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Is it time to give up on performance appraisals?

Gabriella Jozwiak , 22 Oct 2012

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Every workplace has its idiosyncratic seasonal events, and HR is perhaps most visible during the annual performance appraisal. Why? Because employees dislike them. They are time-consuming, involve too much paperwork, HR would even do better to drop them altogether and find a better performance-management tool. Sound familiar? You’re not alone.

A recent US poll of 2,677 people (1,800 employees, 645 HR managers, and 232 CEOs) by San Francisco-based rewards-and-recognition consulting firm Achievers revealed 98% of staff find annual performance reviews unnecessary. Remember - among the 2,677 respondents, a quarter were HR professionals.

Edward Lawler, professor of business at University of Southern California, reacted by declaring: "Performance appraisals are dead." But he also unveiled research showing 93% of companies use annual appraisals, and only 6% have considered dropping them.

The UK picture is similar. CIPD research from 2009 showed more than 80% of HR practitioners carry out performance appraisals. But management consultancy Hay Group found half of public sector workers and one-third of business leaders describe appraisals as a box-ticking exercise. The Institute for Employment Studies (IES) published a report last year, warning that HR under-communicates the aims of performance management, and "too often talks about performance management as an administrative procedure". The Institute for Leadership and Management (ILM) reports 93% of UK workers are concerned low-level management skills are directly impacting on business.

Professional bodies such as Acas recommend firms conduct appraisals to provide evidence of performance problems in case of unfair dismissal claims. But they are not legally required. "There is a lot of ambiguity around performance management compared to the strict laws around making people redundant," says Selwyn Blyth, partner at law firm, Pinsent Masons. "Appraisals are part of work cultures and our clients would look at me in horror if I said they weren't."

HR departments have invested large amounts in appraisal processes - one reason why they may be reluctant to shed them. But HRDs argue that money was well spent. The processes are good - the managers are the problem. "One of the skills that is often not developed is understanding what an appraisal is and why it is relevant to the whole organisation's success," states Charles Elvin, chief executive of the ILM. "Being able to appraise is a fundamental management skill."

ILM's research shows only 18% of UK employers expect managers to have received management training before their appointment.

Mary Mercer, principal consultant at IES, says bad management has pushed HR to enforce the appraisal system. "It is not HR's responsibility to manage staff," she argues. "HR has tried to force people into it by having complicated forms and monitoring - trying to get around the fact that managers aren't doing it effectively."

The economic argument for a robust appraisal system linked to the organisation's wider strategic objectives is strong. Good performance management can provide successful staff development, ensuring internal promotions and lower recruitment costs. According to ILM, only 55% of managerial vacancies are filled internally.

The appraisal process takes time and must be built into budgets. CIPD research suggests recruitment costs for a senior manager can top £8,000. With a workforce of 100,000, spending three hours on each appraisal at £10 per hour amounts to £3 million. External factors mean organisations wanting to increase their turnover have a greater challenge. The IMF downgraded its UK 2012 forecast in July to a GDP rise of just 0.2%.

"That says raising the productivity of employees is key," says Deborah Allday, senior partner at Hay Group.

Allday suggests that one barrier to appraisals increasing performance is organisations placing too much emphasis on best practice. "Each company is unique because it has its own strategies, so each needs to have its own performance model underpinning performance management."

Hannah Stafford, head of business psychology at HR consultancy ETS, agrees organisations too often use off-the-shelf solutions. "They are doing all the right processes, but not in a way that gets the data they need. Everything in your performance management should be linked to the company's strategic objectives."

Allday clarifies: "HR reporting that 90% of managers completed their appraisals on time is not a useful statistic."

Beyond the bespoke approach, there are areas of consensus. Commentators agree meeting once a year is not enough. The formal appraisal, where pay may be reviewed, should be punctuated with regular one-to-one meetings and smaller interim reviews, depending on the business's size.

"Appraisals should be a summary of conversations that have taken place day to day," says Paul Matthews, founder of management development company, People Alchemy. "When there is a surprise in an appraisal - good or bad - not enough communication is occurring."

HRDs who have recognised these characteristics are using appraisals to drive staff performance and generate data for senior management teams. Three years ago, global professional services firm PwC implemented a fresh approach that emphasised the 'big picture'. "We took the firm's performance goals and explained each one, then gave examples of how they might translate to individuals' objectives," says Toni Graves, head of performance and reward at PwC. "People want to know how their role plays into the firm's overall strategy."

