Are Performance Appraisals Obsolete?

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By Bob Nelson, Ph.D.

One of the goals, if not the most important goal of the performance appraisal and review process is to motivate employees. Don’t laugh. I know that’s not what comes to mind when most people think of their performance appraisal process, which goes to show how far afield we’ve gotten on this topic. At its best, the performance review process encourages employees to put forth their best effort and take initiative at work to achieve both organizational and personal goals. At its worst the exact opposite happens and employees are made to feel unimportant, abused, and unappreciated for the job they’ve done. Tensions mount; feelings are bruised; goodwill is lost.

Performance appraisals and reviews are a necessary and important part of work, and for better or worse, are a reality in most organizations. However, as many companies are learning, traditional performance appraisals fail miserably in positively influencing employee behavior. And, in reality, the performance appraisal process has few true supporters. Indeed, a study conducted in 1996 on behalf of the Society for Human Resources Management found that over 90% of appraisals were judged to be ineffective.

In a traditional performance review, the manager typically meets with an employee once a year and in under an hour (and with less than an hour’s preparation), attempts to get through the necessary review forms from personnel so as to trigger the employee’s annual raise. More typically, however, the review often focuses on a negative aspect of the employees’ recent job performance — not the previous 12 months work — and is far from an accurate reflection of the employee’s job performance

As a result, an overall dissatisfaction with this system by both the employer and the employee is reflected repeatedly in surveys and studies. Employees report feeling intimidated, defensive, short-changed, and manipulated in this process. They feel that appraisals are too infrequent and occur too far from the action they are evaluating to have any meaning. In the end, employees are often de-motivated by the appraisal process. For their part, many managers dread giving appraisals and given the choice, would (and do) skip the process altogether. In fact, some 40% of employees report not even receiving an annual performance review.

Why Have Performance Appraisals?

Despite these failings, most agree that there are many valid reasons to have a performance appraisal system. An objective appraisal process focuses on employee job performance toward agreed upon goals, not personality traits. It recognizes the employees’ contributions toward achieving organizational goals, addresses shortcomings, identifies education needs and is a meaningful part of a person’s career planning process. For most organizations, this process is also the basis for employee compensation.

The appraisal process also helps companies make decisions regarding promotability, training and staffing needs, and salary and compensation benefits. And, there are many legal reasons for a well-designed, well-implemented appraisal program, including its use as legal documentation in the event of an employee termination. However, performance appraisal programs continue to receive a lot of attention in the courts, particularly in how they impact employment for protected employee groups. The legal implications for companies without a well-defined appraisal program are serious. Looking at some recent court decisions indicates that a successfully defended appraisal program includes the following:

1. Specific instructions and training were given to supervisors on how to complete the appraisals.

2. Job content was used to develop the basis of the appraisal.

3. Appraisals were based on objective performance criteria, not on subjective personality traits.

4. The results of the completed appraisal were reviewed with the appraised employee. The employee was given the opportunity to comment and submit written comments if appropriate.

Ongoing Performance Feedback

In today’s dynamic, fast-paced workforce, enlightened companies recognize that employees want an environment that encourages a constant dialogue between employer and employee. Today, employees want and need continuous performance feedback. They want to be recognized and rewarded for their accomplishments and, at the same time, most employees want feedback if their performance is missing the mark so they can make changes as appropriate. “Men and women want to do a good job, a creative job, and if they are provided the proper environment they will do so,” says Bill Hewitt, Co-founder of Hewlett-Packard.

Employees want to know how they’re performing and they want — and need — to know more frequently than annually. “Continuous, supportive communication from managers, supervisors and associates is too often under-emphasized,” says Jim Moultrup, Consultant, Management Perspectives Group. “It is a major, major motivator.” After all, a motivated workforce, willing to take initiative when they see the opportunity, is a powerful advantage for a company. “People want to learn new things, to feel they’ve made a contribution — that they are doing worthwhile work. Few people are motivated only by money,” says Frances Hesselbein, President, The Peter F. Drucker Foundation. Indeed, today, a performance appraisal program that effectively motivates employees may give a company its greatest competitive advantage.

There are other less tangible, but equally important benefits of an ongoing appraisal process. Managers increasingly must serve as coaches to influence desired behavior. Effective performance reviews and appraisals help strengthen the communication between a manager and an employee and foster a relationship of trust and respect to be nurtured over time. As one employee put it: “When management shows through actions rather than words that you’re a valuable employee, that your input is valued no matter what level you work at, it’s very motivating.” Appraisals no longer need to be viewed as a necessary evil but rather as a tool that can be used to enhance one’s career.

Rewards and recognition also play an important role in motivating employees. While money is important to employees, what tends to motivate them to perform – and to perform at higher levels – is the thoughtful, personal kind of recognition that signifies appreciation for a job well done. In a recent study of more that 1,500 employees in various work settings by Dr. Gerald H. Graham, professor of management at Wichita State University, found the most powerful motivator was personalized, immediate recognition from their managers. “Managers have found that simply asking for employee involvement is motivational in itself,” says Graham. The top five motivating techniques determined by Graham’s study were:

1. The manager personally congratulates employees who do a good job.

2. The manager writes personal notes about good performance.

3. The organization uses performance as the basis for promotion.

4. The manager publicly recognizes employees for good performance.

5. The manager holds morale-building meetings to celebrate successes.

A recent survey conducted by the Minnesota Department Resources supports Graham’s findings in discovering that recognition activities contributed significantly to employees’ job satisfaction. Most respondents said they highly valued day-to-day recognition from their supervisors, peers, and team members. The survey also found:

 68% of the respondents said it was important to believe that their work was appreciated by others.

