Human resource management (HRM) has developed into a crucial component of the contemporary business organization and the professional business environment (Fyock, 2001; George & Jones, 2008; Robbins & Judge, 2009). Today, formal approaches, practices, and procedures dominate employee recruiting, hiring, training, supervision, appraisal, and advancement and only the smallest organizations still perform those functions in the informal ad-hoc manner that used to be common throughout workplace environments. Especially in difficult economic periods and perpetually within industries with characteristically narrow profit margins or intense competition among organizations, HRM functions can represent substantial cost savings and added value where they are administrated efficiently, or they can be the source of significant unnecessary costs and undermine competitive advantage (Fyock, 2001; George & Jones, 2008; Robbins & Judge, 2009).
Within modern HRM component functions, employee performance appraisal has emerged as a crucial area, largely because it is often tied very directly to profits (Fyock, 2001; Kinicki & Williams, 2005). Naturally, the performance level of the organization is substantially a function of the collective achievements and operational efforts of its individual employees. High-performing employees contribute to positive revenue and competitive advantage through more sales, repeat patronage, professional reputation, and organizational growth. Low performing employees can potentially threaten all of those goals and contribute to the failure of entire organizations irrespective of external market conditions and factors (Fyock, 2001; Kinicki & Williams, 2005). In principle, the reason performance management is so important to business organizations is most simply stated by the observation that the organization is no better than the quality of its employees (Russell-Whalling, 2008). In that regard, the performance management component of HRM function allows organizations to monitor the quality of their staff, to identify areas where improvement is necessary for maximum competitive advantage, and to improve their competitive advantage by improving individual employee performance throughout the entire organization (Russell-Whalling, 2008).
Overview of Traditional Employee Performance Management Approaches
While many different employee performance appraisal systems have been used in different regions, industries, and organizations, contemporary professional organizations most commonly rely on a relatively small number of general performance appraisal systems: namely, management by exception, critical incident management, management by objectives, 360-degree appraisal, behavioral observation, and trait-based systems (George & Jones, 2008; Robbins & Judge, 2009). Management by exception refers to the practice of monitoring employees principally for good and bad performance at the far ends of the performance spectrum and largely ignoring performance monitoring closer to the center (George & Jones, 2008; Robbins & Judge, 2009). Management by the exception can be narrowed even further by focusing exclusively on under-performing employees. It is closely related (in the context of performance appraisal) to critical incident management (CIM) because it focuses on particularly good or bad (or just bad) outcomes. As between the two approaches, management by exception is more proactive and often safer because CIM is, by design, retroactive. More precisely, both are retroactive approaches because they address poor performance after the fact; their principal distinction is that CIM applies to and is determined by operational outcomes; meanwhile, management by exception is only retroactive with respect to the individual employee and includes intervention before outcomes necessarily materialize (Russell-Whalling, 2008).
Management by objectives is a process whereby management and staff collaborate to establish quantifiable benchmarks in advance that are used as a map to success of each employee (George & Jones, 2008; Robbins & Judge, 2009). In addition to providing a mechanism for objective appraisal, the advantage of management by objectives is that it pre-empts some of the most common sources of organizational inefficiency at the staff level: miscommunication between management and staff or between supervisors and subordinates and poorly understood operational objectives and responsibilities (Kinicki & Williams, 2005). Management by objectives provides a means of ensuring communications clarity and greatly facilitates the development and sharing of uniform expectations among and between employees, supervisors, and organizational management (Maxwell, 2007).
The 360-degree performance appraisal concept also involves input from the employee, but retroactively instead of prospectively (Russell-Whalling, 2008).Whereas management by objectives includes the employee in the performance goal-setting phase, 360-degree performance appraisal focuses on review after the fact. On the other hand, the 360-degree approach typically provides much more information to assess performance, because it includes input from coworkers, supervisors, vendors, clients, and (often) from the employee as well. In principle, 360-degree performance appraisal is consistent and compatible with management by objectives as well as with management by exception and critical incident management (Russell-Whalling, 2008).
