Creating Effective Performance Appraisals

By Longenecker, Clinton O.; Fink, Laurence S. | Industrial Management, September/October 1999 | Go to article overview

Creating Effective Performance Appraisals


Longenecker, Clinton O., Fink, Laurence S., Industrial Management


Executive Summary

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 (see Figure 1).

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. …

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