Performance Appraisals and Merit Reviews: The Pros and Cons
By: Gary R. Thornton, SPHR, CEBS
Thornton and Associates
Performance appraisal can be one of the most controversial of the Human Resource processes. Many Human Resource executives admit their performance appraisal process does not meet their or their employees needs. Although most employees view the appraisal process as flawed, it probably represents their only opportunity to receive feedback on their performance.
Conventional key objectives for individual performance management generally include:
-Determining pay or at least determining the amount of the periodic pay adjustment or merit increase the employee will receive
-Making staffing and planning succession decisions
-Making retention and termination decisions
Most conventional programs will accomplish these objectives, more progressive organization are discovering the merit of taking the process further. Instead of simply evaluating results and behaviors, they help employees manage performance and improve capabilities by working with them to create a plan to achieve expected results and behaviors throughout the year.
Benefits of a Performance Management System:
-Alignment with goals and mission
-Focus on what’s important
-Early problem resolution
-Feedback and training for development
-Recognition of good performers
-Retention of Key Employees
-Hire and promote people with right skills
-Improved organizational performance
How Performance Management Systems Fail:
-Goals are unclear
-Individual goals are not aligned to organizational goals
-Standards are unattainable
-No ongoing feedback
-Inconsistency in treatment
-Avoidance of real issues
-Blaming and defensiveness
The performance management process should be an on-going or continuous cycle. Activities to be included in the process include:
-Appraisal & Development Discussion “The Review”
-Goal Setting
-Coaching and feedback
-Mid-year review
-Coaching and feedback
-The annual review
The key elements to successful performance management include:
-Clear and attainable expectations
-Continuous feedback and coaching
-Acknowledgment of success
-Discussion of shortcomings or problems
-Improvement plans
-Fair and meaningful performance discussions
Many organizations subscribe to the reward system equity norm. According to this theory, rewards should be allocated in direct proportion to the contributions. Those who contribute the most get paid the most. The system worked fine until merit budgets became so lean that measurable distinctions in performance are not in direct correlation to the reward or pay increase.
Many organizations publish a merit schedule that relates the amount of salary increase to the individuals’ grade and their position in the range. The problem? Employees are often urged to be creative, entrepreneurial team players yet are rewarded in a fashion dictated by arcane systems which assign points or values a job with others in the overall job hierarchy. The result? Managers are tempted to skew the performance appraisal rating upwards in order to justify the amount of salary increase they want to award, rather than candidly calling the performance as it is and letting the resulting rating govern the salary increase.
If your current performance management system has been around for four or more years, it is probably time for an overhaul. Has your organizations’ goals and objectives remained status quo over that time?
Revising the system can make sure that it accurately reflects the competencies needed for competitive success and that goals are focused on achieving organizational strategy.
Performance appraisal training can also help. It has to start at the top, as management needs to understand their responsibilities for making the performance appraisal system work. They need to know that it is their job to insist their direct reports hold subordinates accountable for conducting honest and timely appraisal.
What really is important far more than skills, is the courage to assess performance honestly. Then reward those who excel and advise non-contributors that up or out is their only alternative.