Performance Management
Masterclass

Part 2

Why Traditional Performance Appraisal Methods Don’t Improve Performance

In the first part of our 6 part Performance Management Masterclass, we looked at the how Performance Management should be about improving employee performance and engagement, and we explored 5 key principles of effective performance management. In this guide we will consider traditional performance appraisal methods and learn why they are not effective drivers of employee performance and engagement.

What research tells us about annual performance appraisal methods

Organisations have been using annual performance appraisals for many years now. However, what originally started as a performance development tool, has increasingly been used to measure, rate and rank employees. This ratings-based methodology was made famous in the 80s and 90s by the global giant General Electric under its former CEO Jack Welch and was subsequently adopted by the majority of organisations across the world.

But research has demonstrated that this focus on assessment has led to a number of major problems that can no longer be ignored:

  • Problem #1 – Managers hate doing performance appraisals. Research from the CEB has revealed that 95% of managers aren’t satisfied with them. Because of this, managers often avoid doing them, or treat them as a tick-box exercise with little meaningful discussion taking place.
  • Problem #2 – Employees don’t like appraisals either. 75% of employees see them as unfair and 66% say they interfere with their productivity.
  • Problem #3 – Appraisals are not adding value. A Deloitte study found that only 8% of organisations say they add value and that the majority of companies feel they are not an effective use of time. This is especially worrying considering the amount of time taken up by appraisal meetings, completing forms and collating and moderating ratings – around 210 hours a year per manager according to the CEB!
  • Problem #4 Appraisals are not improving employee performance and engagement. A meta analysis of 607 studies of performance evaluations found this to be the case. The study also found that 30% of the performance reviews actually ended up decreasing employee performance.

Why are organisations still doing annual appraisals?

Despite the above research highlighting the problems with performance appraisal methods, much of which has been well publicised, many organisations are still basing their performance management process around an annual appraisal meeting (although this is rapidly changing due to new performance management trends which we will look at in Part 3 of our Masterclass).

So why do organisations continue with annual appraisals? This is a question that the Corporate Executive Board asked of the organisations it works with and two main reasons were cited:

1. To assess performance to make decisions about pay and promotions

Yet over three quarters of HR executives say that their performance review process does not accurately reflect employee contributions. This is due to a combination of manager bias (both conscious and subconscious), managers being unable to effectively differentiate staff performance, and managers reverse-engineering performance ratings to get the reward outcome they want. This is been proven in numerous research studies, with one major study finding that there is zero correlation between individual performance ratings and actual performance.

2. To identify poor performers and hold them accountable

However, less than 5% of employees in an organisation are typically poor performers, so it doesn’t make sense to require extensive documentation from everyone. Furthermore, managers frequently rate poor performers as satisfactory, so performance appraisals are not a reliable way of identifying poor performers.

Why performance appraisals don’t drive better performance

There are three main reasons why performance appraisal methods are not effective drivers of performance and engagement:

(a) They are trying to achieve too much in one meeting

If we remind ourselves of the key principles of performance management from Part 1 of the Masterclass (setting SMART Objectives, giving feedback, giving support, recognising success and addressing personal and career development) it is clear that trying to cover all of these in a single meeting is just not realistic, especially if that meeting is also attempting to assess and rate the individual’s performance. The end result is typically that none of the components are discussed in sufficient depth to be meaningful and the process becomes a tick-the-box exercise that disengages the employee.

(b) Discussing performance once or twice a year is not enough

If we want to improve the performance and productivity of our employees, we can’t expect this to happen on the back of one or two performance discussions a year. As we discussed in Part 1 of our Masterclass, employees need regular feedback, recognition and guidance from their manager in order to perform to the best of their abilities. Getting feedback at an appraisal meeting about something that did or did not go well several months ago will have little positive impact.

(c) Appraisals tend to be past-focused rather than future-focused

Appraisals frequently focus on whether employees have achieved their objectives over the last year and whether or not they have demonstrated the appropriate behaviours or competencies. However, in order to drive performance, we need to balance discussions about past performance with regular, future-focused conversations. Such discussions should focus on strengths and how they can be leveraged, how past successes can be replicated and, where things haven’t gone to plan, what can be learned or improved upon next time.

Summary

In this Masterclass Guide, we have explored the problems associated with performance appraisals and why they rarely improve employee performance and engagement. In Part 3 of our Masterclass we will be learning about alternatives to annual appraisals and taking a look at organisations who have adopted a continuous approach to performance management instead.

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