Research and practice in performance appraisal: evaluating employee performance in America's largest companies

SAM Advanced Management Journal, Spring, 1994 by Steven L. Thomas, Robert D. Bretz, Jr.

Introduction

Many academics and practicing managers regard performance appraisal as one of the most valuable human resource tools. It is a vital component in recruiting and hiring employees, where it is used to validate selection tests, and in staffing, where transfer, layoff, termination, or promotion decisions are made on the basis of appraisal results. In compensation administration, performance appraisal forms the basis for the administration of merit pay systems. Most important, performance appraisal can be used as a motivational tool for communicating performance expectations to employees and providing them with feedback. Finally, performance appraisal is indispensable in training and development activities to assess potential and identify training needs.

On the other hand, there appears to be a growing debate about whether the consequences of the performance appraisal are truly beneficial to many organizations. A significant number of practicing managers appear to be saying that performance appraisal may create more problems than it solves. W. Edward Deming, for example, has proposed that we should abolish production standards that specify numerical goals and eliminate all individual performance appraisal in favor of systems that evaluate performance at the unit or plant level.(1)

Regardless of one's perspective, performance appraisal systems are likely to be a subject of concern for managers and employees alike for some time to come. In fact, the trend in organizations appears to be toward merit or other performance-based pay plans, promising even more emphasis on the appraisal process. Despite the trend, and even though a stream of appraisal research has flowed unabated for years, performance appraisal, as commonly practiced, has remained a largely unsatisfactory endeavor. Performance appraisal systems often suffer from design flaws. Managers receive poor training in appraisal administration and are seldom rewarded for accuracy in appraisal. In addition, for reasons summarized in Table 1, both managers and employees tend to approach appraisal feedback sessions with fear and loathing.

Table 1 Why Managers and Employees Dislike the Appraisal Process

1. Neither rarely has any sense of ownership. They are not involved in the design or the administration of the system; they frequently are not trained to use the system, and their reactions to the system are seldom solicited and acted upon.

2. Managers do not like to deliver negative messages to people with whom they must work, and whom they often like on a personal basis; and employees do not like to receice them. Negative messages tend to generate defensive reactions and promote hostility rather than serve as performance feedback.

3. Both managers and employees recognize that delivering a negative message will adversely affect a person's career. Managers may be aware of the permanence of the "paper trail" that follows formal appraisal and are often hestitant to commit negative feedback to writing even when they do not like the individual.

4. There are few formal rewards for taking the appraisal process seriously and probably no informal rewards. There are many informal rewards for not delivering unpopular messages.

5. Managers hestitate to give unfavorable appraisals for fear that the appearance of unsatisfactory work by subordinates reflects badly on the manager's ability to select and develop employees. Lack of candor in employee evaluation is one way of "hiding dirty laundry."

A new detailed survey of Fortune 100 firms conducted by Cornell University researchers, Bob Bretz and George Milkovich, provides some perspective on the performance appraisal enigma. The survey reveals a great deal about the format, design, and process of performance appraisal as currently practiced by the country's largest employers. The results, stacked up against recent performance appraisal research, suggest that the interests of the practicing managers and those of the researchers have surprisingly little in common.

Two fundamentally different perspectives have served to create a gap between research and practice. Managers, for example, tend to focus on the processes and behaviors (fairness and usefulness) of performance appraisal, while researchers are more concerned with the cognitive aspects of the rating process. While research, on one hand, has done little to improve the usefulness of performance appraisal as a management tool, organizations, on the other hand, have been guilty of ignoring research findings that have potential to improve the appraisal process.

Performance Appraisal in Practice

The Bretz and Milkovich survey was designed to examine the specific performance appraisal practices of large American companies as a first step toward understanding why performance appraisal research has been of marginal benefit to the practitioner. The study was a detailed 20 page questionnaire soliciting responses from those in policy-making positions in Fortune 100 companies.(2) Information was requested on the appraisal systems design, characteristics, management results and the use of the results.