Chapter 28
Performance Appraisal
The Purpose of Performance Appraisal
Appraisals are usually carried out annually with more frequent and often less formal ‘catch-up’ meetings.
Performance appraisal can be used for several different purposes.
The performance appraisal process provides each employee feedback on their performance since the previous appraisal.
It also gives the individual an opportunity to discuss aspects of performance. The individual’s performance is compared with targets agreed upon at the previous appraisal. This may be a target to complete a particular task or reduce the number of mistakes in the individual’s work.
Alternatively, it may consist of more general targets, such as getting on better with work colleagues. For trainee accountants, an agreed target may be to pass a stage or exam in their professional examinations.
Performance appraisal should not be only backwards-looking. There should be an appraisal of the individual’s potential for development in the future and a discussion of ways to achieve this.
The individual’s agreed performance targets for the next year may be based partly on ways of developing the individual, such as delegating more authority or arranging a secondment to another department or team.
Performance appraisal may be linked to the annual review of pay.
Where the organisation has an incentive reward scheme, annual bonuses are decided by comparing the individual’s performance with performance targets.
Bonuses are set according to how actual performance compares with the individual’s target.
The performance appraisal process may be used to discuss pay raises if the organisation does not have an incentive reward scheme.
Where remuneration is set for employees individually, past performance may influence any pay raise for next year.
Example of Performance Appraisal
Role
Context
Employee
I am looking forward to my performance appraisal interview with my manager. I have worked hard this year, so I hope she has good things to say about me.
The interview allows me to speak to her about things that have happened that I think are unfair, like times when I have been given too much work.
I also expect us to make some decisions about my future. I want to know whether I will get a pay raise this year, know my chances of promotion, and what can be done to prepare me for it.
I have had performance appraisal interviews in the past, so we shall have to agree on personal targets for me to achieve next year: I have some ideas about what these should be.
Finally, I hope we agree that I should be sent on a part-time MBA course.
Manager
(conducting performance appraisal)
Performance appraisal interviews take up much of my time around the end of the financial year, but they are really valuable.
For the company, it’s a process that helps to identify the individuals with the most talent and potential for promotion and career progression.
We note their potential in their employee record at the end of the interview process.
Performance appraisal also gives me a chance to talk to each individual about how well they have done and what we can do in the future to improve their performance.
People like to hear good things about their performance but are sometimes annoyed if I make any criticisms.
The bit I like least is talking to them about pay –everyone expects a more considerable pay rise than the company can afford.
The Performance Appraisal Process
The performance appraisal process begins with deciding what the criteria for assessment should be.
The manager who will conduct the appraisal interview must prepare an appraisal report of the individual before an appraisal interview.
This appraisal report or assessment will provide a basis for discussion in the interview.
At the same time, the appraised person will often prepare their thoughts on their performance during the year, which will help the manager frame the discussion in the appraisal meeting
Next is a formal performance appraisal interview between the manager and the individual.
An outcome of the meeting should be jointly-agreed conclusions about what the individual should do in the next year. This may include an agreement about the individual’s targets for next year, which will feed back into the criteria for assessment next year.
There may also be agreement on follow-up action, such as an agreement that the individual should go on a training course.
Sometime after the appraisal interview, there should be follow-up action to implement anything agreed upon during the interview.
For example, if it is agreed that the individual should go on a training course, a follow-up action should be to enrol the individual in it.
And any follow-up action will feed into the manager’s performance assessment next year.
A formal record of annual performance appraisals is maintained for each employee. The HR department holds this record on the organisation’s employment file as part of the employee’s record.
Individual objectives and the action plan should be revisited throughout the year, for example, every quarter, to ensure progress towards achieving the agreed goals.
Activity 1
Arrange the appraisal events correctly, from 1 (first) to 4 (last).
Event
Sequence
George attends a performance appraisal interview with Sarah. As part of the interview, George’s performance is compared with the targets for the year. They celebrate George’s successes and discuss any problems with George’s performance.
Sarah prepares a report about George’s actual performance during the previous year against the targets set. She uses this to prepare an appraisal of George in advance of the meeting. George is invited to give his opinion regarding his performance before the meeting.
Several months after the interview, as a follow-up action, Sarah checks that George has attended the training course, as they agreed. She will consider this when she carries out his next performance appraisal.
As part of the appraisal process, Sarah sets George some personal performance targets for the following year. In particular, they agree that George should attend a training course. Sarah records the performance assessment report, the details of the performance appraisal interview, their agreements about dealing with any problems, and George’s targets for the following year. She adds these to George’s record in the employment file.
