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The aim of this essay is to critically assess the effectiveness of various performance appraisal systems from the perspective of employees and employers. The essay will progress in a step-wise manner initially covering a discussion on different types of performance appraisal systems currently in practice, followed by a range of arguments to develop a detailed critical evaluation of their effectiveness for both, the employees and employers. Finally the closing arguments will conclude the essay by re-capping the effectiveness (if any) of these employee appraisal systems.
Performance appraisal systems have accomplished a great deal of acceptance amongst small and large organizations (93% and 97%, respectively) during the last few years (Dessler 1997, pp. 371). Before discussing any of these performance appraisal systems (PAS), it is important to know what they actually are. Randell (1989, pp.194) puts the concept of the performance appraisal in its simplest form by saying that it is a "process when individual's work is observed, assessed, recorded, reported and discussed with the purpose of, somehow, improving the quality or quantity of work done, and maintaining or increasing the satisfaction the individual obtains from doing it". However, the said process is ineffective unless it is supplemented by a set of pre-defined methods to carry out the actual appraisal. Such methods working in conjunction with the appraisal process define a performance appraisal system.
Nevertheless, the whole process is not as simple as it appears to be. The complexity of the performance appraisal systems has been widely underestimated, which explains why so many organizations fail to implement an effective appraisal system. These performance appraisal systems are enormously dependable on the resources available to an organization such as a willing manpower to carry out the assessment, budget and time. A series of questions can be raised at this point, such as why so many organizations whether big or small are interested in implementing a performance appraisal system? What factors motivate firms to opt for such risky, costly and time consuming appraisal systems? According to Redman and Wilkinson (2009, pp.178) few of the reasons are; "defining performance expectations, identifying training and development needs, providing career counselling, succession planning, improving individual, team and corporate performance, facilitating communications and involvement, allocating financial rewards, determining promotion, motivating and controlling employees and achieving cultural change". Appraisal systems are not only limited to determine employee pay and benefits. The scope of these systems has gradually evolved and now extends to various organizational processes as indicated in the reasons mentioned above.
Performance appraisal systems have existed for a long time in business practices now. Most of them have lost their novelty over time. Consequently, the effectiveness of these appraisal systems has been affected. To replenish the diminishing effectiveness of these performance appraisal systems, a string of new, rather complicated ones have gradually taken their place. Some of these commonly used performance appraisal systems being discussed in this essay are; Upward appraisal, competence based appraisal, customer-based appraisal, team-based appraisal (Redman and Wilkinson, 2009; pp. 181-186), 360° degree feedback (Ward 1997), Rank and Yank (Rediff 2003), Management by Objectives (Dessler 1997, pp. 357) and the Critical Incident (Dessler 1997, pp. 351) appraisal methods.
Firstly, Upward appraisal or simply the 'Appraisal by Subordinates' being a fairly new approach to evaluating performance in the UK (Redman and Wilkinson, 2009) is being widely accepted in smaller and larger firms now. The appraisal system consists of forms which are used by the employees to evaluate their manager's performance. The system is more appreciated by the subordinates than the managers. Reason being the managers on the 'receiving end' of the evaluation (Grint 1993). Anonymous evaluation forms are used to collect required information. This allows the employees to comfortably assess their supervisor's performance which often results in fair and honest evaluations. Since the employees have a considerable amount of power to influence the appraisal, it sure is a matter of concern for the managers if their subordinates are bring too defensive or aggressive while performing the performance evaluation.
Competence based appraisal system, is where the progress of an employee is assessed with respect to pre-defined organizational goals and performance standards. This performance appraisal system can very effectively identify the areas of improvement for employees (Redman and Wilkinson, 2009). The employees need to know where they currently stand in order to improve their performance. Clear communication and feedback between the employers and employees is vital. This appraisal system allows both by effectively conveying the actual quality of work done by the employee. Hence provides an excellent opportunity for the employees to streamline their performance with the level of performance expected by their managers and self-evaluate their current standing.