The collation of performance appraisals results has also been simplified by technological developments. HRDs analysing data from reviews have reported improvements that would otherwise have been missed.

Sam Shepherd, group HR manager for hotel chain, Jury's Inn, recently rejuvenated the organisation's online appraisal tool. "We can collect appraisals of 300 managers within one month and produce reports within weeks. If I found out a high proportion of managers were frustrated at one hotel, I could go there straight away. That wouldn't happen with a paper-based system."

Chris Whitfield, projects and strategy implementation manager at housing charity Shelter, is in the process of installing a new performance appraisal system. He has involved employees throughout the process, a method he says will make staff more dedicated. "Some organisations like to set objectives from the top and cascade them down, but if you set and impose, you never get the same commitment as if you involve the whole team in objective setting," he says. As at many organisations, the focus is shifting from purely performance to include behavioural measures.

But if performance appraisals were abandoned, some smaller organisations would continue to function. "If the people running the organisation were talented, performance management would happen naturally without HR," suggests Graves.

Matthews agrees: "At more personalised businesses, informal appraisals happen daily. But that control mechanism needs to be in place in larger organisations."

Despite criticisms, performance appraisals are set to remain an important component of performance management. Lawler believes HR directors should focus on their improvement.

Looking ahead, HRD professionals seem enthusiastic about technological innovation streamlining processes. "In future, we will be doing reviews on a tablet - that will be less intrusive than around a computer," says Shepherd.

Graves favours social media. "It would enable people to give constant, short feedback in the same way people leave comments on Twitter," she says. "These would remove barriers and make appraisals feel more like how we react daily in our personal lives."

What the debate has revealed is good news for HRDs. There is no need to reinvent the wheel - the system is good, but misunderstood. As one HR expert puts it, "It is frustrating, because it's just not rocket science."

11 comments on this article

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It's not time to give up - just make it super efficient

Jane Sunley 22 Oct 2012

As Sam Shepherd says, putting appraisals online and having a simple, user-freindly system is the key to making this happen. It's also vital that managers and leaders are committed to dealing with day to day performance and other issues on and ongoing basis. This way the annual / bi-annual review becomes a forward looking initiative concerned with managing aspirations,revieing and setting goals, putting succession plans in place and as a general a opportunity to reaffirm and reinvigorate. And of course the value and capability online systems have of helping organisations align personal goals with strategic aims cannot be underestimated.

Performance appraisals might have been killed by appraisers with no authenticity

stephen moreton 22 Oct 2012

It's interesting that ACAS encourage firms to conduct appraisals to provide evidence of performance problems in case of unfair dismissal claims. Cross-referencing with another discipline, this constitutes defensive practice. ------ Assessing and Managing Suicide Risk: Guidelines for Clinically Based Risk Robert I. Simon (2004) “Defensive practice may involve acts or omissions that are not for the benefit of the patient but are undertaken to avoid malpractice liability or to provide a legal defense against a malpractice claim.” ------ Now if the purpose of appraisals were to encourage discretionary effort of staff there is another perspective. Chris Welford, MD of Sixth Sense Consulting (Edge Magazine – Sept/Oct 2012. P37) states: “It’s an emotional rather than rational response that unlocks discretionary effort where employees will go that extra mile for you” So to breathe life and soul into performance appraisals, appraisers need authenticity – cited as the key factor in inspiring an emotional response (Edge Magazine, same article). So when Edward Lawler, professor of business at University of Southern California, declares "Performance appraisals are dead.", you could argue, he should be saying “Performance appraisals have been killed by appraisers with no authenticity"

Finally sanity is beginning to surface

Wally Hauck 22 Oct 2012

Finally it appears there is a trend to eliminate the leadership malpractice of the typical performance appraisal. It is about time. For 10 years my clients have been implementing a replacement called the Complete Performance Improvement Process (CPIP). http://www.wallyhauck.com/about.asp

Performance appraisals aren't about

Melany Gallant 23 Oct 2012

It's not time to give up on performance appraisals; it's time give up on the old way of conducting them. Good performance management is an ongoing practice, not a once a year task. It ensures employees get the continual direction, feedback and development they need to improve and succeed. It helps align your workforce and drive business results. If organisations want to improve the process, they need to evaluate how both the employee and the manager can participate in the process in a meaningful way. This means organisations need to train managers on how to be better coaches, how to give effective in-the-moment feedback that drives change in an employee's performance.

