What is the primary purpose of a performance evaluation?

The four objectives of performance appraisal are:

Assessment of performance

The organisation must be able to discern between those whose performance is effectively contributing to the achievement of the organisation’s objectives, and those who are not.

Reward

Those who are performing well want to be recognised and rewarded for their efforts. Outstanding performers should be identified and rewarded accordingly otherwise further outstanding performance may wane due to declining motivation.

Development

It is the role of performance appraisal to assist the employee to develop to achieve optimum performance and to remove blocks to improved performance.

Feedback

Communicating clear, specific expectations and giving both positive and constructive feedback are essential parts of performance appraisal.

BENEFITS OF PERFORMANCE APPRAISALS

A performance appraisal process provides numerous benefits for the appraiser, appraisee and the organisation as a whole.

For the Appraisee:

• Recognition for good work performance provides a sense of confidence, self-worth, job satisfaction, commitment and motivation for continued improvement
• Provides opportunity to re-assess work goals and discussion of what has worked well and what needs improvement
• Opportunity to provide reasons for potential underperformance and discuss development points for improvement
• Ability to air any grievances or speak about problems in the workplace
• Opportunity to discuss career goals and future progression
• Builds trust and facilitates relationship growth with manager through open discussion.

For the Appraiser:

• Opportunity to gain insight into individual jobs and work teams
• Opportunity to align individual, team, group and organisational goals and objectives and communicate that to each
• Opportunity to hear potential grievances or issues to be investigated as mentioned by employees
• Improved decision making ability
• Identification of development points, training needs and forecasting for future
• Increased job satisfaction, motivation and self-worth
• Improved group performance
• Opportunity to clarify expectations of individuals and teams, re-assess work goals and discuss what has worked well and what needs improvement
• Improved quality of relationships with subordinates.

For the Organisation:

• Fosters a culture where staff are valued and there is commitment to continuous improvement
• Staff are more aware of organisational goals and values and can see how their contribution affects organisational success on a larger scale, building sense of commitment
• Better employee relationships with managers creates a sense of cohesions and belonging
• Managers are more in touch with individual jobs, teams and groups
• Identification of training needs and opportunities for improvement at all levels (often discovered through consultation with employees)
• Encourages managers to hone their leadership, motivation and communication skills, making them more valuable to organisation and creates a sense of job satisfaction.

POTENTIAL DRAWBACKS OF PERFORMANCE APPRAISALS

A performance appraisal process can have a number of potential drawbacks for the appraiser, appraisee and the organisation as a whole. Despite having a sophisticated performance management system in place, the success or failure of a performance appraisal process will largely hinge upon the validity and reliability of the judgements made by the appraiser. Oftentimes, this can be influenced by managers’ personal bias and attitude towards the appraisal process generally. Both of these factors can disrupt the accuracy of performance appraisal information. Some common issues are:

Management attitude
If managers are not committed to the performance appraisal process, this can have a significant impact on the outcomes. Common attitude problems include; not taking the process seriously, seeing the process as a routine activity or merely “ticking the boxes”, reluctance to tell employees face-to-face about underperformance and failure to see how the process will benefit on-the-ground work activities and organisational performance.

Halo effect
Where the overall appraisal of an employee is influenced by the perceived presence of one desirable quality, work behavior or achievement and can skew the rater’s ability to rate the employee objectively.

Horns effect
The reverse of the ‘halo effect’, whereby the overall appraisal of an employee is influenced by the perceived presence of one negative quality, work behavior or achievement and can skew the rater’s ability to rate the employee objectively.

Central tendency
Where a rater grades every employees performance in a similar way, such as ‘acceptable’ or ‘meeting objectives’ and fails to distinguish between high performers and low performers. The tendency to rate all employees similarly can arise due to the lack of opportunity to observe employee behavior and/or a rater’s unwillingness to explain high or low ratings and create more work for themselves.

Relationship effect
Where a rater’s ability to accurately appraise an employees’ performance is affected by the nature of the relationship they share and the length of time they have worked together. Whether the personal relationship between rater and employee is positive or negative, both have the potential to affect the objective judgment of the rater and can be an unreliable evaluation.

