bi-annually, quarterly, etc., there should be a consistent focus on communication between parties. This goes back to the coaching and counseling element, as well as the need to adjust performance goals as new, unforecasted developments unfold.
The final section labeled Internal Process Model stresses the internal control of the system. There needs to be the assurance that clear records are kept and that all the responsibilities laid out in the previous paragraphs are kept (records of coaching, meeting agendas/results, etc.). This requires that the appraiser be qualified and well-versed in the PA system's goals. Moreover, there should be transparency of the process to the appraisee. Records should be available for review by both parties at any time. This can help eliminate feelings that employees may have about unfairness or hidden agendas behind the process if it is done open-handed. Adding to this, whichever forms or evaluations are used, they need to be reliable and valid to measure performance accurately. For example, a manager of a large MNE once told me that their mangers (all in charge of different teams) use a 1-5 performance scale to determine things such as raises, bonuses, and position changes. The problem with this, they said, is that that is so much subjectivity in the assignments of value to the numbers that both employees and managers could never establish uniformity on their value. This led to confusion among employees as to why some people received raises and others didn't, as well as frustration by the managers as they struggled to defend why some people were doing superb "5" work rather than mediocre "3" work. This eventually fueled jealousy and strong negative feelings towards the review process.
This review barely scratches the surface of all the complexities behind an effective performance appraisal system. In the future, I would like to take a more detailed look at individual biases that appraisers may have, which was briefly brought up with issues of subjectivity. Also, almost all of the considerations here are based on the model presented by one research paper (although this paper was intended to be a culmination of many different theories). Still, I hope this gives my readers pause to consider their own appraisal systems and how they might improve them. As always, leave your thoughts, frustrations, and questions for discussion below!
Brown, M., Hyatt, D., & Benson, J. (2010). Consequences of the performance appraisal experience. Personnel review, 39(3), 375-396.
Colquitt, J. A. (2001). On the dimensionality of organizational justice: A construct validation of a measure. Journal of applied psychology, 86(3), 386.
Dipboye, R. L., & Dipboye, R. L. (2018). Criterion Development, Performance Appraisal, and Feedback'. In The Emerald Review of Industrial and Organizational Psychology (pp. 535-579). Emerald Publishing Limited.
Ikramullah, M., Van Prooijen, J. W., Iqbal, M. Z., & Ul-Hassan, F. S. (2016). Effectiveness of performance appraisal: Developing a conceptual framework using competing values approach. Personnel Review, 45(2), 334-352.
Jawahar, I. M. (2007). The influence of perceptions of fairness on performance appraisal reactions. Journal of Labor Research, 28(4), 735-754.
Rizzo, J. R., House, R. J., & Lirtzman, S. I. (1970). Role conflict and ambiguity in complex organizations. Administrative science quarterly, 150-163.
Rodgers, R., & Hunter, J. E. (1991). Impact of management by objectives on organizational productivity. Journal of Applied Psychology, 76(2), 322.
Scott, S. G., & Einstein, W. O. (2001). Strategic performance appraisal in team-based organizations: One size does not fit all. Academy of Management Perspectives, 15(2), 107–116. doi:10.5465/ame.2001.4614990
Taylor, P. J., & Pierce, J. L. (1999). Effects of introducing a performance management system on employees' subsequent attitudes and effort. Public Personnel Management, 28(3), 423-452.