The act of judging or evaluating other people is a natural and inescapable part of our lives. When we are introduced to someone for the first time, we automatically form an impression based on his or her appearance, voice, and personality traits. Right or wrong, these first impressions can be lasting ones. Sometimes we base our evaluations of other people on more substantial evidence—the way they perform their jobs or interact with their co-workers and superiors, for example. Although many of the evaluations we make on a daily basis are not conscious, they still have a significant impact on the way we view the people around us.

If you're a manager, your working day involves a series of appraisals. Perhaps you begin by making the rounds of various activities for which you are responsible, checking on where major pieces of work stand. You chat briefly with your employees, find out what they're doing, and on the basis of your knowledge of each of them, you decide whether or not a particular work item requires your attention. Back at your own desk, you go through your mail, answering according to what you know about the person you're addressing. The way you hand out work assignments is also based on what you know about individual employees. You provide instruction, guidance, and coaching on the basis of each worker's experience and maturity.

If you have visitors during the day, you unconsciously size them up and adjust your speech and actions accordingly. In your contacts with your own boss, you organize your material and present your information in a way that will gain his or her approval. If an employee is up for salary review, you decide whether or not he or she merits more money. If there is a vacancy in the department, you weigh the relative qualifications of the available candidates before making your decision.

These are standard activities for any manager or supervisor, and yet each involves a deliberate act of appraisal. The point here is that performance appraisal is not an occasional or chance occurrence; it is an integral part of the manager's job. Outside the work environment, of course, the evaluations we make of others may merely determine whether or not we choose them as our friends. But the evaluations we make in the context of an employment relationship are far more crucial in terms of outcome. These judgments may determine who gets a job, who is given an opportunity for additional training, who gets a raise or a promotion, who is transferred or reassigned, and who is terminated. This is one reason why performance evaluation skills and techniques deserve the attention that is given.

Uses of Performance Evaluation

The purposes for which performance appraisals are conducted are almost as varied as the techniques that have been developed to gather the necessary data. But underlying these myriad uses are two primary objectives that all evaluation systems share:

  • They serve as an inventory of the firm's human resources. Few managers would dispute that employees are the company's most valuable asset. Performance appraisal is an orderly effort designed to improve superior-subordinate relations and to help employees deal with performance problems. The aim is to achieve a mutual understanding and appreciation of both corporate and individual objectives and to develop action plans for self-improvement. By evaluating employees' performance on a regular annual or semi-annual basis, managers have a good idea of where their employees stand in terms of job satisfaction, career goals, training needs, and other vital personnel issues at all times.

  • They motivate employees to improve their performance. Employees want to know what is expected of them and how well they are performing their work. Performance appraisal clearly serves this purpose, as well as demonstrating that the employer is interested in their accomplishments, is willing to give praise when it is deserved, and cares enough about their survival in the organization to point out shortcomings and help them overcome obstacles to improving their performance. In companies where the performance appraisal is linked to the salary administration program, there is the obvious motivational value of merit pay. These objectives are so basic that most companies take them for granted. But this doesn't make them any less important. If a performance evaluation program fails to meet either one of these goals, it is because management is not utilizing it properly or because it has serious defects in design.

What are some of the more specific uses for performance appraisal data?

And how do companies view the purpose of the appraisal process as a whole? Some of the most common answers to these questions are summarized below:

  • Performance appraisal can improve communication between superiors and subordinates. The annual appraisal interview is designed to open communication channels that have been blocked by misunderstandings and personality conflicts or that have withered due to simple lack of use. It is especially valuable in providing a formalized means of improving upward communication, through which the manager can learn how employees view their work situation and what their concerns are.

  • Performance appraisal can be used as a counseling tool. Coaching or counseling is a necessary factor in enabling employees to improve their performance, and the annual appraisal provides a perfect opportunity. There are actually two types of counseling that take place during performance evaluation. The first is reactive: The employee is praised for a job well done, or else the reasons for past failures are discussed and solutions outlined. The second type is aimed at the future: It follows up on success or promise, helps prevent failure, and brings about improved performance.

  • Performance appraisal helps supervisors rate themselves. Many managers and supervisors find year-end performance reviews a trying task, and one of the most prevalent reasons for feeling this way is that they haven't spent enough time coaching, discussing performance problems, and giving their employees feedback throughout the year. Employees' reactions to the appraisal interview are another tip-off that supervisory skills could be tuned up: If the general reaction is angry and defensive, it may be an indication that employees resent this sudden interest in their performance.

