Tom is the manager of a large retail outlet, soon to undergo his annual appraisal. He is frantically searching for last year’s document, which he promised to ‘review’ on a regular basis. When he eventually unearths it, he discovers it is only half completed. Tom is worried that Jane, his manager, will be angry at his ‘lack of interest’ in his own development. But Jane is too busy searching for her own copy to worry about what Tom is doing, and trying to locate some notes she made about an issue with Tom’s performance a few months ago. It really needs addressing, but without specific details she is worried that she may come across as ill-prepared and inaccurate.

Welcome to ‘appraisal time’. You may recognise elements of this scenario as being applicable to you or your organisation, and yet appraisals are absolutely essential to the performance of individuals and the organisation. You can’t run a business, department or operation without clear targets, against which you are monitored, scored, ranked and rated, can you?

To answer this question, it is worth looking at the range of effects that performance appraisals can have upon an individual. In a world where employee engagement is paramount, there is a real danger that performance appraisals can have the opposite effect, and disengage valued employees.

What’s wrong with Performance Appraisals?
Performance appraisal systems are usually conducted for two distinct purposes; firstly to establish a benchmark of an individual’s performance at a given point in time, and secondly to discuss future development needs and agree ways in which performance can be maintained or improved. The question is whether they achieve either purpose adequately. Let’s look at some of the less publicized issues that performance appraisals raise and their associated side-effects:

Arbitrary and inaccurate ratings
The largest potential issue with performance appraisals is the degree of inaccuracy in the ratings of the rater.  In some cases the line manager may never actually see the member of staff in action, and is instead reliant on subjective observations, stereotypes and rumours.  Take Tom in his large retail outlet, which Jane visits only once a month. Tom may rightly feel that this is insufficient to accurately gauge his performance. The problem is exacerbated in today’s flatter ‘matrix-style’ organisations where supervisors can be responsible for upwards of 40 people, making valid observations almost impossible.

One way to promote more accurate and valid ratings is to use business Key Performance Indicators (KPIs) as the basis for discussion. Whilst this can certainly ensure a degree of objectivity and help remove subjective bias, KPIs must be used in the right manner if employees are to remain engaged. One proponent of KPI-based appraisal actually refers to ‘due process’ as being an essential part of the meeting.  The checklist includes giving ‘adequate notice’, a ‘fair hearing’ and ‘evidence-based judgement’. Doesn’t that sound suspiciously like the disciplinary process?  Why not simply extend the range of outcomes from disciplinary hearings to the positive as well as the negative? Tom may, if he’s lucky, come away with a final-written pay rise.

Using KPIs as the basis for performance discussions is a step in the right direction, but defining what ‘excellent’ performance is for all but the simplest of roles is often difficult. Even where this can be done, coming to the meeting ‘armed’ with KPI based evidence (ready to shoot down the employee) is hardly likely to engage and motivate. Far better to ensure the information is owned by those who can act on it, so that they can come to their own conclusions about their performance before being beaten with a big KPI stick.

What does an overall performance rating of ‘4’ mean?
When I once enquired as to what my overall ‘4’ meant, I was told (I assume sarcastically) that it was a bit better than 3, but not as good as a 5. This was not exactly helpful. Do these numbers actually tell us anything useful about the performance of that individual?  The appraisal itself can often end up resembling a market haggling session – Tom thinks he’s a 4, but Jane gives him a 2; so they’ll settle at 3. The degree of ‘error’ inherent in both their ratings means that sooner or later they will vary in different directions resulting in confusion, hurt and demotivation. Where ratings are used, it is imperative that they are linked to behaviourally-anchored rating scales so that there is transparency in the process, and people can clearly see what they have to achieve to move to the next level.

Hurry up and get to the pay rise
Many annual pay rises, particularly in the private sector, are dependent on a performance appraisal. If the anticipation of awaiting the managerial judgement were not enough, this further complication serves to ensure the meeting is fraught with tension and a desire to get to the final cash-based verdict. Where the result is less than we had hoped for, anger, hurt and disillusionment can be added to the list for good measure. Where possible, this link should be broken, or pay scales clearly defined to limit any subjectivity in the process.

