Performance appraisal issues are at the centre of contemporary theoretical and practical discussions. With the growing intensity of business competition, organisations develop new strategies and tactics to retain the most prospective personnel. The growing attention to staff issues is logical and understandable, because human resources are unique, inimitable, and extremely expensive. In this context, performance appraisal systems are of particular importance, since organisations use them to evaluate employee skills and make staffing decisions. Yet, like any organisational phenomenon, performance appraisals have their weaknesses.
They are often criticised for failure to distinguish between the individual and organisational factors of employee performance in the workplace. The reliability and validity of measurements are the issues of hot concern for organisations. Trust and justice perceptions of employees should not be disregarded. Otherwise, the legal consequences of performance appraisal processes can be far-reaching. The purpose of this paper is to delineate the challenges involved in performance appraisal processes and argue for the use of performance appraisals, but with recommended improvements.
Performance Appraisal in Organisations: History and Challenges
Performance appraisals represent an essential element of organisational performance. According to Kline and Sulsky (2009, p. 161), “performance appraisal is a general heading for a variety of activities through which organisations seek to assess employees and develop their competence, enhance performance and distribute rewards.” Like any other system, performance appraisal has its strengths and weaknesses. However, organisations still have enough opportunities to organise and administer performance appraisals in ways that benefit their performance.
The history of performance appraisals dates back to the earliest times. The Bible contains numerous examples of individual performance evaluations (Wiese & Buckley, 1998, p. 234). For example, Moses had to choose the most capable man for building and furnishing the tabernacle around 1350 B.C. (Wiese & Buckley, 1998, p. 234). Yet, it is not until the beginning of the 1800s that performance appraisals became an accepted industrial and organisational norm.
Wiese and Buckley (1998, p. 235) write that the first formal performance appraisals were used in the U.S. Army, but they quickly expanded to cover other industries and commercial sectors. This is when the philosophy of organisational performance appraisal was shaped. From being a weak instrument of individual performance analysis, performance appraisals gradually came to signify the triumph of objectivity in staffing decisions. Still, many issues surrounding performance appraisals continue to persist. Very often, managers ignore the power of performance appraisal results, using their subjective judgments and discretionary power.
One of the most serious criticisms of performance appraisals is that they favour the use of covert management control (Prowse & Prowse, 2009, p. 72). By extending performance appraisals to manual and professional workers, managers simply tighten their control over employee behaviours (Prowse & Prowse, 2009, p. 72). At the same time, performance appraisals are often criticised for the lack of objectivity. Many traditional performance appraisal systems are believed to promote win-lose relationships among managers and employees, thus increasing employee competition and reducing cooperation among them (Elmuti, Kathawala & Wayland, 1992, p. 44).
Performance appraisals cannot be effective or relevant, unless they are based on the following philosophic assumptions. First, employees make distinctly different contributions to organisational performance (Carson, Cardy & Dobbins, 1991, p. 145). Second, the cause of such differences must be necessarily attributed to an individual employee (Carson et al., 1991, p. 145). Third, raters must be ready to distinguish between individual-level and organisational factors of performance (Carson et al., 1991, p. 145).
Unfortunately, the problem with many performance appraisals is that they are often based on the analysis of the performance factors, which are beyond employees’ control. Moreover, in most cases, workers do not differ significantly in their contribution to organisational performance (Carson et al., 1991, p. 146). Therefore, many organisational situations do not favour the use of traditional performance appraisal systems. However, that does not mean that performance appraisal is totally irrelevant. Issues do exist, but they can be successfully resolved, empowering organisations and their managers to evaluate employee performance and use this information for quality improvements.
Key Performance Appraisal Issues
One of the key issues in relation to performance appraisal is that of reliability and validity. Kline and Sulsky (2009, p. 162) suggest that the quality of performance appraisal results varies considerably, depending on the quality, type, and conceptual underpinnings of the specific rating scales. Evaluating the reliability and validity of these measurements is particularly difficult, given the indirect character of most validity ratings. As a result, managers cannot be confident that the performance appraisal scales they use in practice are reliable enough to produce usable results. Furthermore, the quality of rater training has tangible effects on how performance appraisals are administered and interpreted. Kline and Sulsky (2009, p. 162) and Johnson and Geal (2010, p. 53) suggest that rater training has the potential to improve the psychometric quality of performance appraisals.
However, the manager or supervisor is solely responsible for acquiring the knowledge and skills needed to administer performance appraisals and interpret their results. As mentioned earlier, these issues are significant, but they can be resolved. Valle and Davis (1999, p. 238) recommend providing employees with objective performance appraisal metrics, so that they can make personal decisions about their performance results. Not all employees have the knowledge and skills required to understand statistics, but it is a good way to ensure that the results are objective and unbiased. Performance appraisal mechanisms and results should not be used for negative interpretation. They should serve as the basis for self-awareness and self-improvement.
Neither self-awareness nor self-improvement is possible, if employees are not satisfied with the use of performance appraisal systems and their results. The issues of trust and justice are central to understanding the philosophy and organisational underpinnings of performance appraisal models. It is not uncommon for employees to perceive performance appraisal as being inherently biased and susceptible to major errors (Boachie-Mensah & Seidu, 2012, p. 79). Mayer and Davis (1993, p. 133) write that, if employees perceive performance appraisal as unfair or biased, the level of trust and rapport in their relations with managers will inevitably decline.
