The New Thinking in Performance Appraisals

April 29, 2001
Performance appraisal was once the unquestioned way of doing things, thefamiliar ritual in which employees and managers sat down for an annualevaluation. If the employees were lucky, they walked away with raises, oftentied to a ranking on some sort of rigid numerical scale. Nobody really liked it,but in the old command-and-control style of organizational leadership, thisseemed like a perfectly appropriate model for measuring performance.

    But today, with the widespread emphasis on teamwork, shared leadership, andan ongoing struggle to find and retain qualified employees, it's a model that isfalling increasingly out of favor, says Fred Nickols, a senior consultant withThe Distance Consulting Company in Robbinsville, New Jersey.

    In a recent survey conducted jointly by the Society for Human ResourceManagement and Personnel Decisions International 32 percent of the HRprofessionals surveyed indicated that they were "unsatisfied" or"very unsatisfied" with their organizations' performance-managementsystems. They cited deficiencies in leadership development, coaching, 360-degreefeedback, and development planning. Twenty-two percentsaid that the greatest challenge they face is a lack ofsupport from top management. Forty-two percent of the organizationsthat participated reported that executives do not even bother to reviewthe performance-management systems that are currently in place.

    If companies don't do annual performance reviews, however, what will taketheir place? More and more, organizations are turning to systems of performancemanagement. That is what Nickols advocated in 1997 with his provocatively titledarticle, "Don't Redesign Your Company's Performance Appraisal System, ScrapIt!" (Corporate University Review, May-June, 1997). Recently, authors TomCoens and Mary Jenkins have devoted a book to the subject: Abolishing Performance Appraisals: Why They Backfire And What to do Instead (Berrett-KoehlerDecember 2000), which is full of examples of companies that scrapped traditionalperformance-appraisal systems.

    And although Nickols, Coens and Jenkins advocate an end to performanceappraisals, that's just the beginning of performance management. It rests on thefollowing basic principles, according to Nickols:

  • Goals should be set and agreed upon by both the manager and the employee.

  • Metrics for measuring the employee's success in meeting those goals shouldbe clearly articulated.

  • The goals themselves should be flexible enough toreflect changing conditions in the economy and theworkplace.

  • Employees should be able to think of their managers as coaches who arethere not to pass judgment, but to help them achieve success.

    The "what to do instead" in Coens and Jenkins' book is nothing lessthan a "whole cultural shift" in an organization, said Coens, anorganizational trainer, employment law attorney, and educator in humanresources.

    Instead of measuring employees' performance and pointing out where they fallshort, organizations will achieve more results by finding ways to fine-tune andimprove their systems. So, rather than have hotel management ding a desk clerkin an annual review for being too slow in processing thecheck-outs of departing guests, it would be more productive to set up an expresscheck-out system.

    Jenkins and Coens cite several case studies in which organizations dumpedtraditional performance appraisals in favor of performance management processesthat "decoupled" everything that is packed into the typical review:coaching, feedback, compensation and promotion decisions, and legaldocumentation:

  • The 500-person Madison, Wisconsin, Police Department stopped doingtraditional appraisals for all but probationary officers in 1989-1990,replacing them with a system of individual goal-setting,leadership-training, and employee involvement that extends to officerschoosing which sergeants they want to work with, sergeants choosinglieutenants and so on.

    A U.S. Department of Justice study of 12 metropolitanpolice departments found Madison police to be the highest in satisfactionlevel among citizens, for both white and non-white communities. Each year,the department receives more than 1,000 applications for the department'stwo dozen openings.

  • University of Wisconsin Credit Union, also located in Madison, replacedits appraisal system with an array of elective, flexible, coaching tools andformats. The result has been improved employee satisfaction and a dramaticreduction in turnover, Coens said.

    The argument against traditional performance appraisals also was persuasiveenough to get the attention of Bruce Mallory, vice president of financialservices for SELCO Credit Union in Eugene, Oregon.

    After contacting Nickols, SELCO scrapped the credit union's entireperformance appraisal system. Instead of using a complex set of matrices todetermine raises for SELCO's 200 employees, they opted to give individualmanagers a pool of money to work with every year. The managers could then awardbonuses and raises as they saw fit. And instead of using a formal appraisalsystem to measure performance, managers were simply told that they had to sitdown with the individual members of their teams and have face-to-faceconversations on a regular basis. Four years after implementing this system,Mallory's only regret is that SELCO didn't try it sooner.

    Today, managers just need to document that they have in fact had regularconversations with their employees. If there are problems, managers are expectedto make note of it. This creates the paper trail that will support any eventualdisciplinary action or termination. "We figure that we've saved at least$350,000 in time spent alone," he says. "It doesn't mean that we'respending any less time with the people. But it's time better spent. It'smanaging people differently, rather than managing the paper flow."

    Part of that difference is the assessment cycle. It used to be based on dateof hire, but Jane Weizmann, senior consultant for Watson Wyatt Worldwide, saysit makes more sense to synchronize it with the organization's business calendar."From the business's point of view, you want to be sure that you line upyour needs with the employees' needs. And you want to make sure that you definethe relationship between the two."

Workforce, May 2001, pp. 36-40-- Subscribe Now!