The formal performance appraisal process has experienced a long history of critical and negative scrutiny from practitioners and theorists alike. Long ago, Douglas McGregor(1) recognized the inherent difficulty of conducting performance appraisals for managers who are faced with the conflicting roles of employee developer and evaluator, of being a coach and of being a judge.
More recently, Cascio(2) has discussed the inadequacies of a performance appraisal system which is used for both determining organizational consequences, such as pay or promotion and for assessing individual abilities and motivations as they relate to individual career development. Specifically, information required for a pay or promotion decision is primarily concerned with differences between the performance of different individuals, whereas information required for developmental purposes is concerned with differences within a particular individual's performance. As Herbert & Doverspike(3) have noted, the types of information needed for these two performance appraisal goals may be quite diverse, and it may be impractical or too costly to gather both for most systems in use today. As a matter of fact, evidence presented by Hyde & Smith(4) indicates that the two types of information differ not only in content but also in accuracy. They found that information is likely to be more accurate if employee development is the purpose of the performance appraisal.
A number of researchers(5) have suggested that the two incompatible purposes of performance appraisal should be separated temporally, having two interviews as far apart in time as possible. In one, the manager acts as a coach and engages in mutual goal setting. In the other, the manager acts as scorekeeper and judge, awarding salary increases on the basis of goals attained.
At the same time, a growing body of evidence has questioned the efficacy of the traditional performance appraisal process overall. As examples, Prince & Lawler(6) and Dorfman, Stephan & Loveland(7) have presented evidence that the overall effect of the performance appraisal process is either minimal or nonexistent on behavioral measures. Others have argued against the traditional performance appraisal process based on logical and/or ethical considerations. Specifically, Scherkenbach(8) has pointed out that short term performance fluctuations are best explained by environmental factors, such as resource availability or market conditions, which are beyond the control of individual managers. Rewarding or punishing an individual based on performance caused by situational variables is not likely to lead to improvements in individual performance because the individual's behaviors is not the cause of a particular level of performance.
Furthermore, from a Total Quality Management (TQM) perspective, some writers(9) have expressed the belief that the individual performance appraisal process is detrimental to the organization. In this view, the primary purpose of the traditional performance appraisal process is directed toward identifying and articulating differences among individuals. In a TQM system, differences among individuals' performances are intended to be small through rigorous selection and training programs. If the differences in the performance across individuals is large, it is assumed that the cause rests with the system. Therefore, the appropriate emphasis is on correcting the management system, rather than the individual who is part of that system. More importantly, the emphasis on personalizing problems draws attention away from the team and cooperative nature of a work environment. In a traditional performance appraisal system, competition is emphasized rather than cooperation.(10)
Despite these shortcomings of traditional performance appraisals, we doubt that the vast majority of large corporations will discontinue using them in the near future. However, we do propose that a look at another system of appraisals, in the areas of medical care and physicians' performance, may suggest similarities to the traditional employee performance appraisals discussed earlier and also may suggest an additional role that can buttress and perhaps salvage individual appraisals. …