Performance Appraisals (The Good, Bad & the Ugly)

Fred walked down the hall heading toward his cubicle when Tom, his boss, asked him to step into his office.  “I’m in a real hurry, Fred.  Here’s your annual performance appraisal.  Please sign here so I can turn it in on time.  You and I both know this is just paperwork so do me a favor and just sign it.”

Sounds like an unlikely scenario doesn’t it?  It isn’t.  Millions of trees have been destroyed to produce the paper that contains similar worthless performance appraisals. 

Here’s my thesis for this Weekly Insight: Most performance appraisal systems do more harm than good. 

The Ugly

The opening scenario with Fred is not as far fetched as it may seem.  I’m not sure why so many managers, who are so savvy when it comes to other areas of business, seem clueless when it comes to how truly ineffective they are in motivating their employees to higher levels of performance.  In these “ugly” situations, it would be better to have no performance appraisal system than one that makes a mockery of the whole idea.  If “it’s just paperwork,” find something better to do with the paper.

The Bad

In the “bad” scenarios, everyone seems to take the performance appraisal system more seriously.  Supervisors and managers spend hours preparing for the annual appraisal discussion.  All the ducks are “put in a row” before the employee is invited in to “hear what the boss has to say about his/her performance.”  Most of these systems attempt to link pay with performance, but my experience shows that true merit pay increases (those that are significantly above the average raise or at least above the annual rate of inflation) rarely occur.  Associates who have not performed well at all (and who should receive no increase) merit a close-to-average raise (just below average).  And then we think that we are really motivating our excellent performers with a just-above-average increase.  We can’t reward our stellar employees because management hesitates to give the bottom performers “0” raises.  It almost appears as a dance with each person playing a part, hoping he doesn’t step on any toes or get stepped on in the process.

The Good

Here is how I would define a good performance appraisal system.  It is a system that enhances: 

• The employee’s trust and faith in his/her supervisor
• The loyalty that the employee feels toward the company
• The alignment between the employee’s goals and the goals of the company

So how does one go about creating such a system?  Here are a few ideas: 

Separate the performance appraisal discussion from the wage discussion.  These two conversations should be separated by time (at least a month) and space.  If you don’t do this, the employee will be focused on one thing and one thing only as you drone on about his performance—show me the money. 

Make the performance appraisal process occur in real time by having monthly one-on-one discussions with each of your direct reports (see Weekly Insight Volume I, Issue 23).  The annual written appraisal will then merely formally document the continuous feedback you have provided to help your direct report grow. 

Focus the performance appraisal on one thing—how to improve the employee’s performance.  You may also discuss career planning, education and training needs, etc.  Show the employee how his goals can align with the goals of the company.  Make the discussion a win/win situation.  (Use S.M.A.R.T. goals—see Weekly Insight Volume I, Issue 26). 

Make the wage/salary discussion a reality check.  Show your direct report where his wage/salary falls (based on his job description) using survey data from similar sized companies in your area.  (This information is usually available at a reasonable cost from an information aggregator.)  By the way, this only works if you are paying at least at the median rate for your area.   Your goal is to demonstrate to the direct report that his base wage/salary is fair for your area.  If you want to go beyond the base wage/salary, discuss any incentive programs the company has in place that is tied to overall company performance.  Remember, this is not a merit pay discussion.  This is a “look, you’re being paid fairly” discussion. 

Contact me for more information on how to set up a performance appraisal system that does what it’s supposed to do.  Please--make sure that the way you assess performance is a “Good” system.  Your employees deserve it. 

Keith

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