|Vol. 1- No 1(98)
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HOW PERFORMANCE APPRAISALS DISILLUSION EMPLOYEES: THE IMPACT OF ORGANIZATIONAL PRACTICES
Current performance appraisal systems are often mistrusted and inequitable. This article, using a case study from a telecommunications firm, presents a discussion of the factors that make current systems problematic, and argues for an approach that stresses the use of job analysis, organizational objectives, and other methods that improve the link between performance and reward.
Research data from managers and engineers in a telecommunications firm and workshop participants indicate the performance appraisal process creates problems. People mistrust evaluations and sense that hidden factors affect appraisals, salary treatment, and career movement. An engineer noted: “One of my big complaints is that effort doesn’t match the appraisal band you are put in. Why work hard if nothing happens?”
The appraisal process also involves equity issues. Employees and managers believe they will receive rewards based on their contributions. Schein (1980) referred to this mutual set of expectations as the "psychological contract" in which each party accepts the workplace culture and agrees to maintain the employment relationship. Employees provide effort, skill and knowledge while the firm grants rewards. However, employees believe they performed at a specific level, while managers often reach different conclusions. The situation becomes crucial when the perceptions of contribution and reward match, but the manager cannot deliver his/her part of the agreement due to situational factors. This jeopardizes the psychological contract. In the final section of this article, I suggest ways to diminish the impact of these obstacles and to improve strategies for completing appraisals.
What’s Wrong with the Performance Appraisal Process?
When an engineer asked why his efforts did not produce the expected rewards, Mike, a new manager told him: “I know you’re a good performer and I tried to get you a move, but I was limited by the system we use.” The following situational factors derail the evaluation-reward arrangement employees expect, but rarely find, in organizations and which lead to inaccurate evaluations and dissatisfied employees.
1. Uncertainty about Contributions. Managers feel uncertain and need data about what people do, under what circumstances, and to what degree individuals produce results. Kurt, a manager: “Our meetings have no structure. We look at last year’s results. When it comes to deciding, it’s like throwing darts.” Since technology, Total Quality Management, and downsizing initiatives have altered workplace relations, it is difficult to determine responsibility for outcomes. When managers lack knowledge about performance, they may employ arbitrary tactics like voting or “flipping a coin” to make decisions.
2. Vague Performance Criteria. The parties are not clear or do not agree about performance criteria which may be undefined, changing, or taken for granted. John: “I like employees with good attitudes, who volunteer, and talk less about pay stubs and retirement.” Arlin adds: “I use the concept of who is easy to manage and who does something extra.” As a consequence, some managers stress quality, while others demand higher productivity. In the face of vague standards, evaluators use more judgment and interpretation, opening them to charges of errors or favoritism.
3. Variation on Work Assignments. Although employees have the same job title, actual duties vary widely across the organization. John notes: “Bill, a highly rated engineer, has an outstanding reputation because his job allows him to concentrate on one problem at a time. My people get calls from customers and have to manage special projects.” This factor also depends on the evaluator’s perception, since the supervisor cannot measure output. He/she must depend on subjective measurement devices, opening the process to claims of misrepresentation and violation of the “psychological contract”.
The next three factors illustrate problems in constructing performance appraisals.
4. Size of the Organization. Accurate appraisals are more difficult to complete when organizations are large (e.g., 500 employees). Chuck observes: “A small group is easy to compare, but there are a lot of fallacies with 500-plus employees.” It takes a Herculean effort to distinguish the contributions of employees in such an enormous pool, since data are lacking or incomplete and managers seek shortcuts to complete the process and obtain results quickly.
5. Time Limitations to Complete Evaluations. Administrators do not schedule sufficient time for evaluators to create “accurate” evaluations. Ken, a 3rd level manager: “Allowing 10 days to complete appraisals would simply put off the tough decisions without improving accuracy.” But when managers are told to “rate your employees in the next two days”, errors (e.g., omitting individuals from list, forgetting about accomplishments) increase significantly so employees mistrust the validity of the results. Short time frames also lead to tactics (e.g., voting, bargaining, coalition formation) which discount contributions and employ political “deals” to complete appraisals conveniently rather than factually.