  • Employee performance evaluations are an invaluable means of assessing the status of the firm's staffing needs. They help managers make decisions regarding transfers, promotions, and terminations, among other things. Large corporations sometimes have "manpower planning" specialists, while smaller organizations let managers and department heads look out for their own needs. In both situations, the necessary information on which judgments about employee potential are based comes from performance appraisals.

  • Performance appraisal supplies vital "documentation" for EEO purposes. Recent legislative actions and court decisions have made it clear that decisions affecting women and members of minority groups, particularly in compensation and human resource planning, must be based on something more solid than intuition, hunches, and "gut feelings" about the individuals involved. These decisions must be supported by documented evidence—evidence provided by a carefully planned and administered performance evaluation program.

Let's start by looking at the wide variety of factors influencing the decision to grant a pay increase:

  • The company's overall financial situation;

  • The department or division's "budget" for raises;

  • How long the employee has been with the firm;

  • The employee's qualifications (i.e., the scarcity of certain talents in the labor market and the likelihood that the employee will be paid more for them elsewhere);

  • How much other employers in the local area are paying for similar types of work;

  • How much a competitor would be willing to pay for the same or similar jobs;

  • How much other employees in the department, division, or the company as a whole are being paid for similar work;

  • What the employee requires in the way of incentives;

  • How well the employee has performed over the past year;

  • Government regulations and laws concerning pay levels;

  • General economic conditions—the inflation rate, changes in the cost of living, etc.

While there is no question that individual job performance should be a major factor in the decision to grant a pay increase, it can be seen from the above list that it is only one of the many factors that must be taken into consideration. In many cases, some of these other variables can make job performance almost irrelevant—for instance, government "freezes" on wage increases.

The biggest problem that arises when salary appraisal and performance appraisal are linked together is that the appraiser's feeling about whether or not the employee deserves a raise can affect the objectivity of the appraisal. For example, if the rater knows that a certain employee is being evaluated for a salary increase and he or she feels that the employee deserves one (for whatever reasons), he or she may adjust the performance evaluation accordingly. If this biased evaluation is then used for some other purpose, such as determining whether the individual should be laid off or given additional training, the employee may not be laid off or receivethe additional training because he or she received a high performance rating—even though his or her actual performance wasn't particularly outstanding. Or a male appraiser who identifies more closely with a male subordinate and wants to see him get ahead may, either consciously or unconsciously, rate him higher so he gets a substantial salary increase. A female employee who has performed at a similar level may receive only an "average" rating and therefore only a minimal raise.

A number of research studies in this area have revealed that when salary adjustment is combined with a discussion of performance, the only thing the subordinate hears is the amount of the salary adjustment. Put yourself in the employee's shoes for a moment: Your supervisor calls you in and together you discuss your recent performance. Somewhere during the interview he notes that he is recommending a $600 pay raise for you. Consider now the total impact of that meeting. What will you remember when you walk out—what he said about your performance or the $600?

For most people, the message of such an interview is dollars. And if there is some discrepancy between what the supervisor says about your performance and what he plans to pay for it—as there usually is—the result is far from constructive. The fact is that many supervisors and even some managers have little to say about subordinates' pay and are only in a position to suggest ways of dividing up a sum of money available for increases. In no way can most of them really match pay with performance, and the lesson to be learned is that performance review and salary review are not compatible. This is not to say that performance appraisals shouldn't be taken into consideration when the time for a salary review comes around. They should—but they shouldn't be a substitute for a separate review and discussion for merit raise or bonus purposes

The overall objectives of an employee performance evaluation program are to measure, maintain, and improve job performance. Most evaluation programs also try to:

  • Provide a framework of goals and standards from which to measure performance

  • Serve as a tool to determine salary increases based on a worker's contribution to the organization

  • Develop action and training plans to correct performance problems, and establish goals for the next time period

  • Identify employees who should be promoted or given greater responsibility

  • Act as a forum for individual career development issues

  • Assure a formal time and a place for all these events to occur.

Indirect Benefits

Performance appraisals should also be seen as a way to help foster employee commitment to the organization. By keeping the lines of communication open between employees and management for the honest exchange of information, a climate of mutual understanding is established wherein job satisfaction and increased productivity will flourish. Additionally, they can assist the HR professional with information needed for strategic planning purposes such as the identification of future training needs and the prediction of performance on present and future jobs.

