Vol. 46, No. 3
Creating the right performance appraisal system for your organization can help ensure that appraisals are done correctly, fairly and on time.
Initially, John was thrilled to receive a promotion. He thought his new responsibilities—such as using computers and working with vendors—would net him a substantial raise. His hopes rose even higher when, soon after moving into his new position, HR conducted a job audit. John thought his big payday was imminent.
But six months later, the audit was still incomplete and the raise had yet to materialize. What’s more, John never received a required probationary performance review, which should have given him a small raise, or a union review, which would have provided a contractually required raise.
In short, in less than a year John saw three raises slip through his fingers because appraisals either weren’t conducted or weren’t finalized. He sums up his feelings in these words: "I’ve been shafted."
An Annual De-Motivator
Employers struggling to attract and retain talent can’t afford to de-motivate employees. Yet this is precisely the result of flawed or weak performance evaluation systems. When reviews are not fair, accurate and timely, they fail to reward star performers, fail to provide encouragement and guidance to borderline workers and fail to give proper feedback to those whose work is substandard.
Even if such de-motivation doesn’t prompt workers to leave your firm for greener pastures, it may end up costing you in productivity. Take the example of Ransom, a union employee in the aerospace industry who has been with the same company for 18 years. In that time, he has had exactly one face-to-face performance review with a supervisor.
"In the beginning, you’re the lowest paid and you’re trying to work hard and get raises," he says. "But no matter what I did, nobody reviewed my work and I never got noticed. After a while, I stopped being so concerned about performance.
"I don’t think I developed a bad attitude," he says, "but I did stop being so gung-ho."
And That’s the Way It Is?
Like many others, Ron Adler, co-author of the SHRM White Paper "Example Audit of an HR Function" and president and CEO of Laurdan Associates in Potomac, Md., believes that ongoing performance reviews are ideal. But, Adler notes, many managers and supervisors aren’t trained to give the coaching and mentoring they should. (For more information on training managers to conduct reviews, see "Motivate Managers to Review Performance.")
Adler believes the only way employees can have a fighting chance of getting performance feedback is "for HR to give managers formal documents and make them do performance appraisals."
While not everyone agrees that such feedback must be formalized (see "Different Strokes: Making Informal Reviews Work,"), it would be tough to find an HR professional who would argue that feedback of any sort is unnecessary.
One advantage of a formal appraisal is that it provides supporting documentation for management decisions, Adler says. "Even though employers have a great deal of discretion in employment action, there still needs to be some reasonable justification for actions," he explains. "Without performance appraisals, questions may arise about whether the employer acted fairly or how the employer actually knew the employee’s performance didn’t meet standards."
Although it’s important to document problem performance, Adler stresses that the purpose of a performance appraisal is not to mete out punishment or avoid lawsuits. "It’s a method of getting action—either asking employees to keep doing what they’re doing, or to change."
No matter what kind of performance system you establish, taking certain kinds of factors into account can help ensure that the system is more widely accepted—and properly used—by managers and employees.
Keep It Simple
Deciding what to include in a performance evaluation system can be frustrating, but experts advise keeping the process and paperwork as simple as possible.
John Parkington, practice director for Watson Wyatt’s organization effectiveness practice group in San Francisco, says HR must avoid the temptation to use "a 16-page appraisal form or assess on 95 competencies just because your [performance review] software lets you do it."
A simplified evaluation form can have several advantages—including greater consistency among reviews, as illustrated by the experiences in the office of the governor of Idaho. Ann Heilman, administrator in the state’s division of HR, says a previous performance management system included a wide range of ratings. These appeared to contribute to a lack of uniformity in reviews.
"One manager might think, ‘If you’ve been doing your job, that’s meets expectations,’ while another manager might think, ‘You’ve been here for years and can do this blindfolded—that’s exceeds expectations,’ " she says.
Heilman revamped the state’s performance management system, rolling out a new program in July 2000. Under the new program, the system went from five rating levels to two, says Rebecca Fry, SPHR, HR officer in the department of administration. "You either achieve performance standards or you do not achieve performance standards."
This was a big transition for managers, Fry recalls. "They were afraid they couldn’t differentiate between employees, but I asked them, ‘If you had to pick out your top performers, could you do it?’ At that point they would say ‘yes’ and give me all the reasons why A was a better performer than B. I just tell managers to put this verbiage in their appraisals."
The new system forces managers to make more comments and to give more feedback. For the new program to succeed, it was important to get away from a "check the box" mentality, says Fry.
Now she hears employee comments like, "For the first time, I’m getting an evaluation that tells me how I’m doing" or "Instead of just a checked box, I’m getting comments." She believes the new system effectively meets its true purpose: to communicate to employees the status of their performance.
Other issues to consider when establishing or revamping the elements of a performance analysis system include the following:
Parkington emphasizes the need to remain flexible when developing rating criteria. "This is where one-size-fits-all doesn’t fit," he says. "There may be competencies like ‘teamwork’ that apply to everyone, and you may want to score everyone on these. However, something like ‘strategic agility’ may apply only to VPs and above, and only to certain business units."
At Mezzia Inc., an Indianapolis-based Internet company providing web-based software for the health care industry, key competencies are "generically defined so that they will fit all employees," says Michelle Sample, business manager. But, to ensure flexibility, the competencies are "applied differently for each job."
For example, a criterion that measures customer service can be applied to positions that have internal customers (such as HR or IT) or to positions with external customers (such as sales personnel).
Adler urges managers to work jointly with employees who have done the job and to get their feedback in an effort to develop realistic standards. Sample seems to have taken that to heart. The review process she created at Mezzia includes a section on employee objectives that employees and managers develop to.gether.
Just as experts encourage HR to get employees involved in establishing standards and objectives, they also believe em.ployees should play a role in evaluating their performance for two reasons.