Behavioral observation-based employee performance evaluation focuses on observable interactions and on objective evidence of the interrelationships and collaborative efficiency that individual employees develop and maintain with others within the organization (George & Jones, 2008; Robbins & Judge, 2009). In industries and organizations whose work if oriented more toward individual operational performance than on interpersonal collaboration, behavioral observation-based performance evaluation relates mainly to operational efficiency or quantifiable results where appropriate. Behavioral observation typically factors into other performance management approaches such as the manner in which it is used in conjunction with management by exception and critical incident management (George & Jones, 2008; Robbins & Judge, 2009).
Finally, trait-based performance management is conceptually similar to behavior-based performance management (Kinicki & Williams, 2005). Whereas the latter focuses on the issue of the identifiable behaviors that are most closely associated with positive (and negative) performance, the former focuses on the identifiable personal traits that correspond (or that appear to correspond) with superior (and inferior) performance (Kinicki & Williams, 2005).
Criticisms and Conceptual Limitations of Traditional Approaches
Management by exception has often been criticized as promoting an organizational culture of mediocrity and is typically associated with poor motivation levels said to be common in the public sector where there is strong job security but comparatively little opportunity for reward based on good performance (Fountaine, 2005). Similarly, critical incident management has been criticized as focusing so narrowly on specific outcomes that it cannot contribute to meaningful staff improvement more generally (Fountaine, 2005).
Management by objectives does greatly improve communications and clarity of expectations but it is highly susceptible to manipulation in conjunction with the employee-input element, such as through excessive focus on easily attained goals or on relatively short-term objectives while largely ignoring employee development more generally (Jackson, 2007). The 360-degree performance appraisal concept is highly susceptible to subjective criteria and to office politics; that also generates significant liability concerns, such as in connection with accusations of discrimination (Robbins & Judge, 2009).
Both behavioral observation-based employee performance evaluation and trait-based performance management concepts rely on a-priori assumptions that there are specific behaviors and personal traits (respectively) that are directly associated with high performance (Warech & Tracey, 2004). The fundamental problem they raise is that empirical data demonstrates that there is not necessarily any specific set of behaviors or personal traits that necessarily corresponds to success. In fact, more often than not, there are numerous entirely different sets of behaviors and traits that are consistent with successful job performance (Buckingham & Vosburgh, 2001; Jackson, 2007). Even more fundamentally, trait-based performance appraisal systems address static elements that cannot be changes; they are (quite obviously) also highly susceptible to liability in connection with discrimination claims (Robbins & Judge, 2009).
Leadership, Trust, Integrity, Performance Appraisal and Competitive Advantage
Leading theorists in organizational culture, leadership, and strategic organizational vision have developed an approach to employee appraisal that is designed to incorporate and exploit the advantages of many of the traditional approaches but in a framework that actually encompasses much more than performance appraisal alone. In particular, Maxwell (2007) and former U.S. Secretary of Defense Colin Powell (Harari, 2002) have suggested that retrospective performance appraisals are highly ineffective outside of a comprehensive approach to recruiting, hiring, and cultivating specific qualities and talents in employees and to motivating them through a shared organizational culture and value system. In principle, performance appraisal is more useful and effective when it can be applied to manifestations of shared organizational expectations in relation to strategic objectives rather than to microcosmic operational benchmarks or outcomes (Jackson, 2007; Maxwell, 2007).
Whereas trait-based appraisals focus on personal qualities such as integrity (for one example), Maxwell (2007) emphasizes the importance of integrity as an organizational value. He views performance appraisal as valuable only to the extent it is part of an organizational commitment to the maximum professional development of every member of the team. That process includes establishing trust among management, supervisors, and staff and cultivating a culture of self-responsibility and a genuine desire among managers and supervisors to reward good performance and to help every member of their teams develop his or her leadership potential (Harari, 2002; Maxwell, 2007).
Other contemporary researchers and vocational psychology theorists promote an approach to performance appraisal and management that directly contradicts conventional wisdom as it pertains to addressing the objective results of traditional employee performance appraisals. Specifically, the traditional approach is to encourage employees to exploit their natural gifts and strengths and to work to improve their areas of relative weakness (Jackson, 2007; Russell-Whalling, 2008; Warech & Tracey, 2004). The…