Performance Appraisal and Management

Kevin R. Murphy, Jeanette N. Cleveland, Madison E. Hanscom

• Publisher: SAGE Publications, Inc
• Year: 2018
• ISBN:
  9781506352923
• Edition: 1
• Topic: Business
• Subtopic: Human Resource Management
• Index: Business

Organizations of all sizes face the challenge of accurately and fairly evaluating performance in the workplace. Performance Appraisal and Management distills the best available research for and translate those findings into practical, concrete strategies. This text explores common obstacles and why certain performance appraisal methods often result in failures. Using a strategic, evidence-based approach, the authors outline best practices for avoiding common pitfalls and helping organizations achieve their maximum potential. Cases, exercise, and spotlight boxes on timely issues like cyberbullying in the workplace and appraising team performance provides readers with opportunities to hone their critical thinking and decision making skills.

1 Performance Appraisal: Research and Practice

Learning Objectives

• 1.1 Learn why many organizations consider dropping their performance appraisal systems
• 1.2 Understand the major components of performance appraisal
• 1.3 Learn how performance appraisal has developed and changed over the last century
• 1.4 Understand why it is important to study the organizational and societal context within which performance appraisal systems operate
• 1.5 Understand the main causes for the failure of performance appraisal systems in organizations

Performance Appraisal: Historical Development and Present Status

Performance appraisal can be described as the Henny Youngman of human resource management—it gets no respect. Consider the following quotes:

Performance appraisals are often described as the “job managers love to hate.” (Pettijohn, Parker, Pettijohn, & Kent, 2001, p. 754)

Nobody wants to get one. Nobody wants to give one. (Ford, 2004, p. 550)

Performance appraisal (PA) continues to be one of the most persistent problems in organizations. (Gordon & Stewart, 2009, p. 473)

Performance appraisal is, in practice, more of an organizational curse than a panacea. (Taylor, 1985, p. 185)

One important component of performance management—that is, the performance review—is dreaded. (Adler et al., 2016, p. 220)

Dissatisfaction with performance appraisal appears to be increasing; many large organizations (e.g., Accenture, Deloitte, Microsoft, GAP, Medtronic) have abandoned or substantially curtailed their use of formal performance appraisal systems (Buckingham & Goodall, 2015; Capelli & Tavis, 2016; Culbert & Rout, 2010; Cunningham, 2015). Deloitte, for example, has replaced traditional appraisal systems with systems that ask team leaders a handful of simple questions about each team member (e.g., “Given what I know of this person’s performance, I would always want him or her on my team”). However, getting rid of performance appraisal is not a simple matter, and the decision to do away with the whole uncomfortable business of conducting annual appraisals, giving performance feedback on the basis of these appraisals, and then using them to help make high-stakes decisions (e.g., promotion, salary increase) may cause more problems than it solves.¹ As Starbuck (2004) notes, “We should distrust performance measures, but we cannot ignore them because they are powerful motivators that can produce dramatic improvements in human and organizational performance” (p. 337).

In this book, we explore in depth four points:

• Why so many employees, supervisors, and managers are dissatisfied with performance appraisal
• Why performance appraisal so often fails, or appears to fail, in organizations
• Why performance appraisal is still necessary, and why attempts to replace it with more unstructured and informal approaches have the potential for disaster
• How the benefits of performance appraisal can be salvaged by changing the ways organizations and their members think about and use performance appraisal

Our approach is strongly anchored in scientific theory and empirical research. In the past 75 to 100 years, researchers in the organizational sciences have studied performance appraisal in depth, and have published hundreds if not thousands of relevant and useful studies, but this academic research has had a disappointingly small impact on the way performance appraisal is conducted and used in organizations (Banks & Murphy, 1985; Ilgen, Barnes-Farrell & McKellin, 1993; Murphy & DeNisi, 2008). The aim of this book is to pull together this body of research to help both researchers and the users of performance appraisal in organizations understand why performance appraisal is such a frustrating experience and how it could be improved. The authors of this book are all industrial/organizational psychologists, and we are strong proponents of the Scientist–Practitioner model that characterizes this field. In this book, we take a detailed look at the underlying science and use the results of this work to try and improve the practice of performance appraisal in organizations.

Is Performance Appraisal in Crisis?

There is a long history of research on performance rating and performance appraisal (for reviews, see Bernardin & Beatty, 1984; DeCotiis & Petit, 1978; DeNisi, 2006; DeNisi, Cafferty, & Meglino, 1984; DeNisi & Murphy 2017; Ilgen & Feldman, 1983; Landy & Farr, 1983; Milkovich & Wigdor, 1991; Murphy & Cleveland, 1991, 1995; Wherry & Bartlett, 1982), and while different reviews highlight different strengths and weakness of the methods that are used in organization to measure job performance via rating scales or other similar measures, it is fair to say that none of these reviews lead to the conclusion that performance rating is particularly successful either as a tool for accurately measuring employee performance or as a component of a broader program of performance management. Nearly a century of research on performance appraisal (see, for example, Austin & Villanova, 1992) suggests that there is a longstanding history of problems with performance evaluation in organization and little reason to believe that these problems will be solved simply.

