The Importance of Formal Performance Appraisals
Compensation Management: The Importance of Formal Performance Appraisals
Abstract
This paper aims to provide information on the importance of formal performance appraisals in ensuring the success of organizations. It discusses why there is a need for performance appraisals. A general definition and description of performance appraisals is also provided, as well as some of the differences between formal and informal performance appraisals. Finally, this paper discusses some of the common steps involved in a formal performance appraisal process, as well as the importance of each step.
Introduction
Performance appraisal is an important responsibility of managers. However, it is usually not done well or not done at all (Simpson, 2001).
One reason behind the ineffectiveness of performance appraisals is the lack of clear and established corporate objectives for the conduct of performance appraisals. It is often the case that managers complete the necessary forms, file them, but often fail to mention them again until the next appraisal, which is usually after a year. Another problem is that the performance appraisal process lacks credibility, which results from management’s failure to define the criteria for evaluation and the standards upon which the performance will be measured. Employees find it unfair that they are not made aware at the beginning of the reporting period about the aspects of the job that they will be evaluated on and the standards that will be used to measure their performance. A lack of clearly defined criteria can result in unfair ratings, intellectual dishonesty in the appraisal, and management’s and the appraisal process’ loss of credibility. As a result, the value of the performance appraisal process is not realized.
A study of the major American corporations found that 40% of managers take the performance data for granted because they felt that the performance evaluation was not useful in their organizations (Simpson). As such, it is important for the performance appraisal objectives to be clearly established and for all members of the organization to have a clear understanding of the reason for its implementation. In addition, the CEO must take responsibility for the promotion of the performance appraisal process, as well as for the performance appraisal of those who report to him or her.
Performance Appraisals
Although organizations employ various tools and have their own goals for implementing performance appraisals, their central purpose is to enable organizations to evaluate and measure each employee’s accomplishments and behavior within a specific period of time (Kumar, 2005). It is an important component of “a broader set of human resource practices” (Kumar, p. 1) and is a mechanism that can be used for the evaluation of how each employee’s daily performance is linked to the organization’s objectives.
According to McGregor (1987), performance appraisals are performed to create a learning experience that motivates employees to improve their performance and develop themselves; to provide management and the subordinates with information on the subordinates’ performance; and to provide an orderly manner of determining the employees who would be qualified for salary increases, transfers, and promotions.
With performance appraisals focusing on the evaluation of current performance and on the setting of future goals, which both the manager and the employee should work on, performance appraisals also aim to provide management with control through the establishment of objectives and the review of whether these objectives were achieved or not. In addition, it serves as a basis for reward and remuneration, as well as for the identification of each employee’s development and training needs. As well, performance appraisals enable management to identify the scope for performance improvement and the manner by which this can be achieved. Moreover, the feedback provided during performance appraisals can help improve the communication between the subordinate and the manager.
Formal vs. Informal Performance Appraisals
Performance appraisals can be conducted either formally or informally (Tony, 2010). A formal appraisal is when there is a formal contact between the employee and the manager such as during meetings with supervisors, performance reviews, or formal appraisals (Pitkänen & Lukka, 2010). This form of appraisal is planned (London & Smither, 2002), scheduled (Katz & Kahn, 1978), and the feedback provided is officially defined. It also involves formal communication among managers, formal measurement systems, and formal performance appraisal systems (Ashford & Tsui, 1991). In addition, regular feedback is provided in formal performance appraisals. This takes the form of continuous results reporting, which allow “managers a comparable time series with which to follow trends and analyze the changes over time” (Pitkänen & Lukka, p. 3). The feedback is planned in advance and systematically operates over specific periods. An example is the monitoring of key performance indicators on a monthly or quarterly basis.
A formal performance appraisal is designed to provide systematic judgments that can be used as bases for transfers, promotions, salary increases, demotions, and terminations (Grote, 1996). It allows the employee to obtain information on how the manager perceives his or her performance, and it serves as the basis for the counseling and coaching that the superior needs to provide to the employee.
An informal appraisal, on the other hand, is conducted whenever the manager deems necessary to provide the employee with feedback. This allows for the employee’s performance to be evaluated on a daily basis where the feedback can be provided through an on-the-spot examination of a piece of the employee’s work, over coffee, or during a conversation on the job. With informal performance appraisals, feedback is unsolicited, unscheduled, and unplanned. It is provided outside formal mechanisms and through social sources such as self, task, peers, and superiors (Luckett & Eggleton, 1991). With informal performance appraisals, irregular feedback is provided, which assists and enables faster responses in the daily management and decision-making process.
Although formal performance appraisals should never be eliminated, it’s just as important to employ informal performance appraisals to curtail any bad behavior or poor performance before it impacts the organization in a major way. For example, if an employee constantly fails to attend meetings then it’s important for the manager to immediately call the employee’s attention to the matter so as to prevent the employee from missing more meetings and the important information discussed in those meetings. This will also prevent the other employees from feeling demoralized due to the former employee’s behavior. Another example would be when a manager asks an employee for an ad hoc report due to alarming changes in a particular customer, product, or market segment. In addition, frequent informal performance appraisals can prevent any surprises when the results of the formal appraisal are discussed. As well, even if the manager does not provide regular feedback, the employee should seek this out as it would help the employee know how they are doing at the job; what they need to do more of; and what they should never do again (Lucas, 2010). The compilation of all this information for delivery only at the annual performance appraisal will not be helpful for the employee.