Employee reactions play a huge role in the quality and effectiveness of working relationships within organisations (Pichler, 2012, p. 709). As a result, employees who are not fully satisfied with the quality of performance appraisal systems will be more likely to be dissatisfied with their jobs (Brown, Hyatt & Benson, 2010, p. 375). They will also be more likely to consider leaving the organisation (Brown et al., 2010, p. 375).
By contrast, employees who are actively involved in the process of creating and managing performance appraisals display greater acceptance of the system and greater satisfaction with their results (Cawley, Keeping & Levy, 1998, p. 623). It would be fair to say that justice and objectivity are among the most significant issues in relation to performance appraisals. Equally fair is the statement that organisations have all chances to address these challenges, by prioritising employee satisfaction over the rigid performance evaluation results. Salleh, Amin, Muda & Halim (2013, p. 126) are right: employee satisfaction with performance management should become one of the top strategic goals for any organisation. At the same time, employee engagement in performance appraisals should be encouraged to reduce the risks of unfairness and injustice.
Unfortunately, even these steps cannot eliminate the risks of legal controversies. Performance appraisals rarely become the basis for prosecution or court proceedings (Werner & Bolino, 1997, p. 1). Nevertheless, the legal challenges facing organisations in relation to their performance appraisal systems should not be totally discarded. Performance appraisals must be administered in accordance with the whole set of laws, regulations, and legal norms. Not all employees perceive the results of performance appraisals as fair or just. Perceptions of unfairness or injustice can motivate some employees to make a claim or even go to court. One of the most painful topics is who and when gets a promotion based on the results of performance appraisals (Veglahn, 1993, p. 596). The employer will have to prove that the employee showed considerable performance weaknesses or professional shortcomings that did not allow for his or her fast promotion to the desired position (Veglahn, 1993, p. 596).
No less problematic are the discharge decisions made on the basis of performance appraisals. In such cases, employers will have to argue that the employee showed chronic patterns of inacceptable or absolutely unsatisfactory performance against the minimum standards of quality in the workplace (Veglahn, 1993, p. 598). Even in the presence of compelling performance appraisal evidence, the employer will face difficult times trying to prove that performance had deteriorated to the extent, which did not allow him or her to keep the job. Layoffs, merit pay, rewards, and other organisational decisions made on the basis of performance appraisal results may readily become an object of court proceedings. No organisation can eliminate these risks. As a result, organisations will either have to improve the quality of their performance appraisal systems or be ready to face court challenges and costs.
The purpose of this paper is to argue that, despite all these issues, organisations can successfully adopt and utilise performance appraisal systems for their benefit. What they need to do is develop better knowledge of the challenges mentioned in this work and be ready to follow the basic principles of successful performance appraisal systems. In the age of competition and rivalry, organisations will not survive without having relevant systems of performance appraisal in place.
Roberts (2003, p. 89) is confident that performance appraisal is a highly controversial instrument of making management decisions, because it lacks measurement accuracy and leads to employee conflicts and excessive organisational controls. Moreover, because organisations adopt different forms of performance appraisals, it is difficult to imagine that any performance appraisal model can become a universally accepted ideal. On the contrary, when it comes to performance appraisals, one size never fits all (Scott & Einstein, 2001, p. 107). Still, some recommendations could definitely improve the quality of performance appraisal results.
First, in line with the ideas mentioned in this paper, rater training should become a compulsory element of performance appraisal systems and processes in organisations. Kondrasuk (2011, p. 65) emphasises the importance of rater training for achieving greater quality of appraisal results. Managers and supervisors, who are trained to administer performance appraisals and interpret their results, are more likely to avoid biases in evaluating employees and be able to review the quality and effectiveness of the performance appraisal system (Kondrasuk, 2011, p. 65). However, employees also need to be trained in performance appraisals, since such training has the potential to guarantee greater acceptance of the system and its results among the staff.
Second, the organisation must ensure that its performance appraisal system reflects the principles and values of the organisational culture. Not all cultures welcome the implementation of performance appraisal systems, but it is always beneficial for the organisation to measure both work outcomes and employee behaviours (Aguinis, Joo & Gottfredson, 2011, p. 506; Kondrasuk, 2011, p. 66). Third, it is never too late to create favourable conditions for employee participation in building and managing a performance appraisal system. Such participation could create a diversity of views, opinions, and ideas to change or improve the system. Obviously, these steps will not eliminate the risks of failure, but they will greatly increase the chances to make performance appraisal an important condition of continuous organisational and employee success.
All organisations have performance appraisal systems. All these systems have strengths and weaknesses. The philosophy of performance appraisal is frequently criticised for its failure to distinguish between individual and organisational factors of employee performance. Furthermore, reliability and validity of measurement scales remain a matter of organisations’ concern. No less serious are the risks of prosecution and legal claims, which usually stem from workers’ perceptions of performance appraisals as being unfair and biased. However, as argued in this paper, all these problems can be successfully solved. Performance appraisal can become a successful tool of organisational decision making. Certainly, such recommendations will never be universal, because there is no size that could fit all organisations. Nevertheless, rater training, employee engagement, and cultural congruence can make up a promising recipe for creating a successful performance appraisal system.
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