6. Forced Distributions. Appraisal systems frequently use forced distributions which require all appraisals to average 100%. This relative evaluation system makes following artificial, bureaucratic limits more important than assessing contributions. Under this zero-sum system, one’s gain is another’s loss, i.e., placement in a lower band. An engineer notes: “ Loyalty and hard work don’t count since the system works on allocation of slots, not skill or achievement. Appraisals operate on politics and brown-nosing.” Administrators calculate “moves” before they reasonably review performance to preview the impact on selected employees, producing a “loss” in assessing contributions.
7. Opportunity Structure. Organizations establish complex and relatively stable career paths for employees (Byars and Rue, 1997). In some cases, experience and effort are required for promotion, while in another setting where technology is complex (e.g., communications, electronics), there is a shift to education level and managers judge performance more on potential than accomplishments. This change increases decision-making uncertainty because participants do not agree on the standards. Ed, a manager: “Performance definitions vary each year because of who’s reviewed and the working conditions.”
8. Halo Effects. Past favorable evaluations affect current decisions. One manager said: “We use last year’s evaluation as a criterion. The person who was high keeps his or her position. I also use tenure (seniority) as a basis for evaluations. I will move someone with 4 years of service ahead of an employee with one year. I give preference to someone who’s been producing longer.” The common existence and unspoken acceptance of “halo effects” hurts those who make superior contributions but are delayed by the cherished standing of senior employees. This organizational practice establishes a “queuing pattern” where reputations count more than current behavior, forcing employees to wait their turn to advance. Halo effects take time to lose their impact, producing worker stagnation and complacency rather than energy since managers do not reward proactive behavior quickly enough to satisfy subordinates.
9. Abstractions of Behavior. When supervisors evaluate performance they may summarize and condense subordinates’ behaviors to manage the large volume of data and force appraisal conventions (e.g., completing and filing forms, interviewing subordinates) to meet deadlines. Arlin said: “The basis of evaluation is perception, not statistics. You can’t prove who’s at the top. I look at what the individual does for me.” This process distorts reality since managers may exclude significant activities (e.g., leader of a quality circle, customer service) when writing evaluations. Employees complain that the boss did not credit their accomplishments’ account. Abstracting also strains the employee-manager relationship since one party judges and assigns value to another. This weakens teamwork and reinforces self-interest behavior, i.e., concern with one’s actions, career progress, and share of the rewards (Etzioni, 1961).
10. Value Contradictions. Managers are confused about which allocation norms should be used to reward performance. Bill: “I need rewards to motivate people. They meet all the goals, but I still can’t move them ahead.” The merit system stresses equity where rewards are based on one’s contribution. A thorough examination of these plans reveals the practice of equality in which all members receive the same reward (e.g., general, progression, cost of living increase) regardless of performance. Administrators inadvertently create problems when they talk about merit but actually use a philosophy that seeks fairness for everyone. Reno, a veteran manager notes: “Managers feel we should share any openings. Our attitude is to determine how many “moves” there are and then divide these among the departments.” These conditions produce a paradoxical outcome. Performance is not accurately considered, thereby discounting employee contributions, while simultaneously stressing individual distinctions.
11. Union Presence. When a union is present, it has the legal responsibility to negotiate wage increases and monitor appraisals. The law requires the parties to discuss alternatives, blocking unilateral management actions. The union demands information about compensation practices and officers seek greater equality for their members to reduce managerial discretion in appraising and rewarding employees. Managers react to this watchdog role by being more cautious when evaluating contributions. John observes: “We fill out the forms carefully so our words match the position assigned. We don’t want to hang later. We are careful to imply nothing.” Managers may not be willing to make fine distinctions in achievements and their focus changes from preparing accurate appraisals to finding convenient appraisal methods, which inflates accomplishments to “buy off” potential complaints.
The situational factors obstruct employees’ expectations to perform, be rewarded, and appraised accurately. To counter these factors, managers use a variety of techniques when they rank individuals in a relative performance system. The approaches can be placed into several categories which share common traits:
1. Customary Actions. Managers use voting, seniority status, attendance data, and coin-tossing to break rank order “ties” during group discussions. Bob notes: “After a 45-minute discussion, we turned to voting as a way out, a way to move on.” These methods create appraisal placements but managers and subordinates see them as inaccurate -- not reflective of their true perceptions of performance.