Performance appraisal may also be the basis for deciding whether the individual should receive an incentive-related bonus for the year. However, discussions about pay and rewards should be kept separate from the assessment process described here.
Performance Assessment
The first stages in performance appraisal are to establish criteria for assessing performance and for the manager to prepare an assessment report on the individual.
There are several different ways of assessing performance:
Methods of assessment
Description
Narrative assessment
The manager may be required to write a narrative report on the performance of the individual that provides an overall assessment of the individual’s strengths and weaknesses.
The manager may have no formal guidelines for the criteria that should be used to assess the individual.
This type of assessment does not provide consistency in comparing the performance of different individuals, and the report may not be written in a clear way that is easy to understand.
Guided assessment
The manager may be required to write a narrative report using specified criteria for making the assessment.
For example, the manager may be required to write an appraisal report using formal guidelines that discuss the individual’s ability, attitude to work, integrity, ability to communicate, ability to get on well with work colleagues, and so on.
A guided assessment provides more consistency than an unguided narrative assessment, but the overall impact is not precise as it does not ‘rate’ the individual.
Grading or rating
The manager may be required to complete a standard appraisal form in which the individual is graded or rated according to specified criteria.
Grades or ratings may be on a scale such as: Excellent, Very good, Good, Average, Below average and Poor.
Or, they may require the manager to give a score to the individual for each attribute, for example, on a scale from 1 to 10.
Behavioural incident method
With this assessment method, the manager evaluates the individual based on expected behaviour on the job.
For example, a call centre worker may be expected to answer 95% of incoming calls within three rings.
The manager identifies any incidents of behaviour by the individual that indicate better-than-expected or worse-than-expected behaviour. These incidents will subsequently be discussed in the appraisal interview.
Results-related assessment
With this assessment method, the individual and manager have agreed on targets of performance for the individual.
The individual is then assessed based on their success or failure in achieving those targets, such as sales against the target.
If the targets are agreed upon each year between the individual and their manager, results-related assessment has the advantage of being fair and as objective as possible.
Self-appraisal
With this assessment method, the individual evaluates their own performance.
Self-appraisal involves asking employees to evaluate their own work, achievements, and areas for improvement. It encourages self-reflection and can be used as part of a wider appraisal system that includes input from managers, peers, customers, and other stakeholders. A challenge of self-appraisal is ensuring the employee is objective about their own performance.
Performance Assessment Criteria
Performance may be assessed according to specified criteria. The criteria that are used for assessment may vary.
A manager may consider the following:
The volume of work produced by the individual in a given period.
Ability to complete work on time and meet deadlines.
Knowledge of the work: technical ability.
Quality of work produced.
Managerial skills: skills at dealing with subordinates.
Personal qualities, such as the ability to use initiative, self-confidence, self-motivation, interpersonal skills, adaptability, and ambition.
Success in meeting performance targets.
When the assessment is based on the individual’s performance measured against agreed targets, the measures used should comply with several requirements to be effective.
Requirement
Job-related
The measures of performance must relate to the individual’s specific job.
The individual should be judged on performance on the job and not anything else (such as willingness to meet socially with work colleagues outside work).
Controllable
The individual’s performance should be measured based on something that the individual is in a position to control or significantly influence, such as speed or accuracy of work or ability to complete tasks on time.
Individuals should not be judged on matters outside their control, such as not having a full workload.
Objective and reasonable
As far as possible, measurements should be objective, and any targets for performance should be reasonable and fair.
However, some aspects of performance cannot easily be measured objectively, such as an individual’s manner in dealing with customers, their integrity, or their enthusiasm at work.
Available data
Data must be available to make the measurement.
There is no value in setting performance targets if no data is available to measure whether the target has been met.
The Appraisal Interview
The performance appraisal interview should be scheduled well in advance. This gives the individual time to prepare for the interview – for example, by planning questions to raise or comments to make. The manager and the individual have time to think about what to discuss.
Planning a meeting also means that time is set aside so that the appraisal takes an appropriate amount of time and is not disturbed or deferred by other events at work.
Appraisal Interview Styles
Style
Aspects
Tell and sell
The manager tells the individual what the assessment is and tries to get the individual to agree.
Subordinate input is minimal.
If the assessment includes criticisms of the individual’s performance, the manager would then discuss with the person what needs to be done to improve their performance in the future.
The manager should always seek to avoid confrontation and disagreement in the appraisal interview and to motivate the individual to improve performance, but this may be challenging if the individual is criticised in some ways.
