Empirical evidence suggests that, taken as a whole, the annual performance appraisal system has failed to “meet expectations.” It produces no durable improvements in employee behavior and seldom assists the employees meaningfully with career development. Nor does it have a discernible impact on organizational development. Thanks to a system that is highly subjective and easy to game, this annual ritual has become a stressful exercise for managers and employees alike.
At many companies, performance appraisals center too much on filling out forms. The actual performance appraisal meetings tend to be uncomfortable encounters for both managers and employees. Much time during these meetings is devoted to disputing the self-evaluations of employees, summoning up their failings, and defending the employee rankings previously determined by a “consensus” process administered by HR. Besides, during the ranking process, managers tend to overstate the accomplishments of their own employees and put down other employees—after all, managers do not want to incriminate themselves and admit failure in managing employees as successfully as their managerial peers might assert.
Core to this problem is that most managers fail to understand that employee performance management is about establishing relationships and ensuring effective communication about how employees, managers, teams, and organizations can succeed and create enduring value.
Performance management should not be limited to just once a year during the annual performance appraisal. Helping employees to reflect on their performance and learn from their mistakes, and coaching them should be part of the everyday interactions between employees and their managers. This way, the employees can solicit feedback promptly, know where they stand, and make small ongoing improvements. The managers do not have to wait until the appraisal time and then make an extraordinary attempt to convince their employees to correct themselves. The constant communication can eliminate any surprises for both the manager and the employee during the formal performance appraisal exercise.
As part of this informal practice, the managers can keep a diary on employee performance. Recording significant and relevant examples of an employee’s performance (achievements and shortcomings) can help the managers write objective performance summaries. In addition to diminishing the recency bias, the awareness that a manager might write up opinions may persuade an employee to pay attention.
For now, HR can develop a “Performance Improvement Plan” to overhaul the performance appraisal system and truly help improve individual and organizational performance.