"First, the employee gets focused on what was expected—it’s good self-reflection," says Colleen O’Neill, national issue leader for talent management with William M. Mercer Inc. in Atlanta. "Second, these self-assessments help managers see employee blind spots."
Asking employees to submit self-evaluations to managers prior to the review also removes some of the burden from managers. "Not only does it put the onus on the back of the person being assessed," says Parkington, "but the manager and employee can use it as a basis of discussion."
Clear, objective objectives.
"You want to push the employees you’re rating, but don’t set standards so high that everyone fails," says Adler. "At the same time, if everyone’s exceptional, then your standards may not be high enough."
David M. Cohen, principal at Towers Perrin in Los Angeles, says it’s important to make objectives as clear-cut and measurable as possible. "Think of skating judges who watch a skater and score within a few points of each other. They’re so close because they know exactly what they’re looking for."
Parkington adds that most companies have focused on what employees achieve, not necessarily how they achieve it. "The problem," says Parkington, "is I can accomplish a lot of things while trampling all over people. Now companies are beginning to pay more attention to how they expect employees to meet objectives."
Many companies are moving appraisals from individual employee anniversary dates to a single "focal" date on which all employees are reviewed, but HR professionals must consider the pros and cons of that strategy to determine which approach fits best in their organizations.
For example, a focal date has the advantage of placing the appraisal system in line with the company’s budget and business plans, allowing employee performance and contribution to be more accurately measured against company objectives for the year. For example, focal dates often are used for exempt employees whose objectives may be tied to business plans, says O’Neill.
But hourly workers or those who change jobs frequently may need to stay on an anniversary date schedule, she says. "The non-exempt worker’s line of sight is not as connected to the business plan, though you may want to get to that," she explains. "The association for them is when they went into the job."
Some HR professionals prefer that reviews remain on employee anniversary dates because they contend that focal date appraisals place too great a burden on managers.
"If you have a nurse-manager with 50 reports, you may need to spread appraisals out," O’Neill says. But she and other experts also believe that doing appraisals all at once ensures better consistency and fairness. "Managers make better decisions when they have all the data in front of them," she says. O’Neill also cites research within Mercer’s client group showing that shifting to a focal date does not increase the amount of time managers spend on appraisals.
"I’ve done it both ways, but I find that doing appraisals all at once is more effective," says Sample. "Managers are really thinking through all their employees, really getting into that mindset where they’re evaluating and examining employee performance and looking at who their top performers are and which ones are average."
One HR manager who asked not to be identified worked in a company that did appraisals on employee anniversary dates. She says managers tended to be generous with raises at the first of the year but would be stingier toward the end as they realized they were running out of money.
"Managers were matching ratings to how much they could give," she says. "I had to ask the question, ‘Why are people hired at the end of the year not as good as employees hired at the first of the year?’"
After getting buy-in from her general manager, who reports to the company president, this HR professional developed a new evaluation form and helped individual departments move to a focal program. But the company president wasn’t ready for the change.
"Our president’s policy had always been to review appraisals," she says, "and when 220 reviews hit his desk in March, he flipped." Result: The new program crashed. "My advice to anyone making a change like that would be to get approval in writing from the ultimate decision maker."
While communication with management’s upper echelons is always critical, the most important element is to determine what you hope to achieve by changing the timing of the review, says O’Neill. After that, HR can work on issues like when the change will be implemented or how much time managers will need to complete the appraisals.
Other experts remind HR to consider the impact on payroll departments that may be suddenly hit with hundreds of pay increases. Be sure to ask what they need to keep their end of the process flowing smoothly.
No matter which approach you take, it is important that the system be applied consistently. That isn’t always the case, as evidenced by the experiences of Debbie, a collector in a doctor’s office.
"Our appraisals were supposed to be done on our anniversary date," says Debbie. "What usually happened was that the appraisal would be given six months late, and then your anniversary date was changed to correspond with the (late) appraisal date."
This pushed the opportunity for raises back by six to 10 months each cycle because pay increases were tied to appraisals. "The longer you stayed, the more raises you missed," says Debbie, who—not surprisingly—found the situation extremely de-motivating.
Reviewing Review Results
After working with managers to put an appraisal system in place, HR can further help by sharing relevant data. Cohen urges HR to find out what managers want to know and measure, so they can evaluate how the employee is making contributions.
"Look for trends," he says. "Appraisals can point out things like systemic training needs." He adds, "You can tell whether the system is successful by asking yourself if people are using it. Are you getting fewer complaints from employees via attitude surveys and the like? Are you seeing a better fit between employees and the positions they’re in?"
O’Neill adds that process measures—such as whether employees understand what was expected and whether discussions took place as desired—can be measured by a climate survey. "Also look at the relationship between results and the distribution of ratings," she says. "Is everyone a top performer, but the business has tanked? Are all your salespeople a five but sales are down?"
Although HR can do its part to make sure the performance appraisal process is reasonable and that managers are adequately trained, the buck stops with line managers. "Responsibility for performance appraisals lies with line management, not HR," says Cohen. "If not, there’s a cultural issue with doing performance appraisals. This isn’t HR’s problem, though it’s their job to point it out to senior management.
"Ultimately, senior management has to buy into it or it won’t happen," he adds.
Anyone in HR will agree that buy-in from the top is essential to a new program. But Parkington also believes that implementation at the top is important.
"The usual method is to say, ‘Let’s pilot test this for all the clerks or all the programmer 1s, instead of with top management," Parkington says. "But top management needs to take the medicine first. Then, when you roll out the program, the organization sees that senior management has already done it."
Carla Joinson, a contributing editor to HR Magazine, is based in San Antonio. She specializes in writing about business and management issues.