Tell and listen
The manager tells the individual how their performance has been assessed and then asks the person to comment on the assessment.
The aim is to encourage participation by the individual in a constructive discussion.
It gives the individual an opportunity to suggest ways the manager could improve how work is managed – for example, by providing more or less supervision.
Having listened to what the individual has to say, the manager then discusses what might be done in the future.
This may include agreeing on personal targets for the individual for the future.
Problemsolving
The manager and individual agree on what they should try to achieve in the interview, the issues to be discussed, and how the interview will be conducted.
The interview is conducted to resolve jointly-recognised problems and collaborate to discuss what the individual should be doing in the future to improve performance or develop in their career.
The manager is not a critic and instead acts as someone who is trying to help the individual to perform well, and ideas may come from either the manager or the individual.
360-degree approach
The individual’s performance is assessed from all sides – from people above and below in the management hierarchy, as well as their peers.
The manager gathers several people’s views about the individual’s performance, usually through an appraisal questionnaire form.
The individual may make a self-assessment.
The performance appraisal interview involves discussing those assessments between the manager and the individual.
The individual can compare their self-assessment to what others think, which may reveal ways in which the individual might improve.
The manager may change their opinion if they discover that their assessment of the individual is very different from the assessments by others.
Do not assume that one style of performance appraisal interview is necessarily better or more effective than the others.
The individual should have an opportunity to comment or make suggestions, but the manager is responsible for whatever is agreed with the individual about future performance or targets.
When the individual is encouraged to contribute ideas or opinions in the appraisal interview, the manager may need to ask some questions to promote dialogue and prompt the individual to discuss everything that might be relevant.
Examples of Appraisal Questions
What are the best things you have done in the past year?
Have you met the targets we agreed on last year?
Are there any problems with your work that we might need to sort out?
Do you have ambitions for promotion or career development?
What can we do to help you to develop? Would you benefit from any training?
How do you think your performance is improving?
What do you think your performance targets should be for next year?
Follow-Up Action After Appraisal
Follow-up action after a performance appraisal is often the responsibility of the manager.
The manager should communicate the agreed performance targets to the employee and the HR department. The manager is responsible for ensuring that any agreed action is carried out and should continue monitoring the employee’s performance.
Submit a report for the employee file
A formal report on the appraisal interview and the assessment of the individual should be submitted to the HR department to be added to the individual’s file record.
Where appropriate, this report should indicate whether the individual should be considered for a promotion soon (within the next year).
Agreed personal targets and follow-up action
Personal targets and follow-up action should be agreed upon in the appraisal interview.
The manager should set these out in a formal memo or note to the individual and be included in the manager’s report to the HR department.
Taking follow-up action
When the manager is responsible for any follow-up action agreed upon in the appraisal interview, such as providing more training for the individual or providing opportunities for development by delegating more responsibility, the manager is responsible for ensuring that the agreed action is carried out.
Sometimes the responsibility for follow-up action is given to the individual, but the manager should check that the action has been taken and is effective.
Monitor progress
The manager should monitor the individual’s work and behaviour to check whether they seem to be doing what was agreed upon at the appraisal interview.
The manager should not leave matters for a year, until the following appraisal interview, to think about the individual’s performance and encourage the individual to meet targets and improve.
Benefits of Effective Appraisal
A performance appraisal system involves individual assessments and interviews with many individuals. It is time-consuming and so is expensive. Therefore, it is only worthwhile if it effectively benefits the organisation.
Appraisals are useful for:
The performance of the organisation as a whole depends on the performance of all its employees.
An organisation will compare its overall achievements (typically its financial year) to what it hoped to achieve.
Individual performance appraisals are a part of this review process.
An effective performance appraisal system should improve the organisation’s overall performance because of the gains in the performance of its employees. This means that to be effective, the system must improve employee performance.
Performance appraisal provides a process for deciding what should be done to improve performance when this has been disappointing and possibly also to set targets for individuals to enhance their performance in the future.
Many individuals want to be told how well or poorly they are performing in their job.
They want to know whether they have done well enough to have prospects for future promotion and career development.
Performance appraisal is a process to let individuals know how their performance is being assessed. This is called ‘giving feedback’ about their performance.
In larger organisations, performance appraisal is a formal and well-documented process. As a result, individuals can expect a fair and objective assessment.
The individuals who carry out the performance appraisal are required to explain their views in writing: this can act as a discipline to make comments that are free from bias or any personal dislike of the individual.
