The purposes of a performance appraisal fall within two broad categories, namely administrative and developmental. The former provides a basis for decisions regarding promoting, demoting, transferring, compensating, laying off, or terminating an employee. Because most Western countries have laws that affect these decisions, organizational decision makers must take these into account when making an administrative decision that affects an employee’s status in the organization. The second purpose of a performance appraisal is concerned with ways of inculcating in an employee the desire for continuous improvement.
For a performance appraisal to increase a person’s performance, five steps must be taken.
Step 1. Determination of the Metrics
Step 1 requires determination of the metrics or criteria on which a person will be evaluated. An axiom in psychology is “that which gets measured gets done.” If people are unsure of what is expected of them, they are unlikely to meet those expectations. Performance criteria, the metrics that influence administrative decisions, may include bottom-line cost-related outcomes such as revenue generated, costs reduced, or voluntary employee turnover within one’s team. The advantage of bottom-line measures is the relevance to the organization as well as their interobserver reliability; that is, two or more appraisers are highly likely to make the same appraisal, independently, regarding an employee’s performance when bottom-line measures are used. The disadvantages of these measures are five-fold. First, they are often excessive in that they are affected by situational factors beyond a person’s control (e.g., the economy). Second, they are usually deficient in that they do not take into account factors for which a person should be held accountable (e.g., team playing skills). Third, they can encourage a “results at all costs” mind-set, which in turn can lead to ethical, if not legal, issues. Fourth, outcome measures may be available for a team, but often they are nonexistent for assessing an individual’s performance. Fifth, even when such measures do exist, they only yield information on the “score” and do not provide information on what an employee should start doing, stop doing, or be doing differently. Information on the latter is critical for coaching others as well as oneself for inculcating a desire for continuous improvement.
A second performance criterion that can be used for making performance appraisals is an assessment of a person’s traits such as creativity and initiative. The advantage of trait measures is that they are usually applicable to all employees in all jobs. Both the CEO and the hourly employee must be “conscientious.” A downside of using traits as a performance criterion is that they are ill defined. Consequently, they invite acrimony between the person who receives the appraisal and the person who conducts it. Moreover, the likelihood that two or more appraisers will make the same appraisal decision independently is low. Hence the courts too take a dim view of trait appraisals. The solution is to define these traits behaviorally. This is accomplished through a job analysis.
To attain an organization’s goals requires a strategy. To implement the strategy requires employee knowledge of the behaviors necessary to implement the strategy. This is accomplished through a job analysis. A metaphor for a job analysis is a “recipe” for success. The job analysis specifies in writing what the person must do (behaviors) to implement the strategy effectively. People who are aware of the aims and objectives of a job (e.g., program coordinator), who frequently observe incumbents performing the job, and who can discern competent from incompetent behavior are asked to identify behaviors that are critical to the implementation of the organization’s strategy. Behavioral observation scales (BOS) and behavioral expectation scales are both based on a job analysis called the critical incident technique. Studies have shown that how one is appraised on BOS correlates significantly with bottom-line measures. Moreover, BOS have been shown to be content valid in that they contain a representative sample of the behaviors critical for an employee to demonstrate on the job in order to be seen as effective. Finally, these behavioral criteria facilitate performance feedback, identification of training needs, and the setting of specific high goals. In short, behavioral criteria developed from a job analysis ensure that people are coaching others as well as themselves on “the right things.”
Step 2. 360-degree Feedback
Once the appraisal instrument is developed, the second step is to determine who should use it. Traditionally, the answer has been the employee’s supervisor. Supervisors, however, are often unable to gain a complete picture of an employee. In recognition of this fact, many organizations get a comprehensive assessment of an employee by soliciting feedback from peers, subordinates, and the employees themselves in addition to the supervisor. Hence the term 360-degree feedback. Through this 360-degree vantage point, an employee’s strengths and developmental needs are identified. This approach is especially applicable for autonomous teams. Peers, for example, are usually in a far better position to provide accurate assessments of team members than is one single individual, namely a supervisor. The role of the boss is primarily to be an information gatherer, who assesses the information and coaches an employee on an ongoing basis with regard to goal setting and goal attainment. The emphasis on coaching reflects the growing shift in emphasis by organizational decision makers to a performance management system rather than the traditional performance appraisal that typically occurs only one to four times a year.