The Formal Performance Appraisal Process
A “formal performance appraisal is an annual meeting that takes place between” (Burke, 1999, p. 397) the manager and the employee. Ideally, the performance appraisal should be a part of a year-long cycle that consists of the establishment of performance goals and objectives, coaching, and the conduct of formal appraisals. Goal setting sets the path for the employee’s development for the next year while coaching involves activities where a superior supports the employee in the achievement of the goals set for the review period. The actual performance appraisal, on the other hand, is when both the manager and the employee assess the employee’s performance based on how well the employee has achieved the goals within the review period.
One benefit of conducting a formal performance appraisal is that it allows the manager to inform their employees that they are performing their jobs well. Positive reinforcement allows a manager to work well with their subordinates. It is also an effective way to motivate the employees. In addition, it provides the manager and the employee with an opportunity for communicating privately. It also gives the manager and the employee a chance to plan for the future through the re-examination of responsibilities and roles. It makes the process of giving salary increases less arbitrary and it also serves as a vehicle for analyzing the employee’s training needs and for planning their career. Employees need and want accurate information about their performance and they value suggestions on how they can improve (Kelly Services, n.d.).
Various models are used to describe the formal performance appraisal process, but these would generally include the following steps: clarification of the job duties; communication of the performance standards and expectations; observation and documentation of performance; reporting of performance; and development of performance (Alaska Department of Administration, 2011). It should be noted that this is not a linear process; rather, it is cyclical and a change in any of the steps can trigger a need for action or a change in another step.
Before the performance appraisal meeting, the manager should review the employee’s responsibilities and perform an assessment of whether the employee fulfilled his or her performance obligations. This should be based on a formal job description. However, if there’s no job description in place then the manager should take the time to document what they believe should be the employee’s roles and responsibilities.
A meeting should then be scheduled with the employee for the discussion of their performance. The employee should be advised to review their job description prior to the meeting and reflect on how well they met the performance goals. This ensures that both the manager and the employee have a common understanding on the criteria with which the employee will be evaluated on. As well, the manager should assess their role and their contribution to the employee’s performance – for example, there may have been times when the manager failed to answer the employee’s question, which could have had a negative impact on the employee’s performance. This will keep the employee from feeling that the appraisal is unfair.
During the actual performance appraisal meeting, the manager should share their agenda with the employee. The manager can start the meeting by asking the employee to present an assessment of his or her performance. With this strategy, the manager is able to learn more about the employee, the employee becomes less defensive, and the managers may no longer need to bring up the issues as the employee is bound to bring up these issues first. More importantly, this makes the employee feel more involved in the process.
The manager’s agreement with the positive comments builds positive rapport between the manager and the employee. When dealing with the negative comments, the manager and the employee must discuss ways for the employee to improve their performance and set a time line for the correction of these performance issues. In addition, the meeting should be used to discuss performance goals, which should be related to the results of the current appraisal, and to support the development of the employee’s future performance. It should be noted that the development of employees involves more than just providing them with training. It should also include all efforts to promote learning, which s a daily occurrence on the job (U.S. Department of the Interior, 1995). Focus on the employees’ overall capacity to perform ensures the goal achievement, well-being, and survival of both the employees and the organization.
In a formal performance appraisal, the appraisal must be documented, particularly the focus of the discussion, the goals, and the timeline for the achievement of these goals. Setting a timeline is helpful especially if the manager anticipates that progressive discipline will be needed. One copy of the appraisal should remain with the manager and another copy should be provided to the employee. The use of evaluation forms also ensures the confidentiality of the evaluation’s content.
Finally, the manger should ask the employee to sign the completed performance appraisal document. This is important in providing a formal conclusion to the performance review.
Even after the yearly performance appraisal has been conducted, it is important for the performance to be monitored and tracked regularly and not just during the yearly appraisal. The manager should ensure that all goals are met by the set timeline and that a review is performed to evaluate whether the employee has met the performance objectives. This will prevent any negative surprises during the yearly appraisal and will allow the employees to be informed of how their manager regards their performance at all times throughout the year.
Conclusion
It's established that a formal performance appraisal process is necessary to ensure that performance appraisal is performed on a regular basis and in a matter in which they help the organization meet its objectives. Performance appraisals in general aim to measure and evaluate an employee's behavior and performance, as well as gauge how the employee's performance contribute to the accomplishment of the organization's objectives.
Performance appraisals can be either formal or informal where formal performance appraisals are performed in formal settings, with formal systems in place, and with regular feedback provided. Informal performance appraisals, on the other hand, are provided as needed and under any condition within the work environment. It is unsolicited and can take on any form where irregular feedback is provided.
Finally, an effective formal performance appraisal process includes steps for clarifying the employee's job duties; communicating the performance standards and expectations; observing and documenting the performance; reporting the performance; and developing the performance. These steps are cyclical and should be performed in a continuous manner.
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