Just old hat... or do performance appraisals really work?

Just behind firing an employee, line managers have cited performance appraisals as their least favourite task. Have they become an outdated, autocratic and unproductive performance management system or are they a necessary process to formally build on and develop an individual’s talents? Widget Finn finds out.

Women working at the top 50 City banks and finance companies receive bonuses worth 80 per cent less than their male colleagues according to recent research. The survey by the Equality and Human Rights Commission involved the biggest City employers who between them employ 23 per cent of staff in financial services. The report was published in September, the day after finance ministers from the world’s most powerful economies said they wanted bonuses to reflect long-term performance rather than one year’s short-term risk-taking.

This article isn’t about equality in the workplace, fat cat bonuses or ways of measuring performance. It’s about performance appraisal – a key element in all three.

Could you trust a good friend to tell you honestly what he – or she – thought of your work? Would you value the opinion on your performance from someone who you’ve never really got on with? And would you think it fair to be judged on what you were doing 11 months ago (if anyone could remember) rather than your achievements in the last few weeks? Performance appraisal encompasses all these situations. It is no wonder the opposers of the system are as vociferous as the supporters, and that managers cite performance appraisal, along with firing an employee, as the task they dislike most.

Appraisal in the workplace, as in life, is inescapable. People will naturally judge the performance of others but without a structured system it’s hard to ensure the judgements will be lawful, fair and defensible.

The criticisms of the workplace appraisal system are many. It smacks of an old fashioned autocratic style of management, and in modern flatter, team-based work environments it can be difficult to ask people who are colleagues or friends to become judge and defendant.

Most appraisals take place just once or twice a year, and many managers avoid doing them for as long as possible. Often the appraisal is based on opinions, as performance measurement takes time and follow-up to do well. Then there’s the whole tricky question of employment legislation looming over the process. The manager may have to justify his opinions with specific examples, perhaps provoking a defensive response from the employee who feels under attack.

Beset by problems on all sides, it’s hardly surprising the beleagured manager postpones the process then wants to get it over and done with as quickly as possible. The problem with most appraisals according to Paul Daley, director of HR services at the talent management consultancy Ochre House, is that they’re held every six or 12 months, ticked off then put in a cupboard until the next time round.

“The way they are conducted is rarely rigorous, and they tend to be applied differently in different areas of the business. Worst of all, nothing is done with the results. Performance appraisal systems usually focus on the past 12, or six, months, not looking at the future potential and value of that individual in the organisation. No consideration is given to how the results will help both sides to move forward. The ‘so what?’ question is missed out entirely.”

During the good times organisations tend to put little weight on performance appraisals – profits are growing, business is booming, management is by results, the ‘what’s happening’ is important, no need to look at the ‘how.’ Employers should be asking whether booming sales are the result of good sales behaviour or good customer behaviour, comments James Bywater, head psychologist at SHL. “Managers concentrate on hard objectives and numbers, but in economic downturns they need to re-establish how these are attained, and make sure the key behaviours are incorporated in the system.”

So what is a good performance appraisal? Bywater says: “A feedback loop for the organisation which is a two-way discussion between a manager and employee about what the employee is doing, how they’re doing it and how it can be improved. The key is that it must be part of performance management, identifying the individual’s development needs and motivating him to do better.”

In an ideal world people wouldn’t need to be appraised claims Daniel Kerkel, manager of corporate affairs at the television shopping channel CVC. “They would be motivated to find out how they’re doing, then get help to become better at it. The reality is that in big organisations people have different capabilities as managers and communicators, and bureaucracy gets in the way.”

In the early days of CVC, he explains, the company came down on the side of bureaucracy, with annual appraisals, standard forms and a ratings system. “But last year we took the first step towards that ideal. Our staff now appraise themselves against their job performance, competencies and values, then have a conversation with their manager. The manager’s role becomes more of a coach and mentor. Initially when we introduced the new system our managers only saw the problems and were worried they would disagree with the individual, but now after the second round the feedback we’re getting is that appraisals are no longer a burden for them. There used to be lots of problems around appraisal, with people disagreeing and appealing. Now the managers feel they’re being helpful. We gave them training, coaching and self-awareness to tweak their soft skills, and they feel there’s now a real dialogue at appraisal sessions.”

The perennial questions around performance appraisals are how often they should happen, how people should be rated and whether they should be linked to reward. Common sense says that looking at a person’s performance once a year is unsatisfactory for the participants and the company. The business world changes – as we’ve seen with the swift onset of recession – so an organisation’s direction changes, to say nothing of an individual’s role and development needs.

Paul Daley argues that an appraisal should look at the future potential of an individual as part of a continuing review. “The measurement of performance should be an ongoing element of a manager’s role.”

Lloydspharmacy encourages staff to do a self-appraisal once a year. “But this is just a formal recording of conversations with their line manager which are going on throughout the year,” says Niki Coppard, director of HR operations.

To rate or not to rate? Lloydspharmacy has trialled both options. “People struggled with having no ratings,” says Coppard, “so we moved away from scoring numbers to a ranking based on expectations. Where scoring is related to pay levels, the manager may inflate the ranking to ensure a staff member’s pay increase. In a certain organisation 96 per cent of all employees were rated ‘one’. To avoid this situation another organisation marked down performance-related pay levels because they discovered that most managers scored people higher than their performance merited.”

The rating system reaches its extreme in the ‘rank and yank’ strategy, reportedly practised by around 20 per cent of US companies. Sun Microsystems ranks its 43,000 employees into three groups – superior, standard and underperformers – the bottom 10 per cent provided with one-to-one coaching. CEO Scott McNealy said they must be ‘loved to death’ – though if they fail to improve they are offered a ‘prompt exit’ package. But everything is comparative, and there will always be someone in the lower performing category. Those rated as poor performers in a highly productive department may contribute more than those ‘good performers’ in other departments.

Should appraisal be linked to reward? That brings us back to the women in the City paid substantially less than their male counterparts. Mary Mercer, principal consultant at IES (The Institute for Employment Studies) points out the dangers in assessing performance. “Our research shows that black minorities and senior women have lower scores in performance, which suggests that managers are not assessing them on objective criteria. People –” Does she mean men, perhaps? “– make assumptions about women’s reliability and flexibility because they tend to carry the main family responsibilities. The new Equality Bill will have a big impact in this area.”

Kerkel is frank about his company’s approach to the link. “We used to separate the date of the annual appraisal from the merit increase because we genuinely didn’t want it to be a hang-up in the appraisal conversation. But people thought it was just a cheap trick, so now appraisal and performance improvement all contribute to the merit increase.”

In the financial sector performance-related pay reigns supreme, but the link between performance and reward can also lead to disaster. In the months leading up to the collapse of the Enron Corporation in 2001 commentators were holding it up as an example of the system. At the time, an article in Timemagazine described Enron as ‘a hotbed of achievers’ – and we all know what happened to them.

Leyshon is a keen supporter of linking performance to financial reward. “I’ve always worked to the adage that what gets rewarded gets done. It’s lovely to think that people aren’t in it just for the money but the reality is that most high performance is achieved because there are key incentives.”

Coppard agrees that people should be rewarded for their achievements rather than input. “The appraisal process helps to formally record what achievements you’ve made and the value you’ve added to the business. It’s very motivating for individuals to know where they stand in relation to their own responsibilities and how they are perceived by the organisation. Appraisal is an incredibly powerful process when used as a robust two-way conversation.”

Source: Talent Management Review

Posted by Talent Management Review