For many organizations their customers are a primary source to collect data for performance assessment. Such organizations have acquired the 'customer-based' appraisal method to cater their requirements. The collected customer feedback is incorporated in their performance management tools. Relevant examples of customer comment cards, customer quality feedback requests, telephone and mail surveys etc. The customer-based method along with its associate 'mystery shopping' aims to collect first-hand information about the customer opinions. Mystery shoppers are usually third-party researchers pretending to be normal customers with an aim to collect required data. It is carried out using customer satisfaction surveys, product feedback forms, registering the time taken for the customer to be served, asking them questions directly or simply by registering their complaints. The acceptance of this system is however, questionable. As noted by Redman and Wilkinson (2009), it has been argued that since the reliability, professionalism and training of these researchers directly impact the employee's appraisal such a method not only lacks credibility and affects the trust between employee and employer but can also prove highly unfavorable for the employee's assessment. Hence the system has been unsuccessful in gaining acceptance by many businesses.
Performance appraisal systems are only subjected to individuals. Team-based appraisals are equally common amongst organizations. It is a different approach used to conduct performance appraisal within various teams. Supervisors empower the team-members to carry out the evaluations amongst themselves. Team-based appraisals in this manner effectively promote teamwork, enhance group performance and provide an opportunity to the members to resolve their differences by mutual consent. This technique is contrary to that of the 'Individual assessment' or self appraisal method. Here, the employees working in a team are responsible to grade each other according to a set of pre-determined objectives and performance criteria.
Another widely used performance appraisal system commonly in practice is the 360° appraisal method. It is "the systematic collection and feedback of performance data on an individual or group derived from a number of the stakeholders in their performance" (Ward 1997, pp.4). The appraisal system consists of managers, supervisors, staff, team members, customers and friends who contribute in evaluating an employee using questionnaires (Ward 1997). Apparently, the success of this traditional method has been dependant on the way information is collected and the feedback utilized. The feedback in this particular method allows great flexibility which permits the information to be used in various organizational processes. Ward (1997) cares to mention a few of these as; individual counseling, team-building, performance management, validation of training and strategic organization development.
Ranking and Yanking being another fairly recent addition to the league of appraisal system aims to identify the poor performers by using a 20:70:10 ratio. Employees are categorized into three groups as; superior, standard and under performers (Performance Appraisal News, 2001). Employees evaluated to be in the 10% are poor performers and are asked to quit, if they don't, then they are usually terminated without any kind of compensation. Surprising, many of the well-known organizations like Microsoft, Ford, Pepsi and a few others are practicing this rather infamous performance appraisal system (Rediff, 2003)
Management by Objectives or simply MBO is an appraisal system where superiors and employees work in close collaboration to determine the goals set for measuring performances. Here, employees are in control of their own course of action where they are empowered to set their goals against the standards of the organization. In comparison with the upward appraisal, this method follows the same pattern of flexibility i.e. the freedom of goal-setting rests in the hands of company employees. However, two major drawbacks of MBO approach are; employees setting unclear, unmeasurable goals and the appraisal method itself being too time consuming (Dessler 1997). Thus SMART (specific, measurable, achievable, realistic and time-based) objectives are required in order to make an efficient use of MBO method.
In conjunction with all these performance appraisal systems, a rather less common approach to evaluating employees used is that of the Critical incident method. The system is based around the records of employee events. Events related to the employee for e.g. recognition of duty, rewards, grievance, disciplinary etc. These records are then utilized in annual review meetings to facilitate judgments in various appraisal activities.
Due to the diverse nature and properties of these performance appraisal systems organizations tend to favor one over another. Criticism is bound to happen. Each one of these appraisal systems has had their share of criticism by the management itself, if not the employees. This section of the essay will particularly focus on the effectiveness of these appraisal systems with respect to different perspectives of the employers and employees. Arguments will be drawn by linking these perspectives of the employees and employers with the appraisal systems discussed above. The arguments will determine the effectiveness of the system for both parties.