Step 3: Goal Setting
Feedback is only useful to the extent that a person acts on it. For behavior to improve, the person must use the feedback to set specific high goals. Goal setting is the third step in the performance appraisal process. A study of highly educated engineers and scientists shows that the higher the goal, the higher the person’s performance. Similar findings have been found in performance appraisal studies involving unionized employees. Nevertheless, the advantages of goal setting, namely increasing a person’s focus, effort, and persistence, can be a two-edged sword. Once a goal is set, people may direct their attention to one area of their job (e.g., revenue) at the expense of another aspect that is also important to the implementation of an organization’s strategy (e.g., team playing). A “balanced score card” ensures the proper weighting of the goals and the metrics for assessing goal attainment. Because so many faculty members in top tier universities place so much emphasis on research, many of these universities have subsequently implemented a 40/40/20 scorecard whereby 40 percent of a faculty member’s assessment is based on teaching, 40 percent is based on research, and 20 percent is based on a person’s contribution to the university as a whole (e.g., service on committees).
Step 4: Ensuring Objectivity
Appraisals often reflect the biases of the appraiser rather than the performance of the person being appraised. For example, the extent to which the employee is similar to the person or persons who are doing the appraisal can ensure a favorable appraisal. Gender proportion in a group can affect a person’s evaluation even when there is no actual difference in the performance of women and men. Increasing the representation of women in the group increases the likelihood of a positive appraisal of a female employee. Training can minimize observer biases. When appraisers are given several hours of instruction where they view people on videotape, receive feedback on their evaluation, are informed of the judgmental error, and discuss ways to minimize errors in the future, objectivity increases significantly. This training is the fourth step to take for ensuring an effective appraisal process.
Step 5: Coaching
The fifth step involves ongoing coaching of employees. Day-to-day coaching has a more beneficial effect on a person’s performance than a quarterly, biannual, or annual performance appraisal. To the extent that the goals that are set are challenging, an employee is likely to encounter difficulties in attaining them. Waiting until the end of an appraisal period to offer an employee advice is nonsensical. Ongoing coaching should focus on outcome expectancies and the employee’s self-efficacy. The role of the coach is to help people see the relationship between what they do and the outcome they can expect. “When you approach a customer this way, here is the outcome you can expect; when you approach the customer that way, here is a very different outcome you can expect.” Self-efficacy refers to task-specific confidence (“I can do this”). The role of a coach is to instill optimism, to build resiliency following failure. Ways to accomplish this include (1) giving the person assignments, sequencing the tasks in such a way that they all but guarantee early wins. With a succession of wins, a can-do mind-set forms; (2) finding a model with whom the person identifies who has either attained similar goals or is in the process of doing so; and (3) identifying a significant other. A significant other is a person to whom the person listens. There is a strong tendency for us to behave in accordance with the expectations of those who are significant to us. Persuasion by a significant other that a goal is indeed attainable will increase a person’s effort and persistence.
Performance appraisals are among the most important systems/processes in an organization. Performance appraisals are the basis for determining whether an organization’s selection/staffing system is effective. In the process of ongoing appraisals, decision makers discover whether the person has the desire but lacks the requisite knowledge and skills to attain one or more goals. Hence performance appraisal is a basis for determining who should be trained as well as what should be trained. Ongoing coaching ensures that the person is motivated to apply newly acquired knowledge and skills to attain the specific high goals that were set. With goal attainment, an employee’s confidence is increased and even higher goals are set. This performance cycle leads to a high-performing individual in a high-performing organization.
- Kaplan, R. S. and Norton, D. P. 1993. “Putting the Balanced Scorecard to Work.” Harvard Business Review 71(5): 134-147.
- Latham, G. P. 2003. “Goal Setting: A Five-Step Approach to Behavior Change.” Organization Dynamics 32:309-318.
- Latham, G. P., Almost, J., Mann, S. and Moore, C. 2005. “New Developments in Performance Management.” Organization Dynamics 34:77-87.
- Latham, G. P. and Budworth, M. 2004. “Behavioral Observation Scales.” In Guidelines for Excellence in Management, edited by J. Ivancevich and William Lidwell. New York: Texere.
- Latham, G. P. and Latham, S. D. 2000. “Overlooking Theory and Research in Performance Appraisal at One’s Peril: Much Done, More to Do.” In International Review of Industrial and Organizational Psychology, edited by C. Cooper and E. A. Locke. Chichester, England: Wiley.
- Latham, G. P. and Mann, S. 2006. “Advances in the Science of Performance Appraisal: Implications for Practice.” In International Review of Industrial and Organizational Psychology 2006, edited by G. P. Hodgkinson and J. K. Ford. Chichester, England: Wiley.
- Latham, G. P. and Wexley, K. N. 1994. Increasing Productivity through Performance Appraisal. Reading, MA: Addison-Wesley.