Suppose performance appraisal provides individuals with satisfaction about their work, prospects and pay. In that case, it is expected that the labour turnover rate – the number of people leaving the organisation to take a job elsewhere – will be lower. However, this may be very difficult to measure and ‘prove’.
Performance appraisal provides a formal method to evaluate the development potential of employees. A formal procedure is likely to be more thorough and effective than informal arrangements for performance review.
By identifying individuals with the potential for development and promotion, performance appraisal assists with HR planning and estimating future recruitment and training requirements. The performance appraisal system is only effective if the HR department uses the appraisal information for HR planning.
Benefits of Effective Performance Appraisal to the Individual
Some of the benefits of the effective performance appraisal for employees are personal.
The manager provides feedback directly to the individual about how well they are performing. Individuals want to know what their employer thinks of them.
An effective performance appraisal system will enable individuals to discuss ways of improving performance, for example, through training and development.
Performance appraisal should give individuals an opportunity to discuss their career ambitions.
Performance appraisal should allow individuals to discuss their pay and other rewards.
An effective performance appraisal system enables individuals to discuss things that matter to them in their job. Individuals need to believe that the appraisal system has a serious intent and is fair.
Barriers to Effective Performance Appraisal
In theory, performance appraisal systems should provide benefits for both the employer and the employee, but in practice, the benefits may not occur.
Perceived as a nuisance
Performance appraisals may be seen as a bureaucratic disruption to regular work.
For managers, and perhaps for the employee as well, they involve completing reports or forms or questionnaires.
They happen just once a year, so they can soon get out of date, and their purpose may be forgotten by employees as the day-to-day demands of the job take over again.
Perceived as a threat
People who are being appraised often see the process as a threat, as the manager will criticise them.
This is especially true when the interview style is ‘tell and sell’, or even ‘tell and listen’, which begins with the manager telling individuals how they have been assessed. This assessment will often include criticisms.
These interviews can seem one-sided and unfair or biased.
Conflict in purpose
The manager and employee may want to talk about different things and have different views about the purpose of the appraisal.
For example, The manager may want to discuss ways of improving the person’s performance, but the employee may wish to talk about pay.
Lack of purpose
In some organisations, the performance appraisal system does not have a useful purpose. Instead, it’s an opportunity for the manager and the individual to chat about the individual’s performance.
At the end of the interview, nothing constructive may have been agreed upon. Employees may enjoy discussing their performance, but the appraisal is ineffective if nothing happens afterwards.
Lack of appraisal skills
An interviewer must ask the right questions and be able to listen and understand. Performance appraisals may be ineffective because the interview manager lacks interview skills.
Insufficient time
Insufficient time may be allocated to performance appraisal interviews.
Meetings that are rushed and occur only once a year are unlikely to have their intended effect.
Lack of preparation
If the manager and the employee have not appropriately prepared before the meeting, they may fail to discuss matters thoroughly when they meet.
The interview may fail to reach decisions about follow-up actions or personal targets.
John Locket’s Six Barriers to Effective Appraisal
John Locket identified six barriers to effective appraisal:
Barrier
Appraisal as confrontation
This is the problem that the appraisal interview may be seen as a confrontation between the manager and the individual.
The manager may focus on the negative aspects of the individual’s performance, and the manager and individual may disagree rather than discuss matters constructively.
Appraisal as judgement
The individual may see the appraisal process as one-sided, in which the manager criticises the individual and reaches a verdict on the individual’s performance.
Compared to a judicial process, the manager acts as prosecutor, jury and judge and decides the outcome.
Appraisal as chat
The appraisal process may be seen as something without purpose and no more than an annual ‘chat’ between manager and individual. There is no discussion at the meeting about follow-up action or targets for improvement.
Appraisal as bureaucracy
The appraisal process is seen as a bureaucratic form-filling procedure that has to be carried out because the HR department has demanded it.
Managers and individuals do not see any purpose in the process and consider it an unnecessary waste of time.
Appraisal as an annual event
When an appraisal is an annual event, the issues discussed and agreed upon at an appraisal interview may become outdated as the work situation changes.
The appraisal process is seen as a formal event for reviewing past performance without too much concern about the future.
Appraisal as unfinished business
The appraisal process may be ineffective because nothing has been settled, and unfinished business exists.
This may be partly because of a lack of time at the meeting to discuss matters thoroughly.
It is also partly because the meeting discusses and should reach an agreement on action for the future. However, unless these action points are followed up, nothing is resolved.