So, should performance appraisals be scrapped, or are there any alternatives?

Taking real ownership
The first step to improving the appraisal process is to ensure the individuals take ownership of the process.  This should mean more than getting the employee to sign a form completed by the line manager. Real ownership is where the appraisal starts and ends with the individual, where the individual sources their own feedback using a method they are comfortable with, and acts on it. Feedback has to come from a trusted source for it to be accepted and the reality is that it may not always be the line manager.

It is vital that we give managers the skills and tools to recognise the signs that indicate ‘how they are performing’ before having it pointed out for them.  After all, who is more trusted than the individual themselves? Take golf as a sporting analogy. If a golfer consistently hooks a ball, the feedback is immediate, it is obvious something is wrong, and help can be sought immediately. Because the signs are instantly recognisable, the golfer does not have to be told they have a problem. In organisations, we need to be better at helping people recognise the equivalent of a ‘hook’ in their roles, so that that they can identify issues and seek help before it has to be raised by someone else.

Alongside this, timely and objective feedback in the form of KPIs should go straight to the person who can take action to address the issues, in order to promote and embed this culture of performance ownership.

Part of the solution may also be to make greater use of 360-degree appraisals. Most 360s are carried out as one-off development tools, but all the good work can be undone when the organisation reverts to a traditional ‘top-down’ appraisal. Although evidence suggests that the correlations between line manager, peer and subordinate ratings is not always high, a composite view of the people that interact with the individual in the workplace is a much richer source of information than one view alone. The extra information provides a greater balance, and the role of the line manager then becomes one of coaching, assisting, advising and helping to unravel the differences in these ratings.

Assessing the system within which individuals must work

In trying to take any business forward, there is a danger of forgetting that organizational performance is not nearly the sum of individual performances alone.  Performance can also be improved across the board by focusing on the organisational constraints that restrict individuals from performing, or ensuring systems are in place to eliminate potential opportunities to underperform.

For example, one of Tom’s colleagues is a brilliant salesperson who understands her customers and the unique market in which the store operates.  She feels that her performance is restrained by instructions handed down from head office, which do not always reflect her customers’ requirements. She has even been threatened with disciplinary action for not complying with these in the past, despite the fact that her sales performance regularly exceeded others in her area. Not surprisingly, she feels disheartened and disengaged. A seemingly reasonable, well thought out and possibly once necessary constraint is now restricting both individual and organizational performance.

If the focus is on improving the performance of the ‘lowest performing’ individuals, you get relatively little improvement for your effort. But by focusing on the system within which people operate, and reducing the constraints imposed by the organisation, everyone is affected positively. The top performers gain more headroom to excel, and the standard of the lowest performers is raised to the required level. The focus on reducing, or even removing, constraints will serve the dual purpose of improving organizational performance as well as individual engagement.

Enhancing performance
The main purpose of performance appraisals is to enhance the performance of an individual or target group, and ER Consultants can help to achieve that in various ways (see Improving Performance Appraisals below). After all, you should strive to do whatever it takes to maximize an individual’s or group’s performance. A system that relies less on an annual system, and more on meaningful and frequent feedback will result in more productive and engaged employees.

Improving Performance Appraisals
To help enhance the performance of an individual or target group, ER Consultants recommends, that you:

• Focus on the system within which individuals operate first;
• Undertake a review of current procedures and constraints that restrict performance;
• Implement embedded processes that raise the performance of all;
• Allow people input into how they are appraised;
• Give regular ‘real-time’ feedback using objective performance measures;
• Transfer ownership of the appraisal process to the individual;
• Help people identify the signs of good and bad performance for themselves;
• Break the link between performance appraisals and pay review;
• Develop managers to be effective coaches to ensure people have the support when they ask for it.

For more information contact: mike.thackray@erconsultants.co.uk

© er consultants Topics Issue 3, 2007