2. Presentation of Candidates. Managers utilize oral arguments, citing productivity, quality, attendance, and volume of cost reduction cases, to make their case for employees. Chuck: “Bosses have their own idea on what defines performance. Some employees have attendance problems, yet are nominated for the outstanding category!” This attitude led to mistrust among peers while they listen defensively to refute arguments and support their candidate. Gen: “It’s a dog fight where movement depends on how you make your case.” A curious feature at these meetings is the difficulty supervisors have in recognizing individuals. A tool to overcome this deficiency is an employee “picture book”, containing names and photographs in alphabetical order. Several managers informally use these books to solve the identity crisis when “mysterious” individuals surfaced.
3. Political Strategies. Supervisors engage in win-lose behavior during the group decision-making stage. Some managers came to the meetings with specials interests which led them to use coalitions to move their “favorites” into desirable positions. They assigned employees to appraisal bands, but these actions were not widely accepted. Managers agreed to these pressure tactics when others “gave in” after long, tense meetings since they were not as resistant to the influence of coalitions. Ed observed: “Some managers raise their voices and push their candidate ahead. Since we can’t prove performance, managers present their top person, using their skill and eloquence.” Regina noted: “People are slotted because of their boss’s personality.” The result was that the most deserving employees did not receive the appropriate award due to power imbalances.
In a more balanced approach, peers “give and take” with each other. They may agree ahead of the final decision stage to allocate placements according to, for example, the number of employees in each department. This technique satisfied, but did not maximize, the goals regarding accurate, equity-based appraisal placement.
When managers had to break ties, end discussions, or face ineffective or missing rules, they applied influence tactics and simply created a new performance criterion. For example, if attendance was previously utilized to break ties between individuals with indistinguishable performance, managers would apply a new variable such as the amount of customer contact or ease of supervising the employee. John: “Supervisors accept a new procedure if it favors their situation.” The new rules produced the desired goal -- rank order lists were finalized -- but managers developed more distrust for each other. This was especially prominent when they used decision-making criteria which favored their subordinates or those of other coalition members.
How Can We Reduce the Dissatisfaction?
The main task for managers is to establish or improve the link between performance and the rewards they distribute. The following suggestions could make the evaluation process more accurate and acceptable to all stakeholders.
1. Managers and human resource specialists should begin by using job analysis to review assignments, define performance criteria for all jobs, and clarify variations in responsibilities to more accurately reward jobs.
2. Functional or project units should be divided into a size (e.g., 10-15 employees) which allows one manager to know the individuals’ contributions so he or she can appraise them accurately. This makes the manager more accountable for decisions and less likely to blame the system.
3. Managers need adequate time to prepare evaluations. A minimum of 7 working days is appropriate considering the data collection and decisions involved. The extra time would increase employees’ acceptance of the results.
4. Policy makers must reject a system that artificially forces a distribution of percentages based on the normal curve. Supervisors should be free to judge performance applying criteria which has been established fairly and communicated clearly. For example, a 4-cell plan would not allow more than 25% of the population to be placed in the top band. Managers should appraise according to band descriptions and if 35% fit the descriptions for the top band, then these employees should be placed there.
The organization may not be able to pay everyone at their appraisal band, but the ability to pay is always a compensation variable regardless of the evaluation scheme. At least this approach would build a stronger connection between perceived performance and the manager’s judgment.
5. Supervisors must be trained to see that appraisals cover a limited time period -- usually one year. Halo effects must be acknowledged and corrected if the employee’s behavior changes. There should be explicit controls (e.g., peer review) to check for inaccurate carryover judgments. This conscious effort will reduce the distortion of performance and strained relations produced by summarizing behavior to fit the limited space available on appraisal forms.
6. At the start of each calendar year, managers must review the reward allocation guidelines they want based on the organization’s objectives. If there is a need to stimulate ideas and action, the unit can stress individual rewards based on equity. If the organization believes that teamwork is needed, they must adjust the reward system to deliver rewards equally. This strategy should be communicated to employees when the situation changes. Employees’ expectations will more closely match the unit’s objectives and there will be less dissatisfaction.
7. Labor and management must develop more win-win bargaining strategies and objectives regarding financial rewards and performance appraisals. Each side, relying on open communication, should come to see the benefits in the other’s position. The union’s desire to drop a merit pay plan could benefit managers who would spend less effort “splitting hairs” over banding decisions and use the time for employee development.