 63% agreed that most people would like more recognition for their work.

 67% agreed that most people need appreciation for their work.


For these reasons, many companies have abandoned traditional appraisals in favor of a system that frequently answers one of the most urgently asked questions by employees, “How am I doing?” In an article in Fast Company magazine (“How To Give Good Feedback,” September 1998), Glenroy Inc., a privately held manufacturer of packaging materials outside of Milwaukee, WI, held a rally at which employees built a bonfire and burned the company’s manuals with their well-established approach to performance reviews. Says Michael Dean, Glenroy’s executive vice-president, “Leaders here provide people with feedback. But the way for it to be effective is on a day-by-day, minute-by-minute basis — not once or twice a year.” Some management experts go so far as to say that 90% of a manager’s job today occurs in the day-to-day coaching of employees.

Enlightened companies recognize that it is the daily interactions between managers and employees that provide the greatest opportunity for valuable feedback. Employees don’t want surprises — and an effective appraisal process avoids surprising employees. Too often managers fail to seize the moment and provide timely feedback. Instead they “save” it for the annual review discussion and the golden opportunity to positively influence an employee’s behavior when it occurs is missed.

Other Needs in Changing Times

There are other reasons why your organization should consider an emphasis on daily communication over traditional yearly performance reviews, including the prevalence of teams, alternate work arrangements, and the impact of technology.

Prevalence of Teams in U.S. Companies. Much of the work done in American companies today is accomplished through teamwork. The prevalence of teams is another major reason for companies to re-assess the way in which they evaluate their employees’ performance. Traditional appraisal systems were developed with only individual performance in mind and are generally not designed to evaluate performance as part of a team. Complicating the evaluation process even more is the existence of so many different types of teams with responsibility for short-term projects to projects conducted over several years. Despite this confusion, appraisal systems can, and must, be made team-friendly.

Developing performance goals and objectives for the team and for each individual member of the team is critical to assessing the success of each. Because teams are integral to work today, measuring both team and individual performance is important. Linking the goals of the team and its’ individual members to the organizations’ objectives is also important. Connecting the two makes it possible to accurately recognize and reward the team and/or the individual for their contributions to the company results. Though “teams” may appear to present another wrinkle in the performance appraisal system, well-defined goals and objectives, clearly communicated and supported by continual feedback and recognition for the team and its’ members, helps ensure the team’s success.

Alternative Work Arrangements. Another sign that the work world is changing is the increasing number of telecommuters, job-sharing and off-site arrangements. For example, some 40% of organizations now allow employees to telecommute in some capacity. These flexible work situations are becoming more commonplace and present another challenge for companies. How do you evaluate performance, provide feedback, and motivate employees with whom you have little face-to-face contact? Because these types of work arrangements are relatively new, there is no well-established performance appraisal process by which these employees are to be evaluated. However, as companies work to develop systems to effectively address these situations, it is important that employees need for feedback and recognition are met on a daily basis. This requires an ongoing commitment to communicate and connect with employees perhaps more than ever before.

Impact of Technology. If left unchecked, the increasing use of technology in today’s business can have an alienating affect on employees. But, technology today can also offer employers many options for better communicating and connecting with their people. The key is learning how to use the technology and then taking advantage of all it can offer. Voice mail and email can be effective tools for daily communication with employees — especially for thanks and encouragement. A.G. Edward, the financial services company, goes further and uses technology to conduct a weekly phone conference of all employees.

One step closer to face-to-face communication is the use of video-conferencing. Home Depot, for example, has a weekly satellite feed to all stores known as “Breakfast with Bernie and Arthur,” their chairman and CEO. Still, when the issue for discussion is emotionally charged, it is best to schedule a face-to-face meeting as soon as possible. If that’s not possible in a reasonable time, it is better to provide feedback using some form of technology than not at all.

What Makes A Good Performance Appraisal System?

Performance appraisals — in the traditional sense of the term — are obsolete. To be effective, the performance review process must be updated to take into account the needs of employees and the nature of today’s fast-paced business environment. To be successful, a good performance appraisal process must be participative — that is, the employee must have a voice in the process. Not only does this generate a sense of fairness about the process, but involving the employee in establishing goals and objectives for his/her job is an effective way to improve job performance. In addition to mutually setting employee goals and objective, the performance process needs to link individual goals to the organization, identify education and development needs, and discuss career advancement opportunities. Done well, this will serve as an excellent foundation for the ongoing communication advocated earlier.

Providing employees with continuous feedback in a timely and non-threatening manner is at the core of how employers can effectively motivate their employees. Employees today need and want frequent recognition of their job performance and will put forth their best effort for employers who fulfill this need. Companies that continually reward and recognize their employees in an environment of ongoing communication will create a workforce that feels empowered to make a difference.


Bob Nelson is President of Nelson Motivation, Inc., located in San Diego, CA; a co-founder of the nonprofit National Association for Employee Recognition (NAER); and author of the best-selling books, 1001 Ways to Reward Employees (now in a revised edition with over 1.5 million copies sold), The 1001 Rewards & Recognition Fieldbook and 1001 Ways to Energize Employees.