I am currently involved with a client in facilitating the development of a new performance appraisal system for the company

I am currently involved with a client in facilitating the development of a new performance appraisal system for the company. It has given me the opportunity to benchmark best practices and to research the entire area of performance management. As I found with a previous article on pay and performance, there is no perfect system for performance management.

Next to firing someone, doing an annual performance appraisal is the task that managers dread the most. Employees probably rate having an appraisal just below having a root canal as something they look forward to. Yet despite this pain, people and organizations endure this annual activity. Most managers would say that performance appraisals are necessary to manage organizational performance.

The fundamental problem is that most managers equate the annual review with performance management. In reality, a once per year review of performance has little impact on individual or company performance. Most appraisal systems reflect on the past, rather than provide guidance to the future. The most important purpose of the annual review should be to improve performance in the future-not just for the employee, but also for the organization.

When asked for reasons for having an annual review system in place, the following answers are usually given-a way to motivate employees to better performance, encourages communication between boss and subordinate, a vehicle for coaching, a way to make objective pay, promotion, and termination decisions, and documentation in case of legal action. The reason that most appraisal systems are ineffective is that they try to achieve all of the above purposes in one document.

For example, an analysis of the use of performance appraisals in legal proceedings found that the appraisals generally benefited the plaintiff-the employee-more than the company. Too often, there was a track record of favorable ratings prior to an unfavorable rating. Juries can be easily convinced that the problem is not
the employee, but rather a new boss or a hidden agenda by the company to get rid of the person.

If the performance management system focuses on the primary objective of improving organizational performance, it will have the following elements:

? A clear definition of results, outcomes, and behaviors expected in the job. The focus on lower level jobs is behavior and outcomes directly under the control of the individual.

? Reviews of performance will happen informally throughout the year.

? Performance discussions are a two-way dialog between boss and subordinate that focus on future performance, not on a judgmental evaluation of the past.

? The annual appraisal form is simple and consists mainly of narrative comments. A single number or scale is not used to measure performance.

Grading or categorizing performance is difficult. In an attempt to simply ratings scales and reduce subjectivity in ratings scales, I would suggest using a similar concept that we use in our customer satisfaction work. When talking about customers, we put them into three categories-dissatisfied, satisfied, and advocates. Customers are dissatisfied when their expectations are not met. They are satisfied when expectations are met. A customer becomes an advocate when they have a positive experience that was not expected.

In evaluating employee performance, the same three categories can be used. The first category is “Did Not Meet The Expectation”. If objective expectations-outcomes and observable behaviors-are clearly established and agreed to by the employee up front, then there should be less chance of employee defensiveness to this rating if the rating is applied to each expectation. The focus on the appraisal session is understanding why the expectation was not met and what can be done to meet it in the future.

The second category is “Met The Expectation”. This rating communicates that the employee is valuable and contributed to the success of the organization. It should not be construed as an average or middle-of-the -road rating. If the boss and employee establish a good set of expectations, and the employee achieves them, then everyone should be happy and satisfied. If a rating of “meeting expectations” is considered average or mediocre, then it is not the employee who is mediocre, but rather the expectation.

The third category is “Achieved A Positive Outcome That Was Not Expected”. Note that this is different than the traditional “Exceeded Expectations” rating used in many systems. The problem with exceeding expectations is that it is impossible to do better than meet expectations for many desired outcomes and behaviors. For example, if the expectation is to be on time and at work every day, how does an employee exceed that?

The third category is reserved for outstanding accomplishments. Again it is applied to specific areas of performance, not a general rating. It also provides a sound basis for providing bonuses and other pay incentives and recognition.

Any grading system will fail if expectations are not clearly defined. Employees have the right to know what is expected of them and how they will be measured.

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