Ongoing conversations vs Appraisal

Alan Staniforth 24 Oct 2012

My experience suggests that most HR functions wrongly retain ownership of 'appraisal' rather than just ownership of the performance process. Average executives, managers and supervisors find it difficult to manage the performance of subordinates because they are inadequately prepared and there is little expectation from the top levels that managers and supervisors will perform PM very effectively. Most PM processes that I've seen have the potential to continuously improve the performance of everyone. However, two fundementals are often missing. Firstly, appraisers and appraisees have little expectation that the process will continuously improve performance and so don't invest quality time. More importantly, the executive level fails to make clear/define what 'performance' looks like for successful individuals. Alan

Simpler is Better

Keith Appleyard 24 Oct 2012

My personal experiences were that I'd never had had a 2-way conversation on my Performance in the 9 years I worked at GEC in Coventry, so found a culture shock when I changed job with American Express. However in later years, the Performance Appraisal became a tick-box exercise. I found an Apprisal that was say 4-6 pages to be useful, but when I was told that there had to be 10 pages just on Goal Achievement and another 10 pages on Behaviours, it became ridiculous. Especially when it was only used to justify whether to give me a 2% or a 1% pay rise - no more training when you're over 50, no more promotion in a flatter organisation.

Performance Appraisal still relevant

Chander Bhan Sukhu 25 Oct 2012

Performance appraisals are still most relevant in a dynamic organisation and now with numerous automated systems it does not take up too much time for appraisers and reviewers. The malaise in most organisations is that appraisal is done as a ritual and becomes quite subjective. The measures which can be adopted to overcome this are suggested as under:- - HR Managers need to run the annual process with a good build up to encourage line Managers to carry out appraisals judiciously. - Appraisers and Reviewers need to be trained regularly to rate employees without personal bias. - Appraisers need to be assessed on their rating ability. - The appraisal system needs to be open so that employees can discuss with their Managers. - A proper counselling process should be in place so that employees are not surprised about their weakness / areas for improvement during the appraisal. - HR should have a method of normalisation for strict and lenient raters, and maintain a performance graph for all employees. - The appraisal cycle needs to be closed by HR within a short period so that employees do not face uncertainity for long periods. In short, appraisals are a necessity for any Company, it is the method of conduct and judiciousness of the process which needs to be streamlined.

365 days a year process needed

Paul Marsh 31 Oct 2012

I have been working with companies to abandon traditional appraisal for a few years now. For me its about 'prompts not paperwork' and to move to something that you do as you need to. For example, goal seting might be for a month, six weeks or eight months, it cant always fit into neat 6 and 12 month time periods! Rating people is just ridiculous and subjective - lots of different ways to approach it instead...www.lightbulbhr.co.uk.

Abolish Performance Appraisals

Andy Lippok 16 Nov 2012

Absolutely we should abolish performance appraisals as they are based on underlying assumptions, beliefs and thinking that are unsupported by science and research. The book by Tom Coens and Mary Jenkins "Abolishing Performance Appraisals" explains clearly why they backfire and what to do instead. The fundamental false assumption is that performance is due to the people when research and case studies show that it is due almost wholly on the system, i.e. the way the work works. Replacing appraisals with a different approach frees people to do what they really want, delivers better service, reduces costs and increases morale. What more do you want!

Not a view I've heard from managers who want to manage well

Rob Wheatley 07 Mar 2014

Just because people don't do them well, doesn't mean that the process is flawed and should be abandoned. Common Mistakes: 1) Overly complex process It's then seen as a form filling exercise, rather than a coaching and development opportunity 2) Managers aren't trained how to do reviews properly If managers don't know what they are doing, then how can anyone get anything out of it? 3) Time consuming Partly due to over-complex forms/process and partly because the wrong tools are being used (paper, email, Excel or Word documents). Sort that out and there is no need for the process to take much longer than what managers should already be doing. The difference is, you give people a framework to work within and you ensure managers are doing what they should. 4) No one gets anything out of the process Do it properly, and everyone does! It's a mindset thing, influenced by the poor managers any good process would expose. There are plenty of tools out there that can help. With the right tool, a well designed process, good training, the right expectations set and the process properly tracked, then performance reviews are exceptionally useful. Take a look at PerformanceHub from Cogendo http://www.cogendo.com and see what it could do for you. Confession - I'm the co-founder of Cogendo ;-)

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