Doubts about performance appraisal are not confined to academics. Performance appraisals have a very high failure rate; up to 90% of appraisal systems in organizations are likely to be viewed as ineffective (Pulakos, Mueller-Hanson, Arad, & Moye 2015; Smith, Hornsby, & Shirmeyer, 1996). Performance management systems do not seem to fare much better; the conclusion that performance management is broken is shared among many researchers (Pulakos & O’Leary, 2011; Pulakos et al., 2015). Stories about the demise of performance appraisal are increasingly common in the business press (Buckingham & Goodall, 2015; Capelli & Tavis, 2016).

On the other hand, nearly every organization uses performance appraisals and performance ratings² and there is little sign this is changing, at least in the short term (see Lawler, Benson, & McDermott, 2012; Mercer, 2013). A recent survey of more than 1000 organizations in more than 50 countries reported that: (1) the vast majority of organizations set individual goals (95%) and conduct formal year-end review discussions (94%), (2) most have overall performance ratings (89%), (3) most evaluate competencies/behaviors (86%), (4) most include an employee self-assessment (82%), and (5) most link individual ratings and compensation decisions (89%). More than half (57%) of the organizations globally use a 5-point rating scale (Mercer, 2013), and performance rating (as opposed to some other method of measurement, such as full or partial ranking) is so dominant in the field that we will use the terms “rater” and “ratee” throughout this book to designate the person or persons who have the responsibility for evaluating the performance of some group of employees and the targets of those evaluations, respectively.

Performance ratings are the basis for pay-for-performance systems in many organizations, and it is fair to say that billions of dollars in compensation and rewards are riding on the backs of performance ratings. Performance ratings can have long and lasting effects on employees’ lives and careers in organizations, affecting staffing, promotion, and termination decisions as well as affecting access to other development opportunities. There is little evidence that organizations that attempt to get rid of performance appraisal are likely successful in replacing it with anything better, and as we will show in many of the chapters that follow, they may be running severe and unexpected risks.

While there is widespread disappointment and skepticism about performance appraisal, we do not believe that successful performance appraisal is a lost cause. This book lays out, often in considerable detail, the litany of reasons for the failure of performance appraisal, as it is currently designed and implemented, and the many frustrations encountered in attempting to improve appraisals in organizations. Nevertheless, we are optimistic that is it possible to

• make good judgments about who is performing well or poorly and what aspects of performance represent strengths and weaknesses for particular workers,
• use information about current performance to inform important decisions in organizations, and
• develop and administer performance appraisal systems that accomplish worthwhile goals in organizations.

In the chapters that follow, we show how research on performance appraisal can shed light on the success and failure of appraisals in organizations and can open new avenues for reforming the practice of performance appraisal. Chapters 2 through 12 focus on the challenges inherent in performance appraisal; the final two chapters in this book focus on how we can learn what we have learned over nearly a century of research on performance appraisal (DeNisi & Murphy, 2017) to improve performance appraisal in organizations.

To help provide some context for understanding how performance appraisal systems are designed and why, and to understand why these systems seem to fail so often, we start by defining performance appraisal and providing a brief review of the historical context of research and practice in performance appraisal. We pull together major trends in this historical survey with two models that summarize contemporary research and practice, first a simple four-part framework developed by Murphy and Cleveland (1995) and then a more elaborated model of the appraisal process developed by Murphy and DeNisi (2008) that illustrates many of the key themes this book will pursue.

Defining Performance Appraisal

Performance appraisal has a few defining characteristics that help explain the challenges this method faces. In particular, performance appraisal has several characteristics that distinguish it from the sort of simple and immediate performance feedback that is sometimes advocated as part of a performance management system (Aguinis, 2013). In particular, performance appraisal

• is formal and regular—in most organizations, performance appraisal is an annual event that is likely to be tied to the process of salary administration. It is often a required part of the supervisor’s job to evaluate his or her subordinates, and this is likely to be done on a regular basis using formally developed tools (e.g., rating scales, information systems);
• is summative—it provides information about performance that has happened over some period of time, most often, providing evaluations of performance over the last year;
• is evaluative—performance appraisal goes beyond simple description, to provide evaluations of the level of performance;
• provides potentially detailed feedback—at a minimum, most performance appraisal systems will provide numerical measures of several aspects of dimensions of performance as well as assessments of overall performance levels, and they often include considerably more detail (e.g., narrative comments, goals for d...