Formal And Informal Appraisal

Although most formal appraisal programs focus on the six-month or yearly review, performance appraisal—ideally—should be seen as an ongoing process, rather than an isolated event. Supervisors and managers should give their staffs positive, constructive feedback on a regular basis. Some kind of written record—even a hand-scribbled note—should be kept. This process helps employees avoid "performance ambiguity," which can cause anxiety. In addition, it can help avoid serious problems because there is an opportunity to identify problems and redirect employees at an early stage.

If the manager does the ongoing job of consistently providing feedback, the contents of a formal appraisal won't come as a surprise to an employee.

Appraisal Methods

There are several approaches to performance appraisals and there is no one right way to do it. Typically, an employee's performance is rated by the immediate supervisor. Some organizations use a simple narrative such as a few paragraphs noting that "X" employee is still doing a good job, was absent a few days, or continues to have tardiness problems. Others use rating scales either by comparing employees in a ranking order or some sort of forced distribution like a bell shaped curve. Recently, some companies have embarked on a 360-degree feedback approach which tabulates information from all who have contact with the employee—supervisor, subordinate, co-workers, internal, and external customers.

Whatever method is chosen, it is important that all those involve in the process focus objectively on the particular job's requirements, the individual employee's level of skills and abilities, and the potential for future improvement in the job.

Common Mistakes

As you begin the process, be mindful of the some of the following errors that can distort the appraisal.

  • Halo/horn effect. This happens when the employee's extreme competence in one area "shines" over all others. In other words, the reviewer is tempted to rate the employee very high in all areas because of excellent performance in one specific area. Conversely, there may be a horn effect if the employee is rated poorly in all areas because of substandard performance in one.

  • This happens when the reviewer's own prejudices influences the appraisal such as race, national origin, gender, or appearance.
  • Strictness/leniency. Some reviewers might believe the performance standards are too low and therefore refuse to give high ratings, while others insist on giving everyone a high score.

  • This happens when the employee is compared to other employees, rather than on the basis of an objective review of the job performance.

Time

Most organizations review individual employees on a six-month or one-year anniversary of their hire date. A few review all employees at the same time in a year. It is a bother to be engaged in merit reviewing for some employees during every month of the year, but an annual review of all employees can disintegrate into an across-the-board increase. Employees at top administrative and executive levels are often reviewed near the end of the calendar or fiscal year since their salaries and bonuses are closely related to the profit status of the organization.

Filling Out the Form

Performance review forms have been developed to promote consistency, objectivity, and to force supervisors to evaluate employees in specific areas. Whatever form is used, it should be thoroughly explained to all who evaluate employees so that everyone will use such terms as "good," "excellent," or "poor" with the same meaning.

Experts suggest that before managers begin writing, they should review their notes of the past year. These observations provide the basis for the evaluation. Then an outline is prepared listing achievements and areas that need improvement. Finally, the performance is measured against the standards of the job, and goals set during the previous review.

The key to a well-prepared, effective appraisal is objective, job-related data that support ratings.

  • Use examples to document both positive and negative accomplishments.

  • List specific ways for the employee to improve on the negatives.

  • List specific compliments for the positives.

A wide variety of forms and appraisal techniques exist. They range from very simple one page checklists to complex systems involving multiple measurements and extensive narratives. Some organizations make the mistake of selecting or adapting a form without first identifying what they are trying to accomplish through performance evaluation. The result is a program that is viewed as just one more piece of paperwork.

By using a step-by-step process to identify the needs of all concerned, you can enhance the effectiveness of an existing program or develop an entirely new performance evaluation program that managers and supervisors see as a useful tool, and employees receive as something more than a report card.

Designing a performance evaluation program that benefits your organization and your employees, or auditing an existing program, involves the following steps:

  • Defining goals and priorities of the program. What are you trying to accomplish for the organization, the supervisors and managers, and the employees, through performance evaluation?

  • Establishing the focus of the program. What will you measure?

  • Selecting the techniques. What technique(s) will be used to measure performance?

  • Designing the tools. What forms will be used?

  • Identifying the scope of the program. How extensive will the program be? How will it be integrated with other human resource and business systems?

  • Assigning accountability for the program. Who will administer the program and who will be authorized to conduct evaluations? Who will have access to the results?

Before proceeding to answer these questions, it is important to be sure that two essential ingredients are present: support for the program, and good communications. Support, in the form of top management approval, is critical to the success of the program. It means the difference between performance evaluation that meets business objectives and perfunctory paperwork.

Open communication channels are necessary at all levels of the organization to ensure that the goals and benefits of the program are understood. Negative public relations and misinformation could sabotage the program before it is ever implemented.