M E M O

From: David E. Edell, President

Date: April 30, 2003

Re: Performance Appraisals and Root Canal

 

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Creating Effective Performance Appraisals

by Clinton O Longenecker and Laurence S Fink

Copyright (c) 1999 Bell & Howell Information and Learning Company. All rights reserved. Copyright Institute of Industrial Engineers. Reprinted with Permission

Part 1 of 2

Performance appraisals can be a good way for organizations to boost employees' motivation and hone their competitive edge. But creating useful performance appraisals and making sure they are used effectively throughout an organization - isn't easy. The 10 lessons here can help your company move closer to appraisals that help staff perform their best.

"The irony is that our organization has been doing formal appraisals for at least 30 years and we still struggle to do them right. It takes a clear purpose, a good system, and effective managers all operating together to get the job done." -Director of Human Resources Fortune 500 manufacturing organization

It is common knowledge that most managers and employees find participating in formal performance appraisals as appealing as having a root canal. However, it is also true that - for better or worse - formal performance appraisals are an inescapable part of organizational life.

There are two main reasons that formal performance appraisals are here to stay. First, formal appraisals are required to justify a wide range of human resource decisions such as pay raises, promotions, demotions, terminations, and selection validation. They also are key to evaluating recruitment results and determining training needs. Second, formal appraisals are required to maintain a competitive edge. In a recent study of high-performance organizations, the practice of employing a value-added performance appraisal process was cited as one of the top 10 vehicles for creating competitive advantage. The manufacturing organizations in this study clearly stated that an effective appraisal and review process created focus, a platform for measurement, a vehicle for employee improvement, and a means of linking key outcomes to performance.

During the 1990s, we and many other researchers have studied the formal performance appraisal process. The lessons presented here were culled from this research.

Effective Performance Appraisals

Our lessons for developing and sustaining a high-performance appraisal system are based upon two key tenets. The first tenet suggests that if appraisal processes operate as a system, a systems perspective must be applied to identify the critical appraisal system components and stages to make sure that organizational procedures and practices work in harmony. The second tenet is that individual managers play a pivotal role in achieving effective appraisals and that they need the right tools and support to be effective.

To identify the characteristics of effective performance appraisal systems, we conducted in-depth focus groups with 60 mid- and upper-level human resources executives from 28 U.S. manufacturing and service organizations. They were asked to identify the keys to effective appraisal systems. The keys to effective performance appraisal systems can be organized into three critical components: effective systems design, effective managerial practice, and effective appraisal system support.

Within those categories, we identified 10 lessons that managers can apply to boost appraisal effectiveness.

Effective system design

Without a proper foundation it is impossible to build a successful appraisal program. A good system design lays the groundwork and provides the manager with the necessary tools.

Lesson 1: Clearly define why the organization conducts formal appraisals. The organizational leadership must identify and communicate to all employees why performance appraisals are being conducted and the specific goals of the appraisal system. Carefully developed and clearly articulated goals will enable managers to choose appraisal criteria that support the organization's goals. Also, clear goals increase managers' motivation to conduct appraisals properly and boost their interest in performance management.

When managers know that information collected during their appraisals is likely to affect decisions about employee development, planning, performance improvement, compensation, and performance planning, they will be motivated to execute their responsibilities competently This is especially true if managers are held accountable for the quality of their appraisals and performance management activities. Without clearly defined goals, managers may simply go through the motions of conducting appraisals and performance management, which can severely compromise the effectiveness of the system.

Lesson 2: Employee/manager involvement in systems design is critical. Effective appraisal systems include input from managers and employees about appraisal practices and the criteria used to evaluate performance. Involvement of employees at all levels facilitates acceptance of the system and increases cooperation. When employees are allowed to participate in the design of the appraisal system, their sense of ownership increases. Attempts to save time by bypassing employee and manager input can short-circuit ownership of the system, lower the system's credibility, produce a system that does not meet staffs needs, damage the perceived connection between pay and performance, and lose the performance-enhancing effects of employees' commitment to organizational goals.

Lesson 3: Develop user-friendly procedures and jobrelated forms. Effective appraisal systems need forms that are simple and easy to understand. Performance criteria, rating procedures, and feedback should be expressed in terms that are focused and meaningful for both managers and employees. It is essential that the forms assess the degree to which employees perform their job duties and achieve specific organizational goals. Forms that include matters unrelated to performance of essential job functions or are deficient in measurement of important activities performed within a job function decrease the effectiveness of the system. Forms should be designed to aid communication between managers and employees about behaviors, work processes, and opportunities for improvement.

Again, involvement of managers and employees in the design of the forms and procedures is the best way to ensure that an appraisal system has these important attributes. Unclear, poorly focused, and cumbersome forms and procedures decrease ownership of the system and negatively affect essential trust and communication between supervisor and subordinate. When performance on key aspects of your employees' jobs is ignored, it sends the message that those aspects are unimportant and should be ignored.

Lesson 4: Employees and managers must know how the process operates and understand their roles. Surprisingly, managers frequently report that they receive very little training beyond a description of the rating form. An effective formal appraisal system cannot exist without the ongoing education of all key players in the appraisal process.

There are four basic integrated stages in the performance appraisal process, and they require different appraisal competencies on the part of managers. Failure of managers to properly execute their responsibilities at any stage undermines the effectiveness of the entire system.

· Stage 1: performance planning
· Stage 2: performance management and ongoing coaching
· Stage 3: the written performance appraisal
· Stage 4: the performance appraisal review in our research, managers were asked to identify the skills and abilities needed to conduct effective appraisals.

These critical skills are necessary to complete the four basic stages of the performance appraisal process. Once the appraisal system foundation is in place, managerial appraisal practices will determine how well appraisal plans are translated into action.

[Join us again in May when we continue looking at the remaining lessons to be learned to boost appaisal effectiveness]

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Clinton O. Longenecker, Ph.D., is the Stranahan distinguished professor of management at the University of Toledo. He holds a B.B.A. in marketing and an M.B.A. in management from the University of Toledo, and a Ph.D. in management from Pennsylvania State University. He is a management consultant whose clients include a number of Fortune 500 firms.

Laurence S. Fink, Ph.D. is an assistant professor of management at the University of Toledo. He holds a B.A. in psychology from the State University of New York at Albany and a Ph.D. in organizational behavior/human resource management from Purdue University. He is a researcher in performance management, selection and recruitment, turnover, and compensation.