Leniency or strictness bias
Where a manager distorts appraisal accuracy by repeatedly rating employees as high or low despite actual performance. Rationales for higher ratings include; wanting to protect an employee from receiving a negative rating or permanent blemish on record, wanting to avoid an uncomfortable conversation and feeling sorry for those whose performance was unsatisfactory due to personal issues. Rationales for lower ratings include; wanting to encourage the employee to resign, to create evidence of underperformance to assist in disciplinary and termination procedures and/or to assert dominance and control over an unruly employee.

Prejudice/bias/stereotypes Where a manager holds a personal prejudice (positive or negative) towards a particular type of person (be it nationality, gender, age, personality trait, occupation type or anything else) and allows this bias to cloud their judgment and ability to objectively appraise their performance. This can often be unconscious and difficult to identify unless a complaint is made against a manager.

For more information, please refer to our Information sheet – Legal considerations.

Recency effect
Where a manager is only able to recount instances of good or bad performance based on what is most fresh in their minds. This distorts the accuracy of an appraisal as often employees make a concerted effort to improve their performance in anticipation of the performance review process being undertaken.

Encouraging Performance Improvement.

How can anyone improve if he doesn’t know how he’s doing right now? A good performance appraisal points out areas where individuals need to improve their performance.

Motivating Superior Performance.

This is another classic reason for having a performance appraisal system. Performance appraisal helps motivate people to deliver superior performance in several ways. First, the appraisal process helps them learn just what it is that the organization considers to be ‘‘superior.’’ Second, since most people want to be seen as superior performers, a performance appraisal process provides them with a means to demonstrate that they actually are. Finally, performance appraisal encourages employees to avoid being stigmatized as inferior performers (or, often worse, as merely ‘‘average’’).

Setting and Measuring Goals.

Goal setting has consistently been demonstrated as a management process that generates superior performance. The performance appraisal process is commonly used to make sure that every member of the organization sets and achieves effective goals.

Counselling Poor Performers.

Not everyone meets the organization’s standards. Performance appraisal forces managers to confront those whose performance is not meeting the company’s expectations.

Determining Compensation Changes.

This is another classic use of performance appraisal. Almost every organization believes in pay for performance. But how can pay decisions be made if there is no measure of performance? Performance appraisal provides the mechanism to make sure that those who do better work receive more pay.

Encouraging Coaching and Mentoring.

Managers are expected to be good coaches to their team members and mentors to their proteges. Performance appraisal identifies the areas where coaching is necessary and encourages managers to take an active coaching role.

Supporting Manpower Planning.

Well-managed organizations regularly assess their bench strength to make sure that they have the talent in their ranks that they will need for the future. Companies need to determine who and where their most talented members are. They need to identify the departments that are rich with talent and the ones that are suffering a talent drought. Performance appraisal gives companies the tool they need to make sure they have the intellectual horsepower required for the future.

Determining Individual Training and Development Needs.

If the performance appraisal procedure includes a requirement that individual development plans be determined and discussed, individuals can then make good decisions about the skills and competencies they need to acquire to make a greater contribution to the company. As a result, they increase their chances of promotion and lower their odds of layoff.

Determining Organizational Training and Development Needs.

Would the organization be better off sending all of its managers and professionals through a customer service training program or one on effective decision making? By reviewing the data from performance appraisals, training and development professionals can make good decisions about where the organization should concentrate company-wide training efforts.

Validating Hiring Decisions.

Is the company hiring stars, or is it filling itself with trolls? Only when the performance of newly hired individuals is assessed can the company learn whether it is hiring the right people.

Providing Legal Defensibility for Personnel Decisions.

Almost any personnel decision—termination, denial of a promotion, transfer to another department—can be subjected to legal scrutiny. If one of these is challenged, the company must be able to demonstrate that the decision it made was not based on the individual’s race or handicap or any other protected aspect. A solid record of performance appraisals greatly facilitates legal defensibility when a complaint about discrimination is made.

Improving Overall Organizational Performance.

This is the most important reason for an organization to have a performance appraisal system. A performance appraisal procedure allows the organization to communicate performance expectations to every member of the team and assess exactly how well each person is doing. When everyone is clear on the expectations and knows exactly how he is performing against them, this will result in an overall improvement in organizational success.

Need for employee training

These appraisals also identify the necessary training and development needs to employees to close the gap between current performance and desired performance.