Performance appraisal systems are highly dependable on the acceptance of people who are being influenced by them. How the employers and employees cope with these systems determine their success. Performance management systems are unlikely to be effective unless every participant thinks they are fair (Ilgen et al., 1979; Murphy and Cleveland, 1991). Cook and Crossman (2004) agree with this idea in their study about the relationship between levels of satisfaction in PAS (performance appraisal systems) and people acting as an appraiser or appraisee. As cited by the authors, it is also worth mentioning that still a lot of organizations in UK are dissatisfied with their currently implemented performance measurement methods (Fletcher 1993).
With countless benefits of the performance appraisal systems, there are many downsides too. It is difficult to imagine a successful system in the wake of any of these scenarios. Most of these appraisal methods are comprised of pre-determined measures to rank and rate employee performance which make them unpopular amongst the workforce. Managers in most cases are not properly trained to conduct and measure appraisals, at other times they are just not bothered. Taking the company's perspective on this one, factors like unwilling manpower, low budget and poor timing may also affect the efficiency of the system. Poorly performed appraisals may damage team- working, increase stress levels in workforce, trust between employee and employer and the stability of the workforce (Bradford University, 2010). Appraisal systems are ought to be carefully selected, implemented and conducted. Thus the performance appraisal systems can be highly accurate or just a mere waste of both, resources and effort.
Linking the previously discussed upward appraisal method in the essay with a company's perspective, the management especially the higher-ups would definitely oppose the implementation of such an appraisal system where subordinates are given the opportunity to assess their superiors. Why would the management oppose it? A possible factor can be the resulting evaluations which can be well biased if employees tend to abuse the appraisal system. For example, a number of subordinates teaming up against a particular manager for whatever reason or being too defensive or aggressive to properly evaluate the manager as mentioned before. Giving employees the judgment-power they are not formally trained for can raise a lot of concerns for the management. The system being classified as unfair would consequently lose its effectiveness with respect to employer's point of view. Still a considerable number of organizations actively practice this appraisal system, hence IIgen et al (1979) and Murphy and Cleveland's (1991) statement discussed about PAS's effectiveness can very well be challenged here.
However, contrary to this, the system can also be very effective for the employers because they get to know how they can improve themselves. For the employees, as noted by Redman and Snape (1992) Quote link in end it provides them with power of judgment, a feeling of self-importance and a platform where their opinions can be heard.
When we talk about competency and continuous feedback we talk about the competency-based appraisal method. It would be quite true to imagine that employees may prefer this method because it prefers individual assessment over pre-determined ratings and ratios like most of the other systems. It continuously provides the employee with a fair chance to improve their work output. Improved output would obviously lead to motivational factors like promotions and rewards as discussed before in the 'Need Theory'.
Information for the appraisal can be collected by means other than the immediate manager. All the three appraisal types discussed earlier; team-based, customer-based and 360° follow this pattern. Such information can be quite unreliable if not collected properly and its validity can be questioned. Further to that, if these three appraisals are linked with the employee's perspective, then it can be concluded that employees can very well fall prey to unfair evaluations by their management, team-members and co-workers. Reasons can vary from simple competition to prejudice, or both. While employers on the other hand think it promotes openness and honesty between co-workers (Hugget 1998). According to Redman and Wilkinson (2009), having such third party sources for information as a part of company's performance measurement tools affects the trust between managers and employees. On the contrary, for the employers, it can be an excellent tool for an organization to acquire certain information about their products too which would definitely help better market them.
Performance appraisal systems have been a target of critics for as long as they have existed. Each appraisal system in today's business world has its own strengths and weakness. It is the responsibility of the organization to sensibly select a performance appraisal system that can cater its performance management needs. This essay can be concluded by saying that the effectiveness of the performance appraisal systems highly depends on how it is selected, implemented and measured. The appraisal systems are not perfect, and apparently, they never have been which is why they are quite unpopular within the businesses. Both the employers and employees need to adapt and learn from them and remember the importance of identifying their weaknesses, which is the primary reason why performance appraisal methods are used in the first place.