Performance Appraisal Effectiveness and Organizational Goals

Introduction and Problem Statement

Performance appraisal is a term used for evaluating the performance of employees in an organization. The purpose behind performance appraisal is, first, to rate an employee's performance on the job, and second, to determine whether employees have achieved the goals they were required to meet. Moreover, performance appraisals measure not only the achievement of individual employee goals but also the broader goals of the organization. However, it cannot be ignored that performance appraisals are highly subjective in nature, depending greatly on an individual's view of a situation, the employer-employee relationship, and related factors. It is for these reasons that performance appraisals are often avoided even by large, well-established organizations, despite appearing extremely attractive in terms of the benefits they deliver.

This research paper aims to conduct a study regarding the effectiveness of performance appraisals and the issues that accompany them.

The problems associated with conducting performance appraisals typically begin at the middle management level, where it is the job of a middle manager to appraise his or her subordinates. At every successive hierarchical level, superiors are asked to evaluate the employees working under them. This can give rise to many issues that make performance appraisals an unpleasant task, causing many managers to view the process as time-consuming and burdensome.

To begin with, performance appraisals can cause friction, resentment, and low morale. Because appraisals are rather subjective in nature, negative ones often cannot be effectively disputed. Appraisals may also be colored by the state of personal relationships in the form of prejudice. However unfair an appraisal might be, there is no straightforward way for an employee to contest a superior's view. This inevitably causes resentment. Furthermore, employers sometimes feel pressured to give a positive appraisal in order to avoid confrontation or friction in the existing work environment. In addition, appraisals require extra time and effort on the manager's part. All of these issues combine to generate an unpleasant connotation around the term "performance appraisal."

Burdensome as they may be, performance appraisals and performance appraisal systems that are properly designed and implemented serve as a reflection of the achievement of an organization's goals and objectives. Therefore, the failure to implement an effective performance appraisal system often results in no meaningful relationship between the appraisal process and the achievement of organizational goals.

The achievement of organizational goals and objectives can be measured in part by effective performance appraisals.

The research aims to determine the answers to the following questions: Do performance appraisals encourage employees to develop an increased work ethic that will ultimately affect organizational goals and objectives? Do employee performance appraisals increase or decrease job performance? Do valid performance appraisal instruments effectively measure or rate employee performance?

In order to conduct a balanced study, the following have been assumed as constants: performance appraisals will suggest that employees tend to work harder when being evaluated; effective performance appraisals increase job performance; and employees want performance appraisals to be conducted.

Review of the Literature

The primary reason behind implementing effective performance appraisals is the need to manage employee performance in order to reach organizational goals. Performance appraisal is one of the key methods of leading and managing employees within the context of their performance, which is why appraisals are given such importance when it comes to managing and enhancing employee output.

A good performance management system does not rest on any single fixed point. It is an evolving system that requires constant attention and regular updating. However, a performance management system cannot control all factors that may affect or gauge employee performance. The factors that affect employee performance can be roughly classified into two groups: internal and external. Internal factors are those over which the organization has influence and control, ranging from job descriptions and employee selection to morale issues and work environment. External factors are those over which the organization has little or no control, including funding for salaries, job classifications, and jurisdiction-wide procedures. In some cases, organizations try to minimize the impact of external factors by working on the internal factors over which they have substantial control. For instance, "the Mecklenburg County (Charlotte, North Carolina) Department of Environmental Protection (MCDEP) uses a multidirectional approach to performance appraisal and rewards, beginning with the hiring process and continuing on a day-to-day basis" (Barry, 1997).

Well before the performance appraisal itself comes the issue of determining job responsibilities. An employee's performance cannot be assessed if the job has not been adequately described, since there would be no meaningful yardstick to go by. Therefore, determining correct job responsibilities and classification is the first, and one of the most important, steps to be considered. It is also the point at which compensation in the form of an initial salary range is determined. In order for performance appraisal to be successful, each job description must reflect not only job responsibilities and required education and expertise, but also the goals and objectives of the department specifically and the organization generally.

The second step before a performance appraisal system can be established is the selection or recruitment of potential employees. In recent years, a new trend has developed whereby organizations recruit employees through a three-step process. This process begins with a written test conducted in a group setting, designed to determine whether potential candidates have the basic ability and intelligence level required to perform the skills needed for the job. The test also allows the organization insight into each candidate's individual traits. The written test is followed by an interview for candidates who pass, during which the candidate's fitness for the role is assessed by relevant superiors. Once a candidate is deemed fit, they are asked to join the organization with an initial training period.

After the training has ended and the employee has spent a substantial amount of time in a role — usually at least six months — he or she is considered a candidate for performance appraisal. Performance appraisals are typically of two kinds. The first is conducted at the end of a probation period, assessing the employee based on the time spent in the role to determine fitness for continuation. A positive appraisal at this stage results in the employee becoming a permanent member of the organization's workforce. The second type is conducted at pre-determined intervals and is therefore a regular affair, measuring an employee's performance within the context of pre-set organizational goals and objectives. A performance appraisal also serves as an incentive for increasing employee job performance. Thus, an appraisal is a multi-dimensional activity affecting many aspects of organizational goals and objectives (Levinson, 1970; Locke and Latham, 1990; Mount and Thompson, 1987; Stonich, 1984). Furthermore, periodic performance evaluations are multipurpose tools for management control.

Numerous researchers have addressed the effectiveness of performance appraisal in enhancing job performance, maintaining work ethic, and measuring employee performance. It is generally agreed that if performance appraisals are accurate, objective, and free of prejudicial intent, they yield superior outcomes for individual employees as well as entire organizations (Landy and Farr, 1980; Mount and Thompson, 1987; Nathan and Alexander, 1985; Smith, 1986). Other researchers have linked the benefits of performance appraisals with various external factors (Dipboye and de Pontbriand, 1981; Fulk et al., 1985; Greenberg, 1986; Goodson and McGee, 1990), though those factors lie outside the scope of the present study.

There has been substantial study in the field of employee participation in determining personal objectives for performance appraisals. It is generally agreed that such a process is logical and should be practiced to make appraisals effective. Employee participation partly improves motivation and understanding of corporate objectives, thereby increasing job performance. Participation also helps employees accept the appraisal process and its objectives, because it improves communication between superiors and subordinates and makes goals clearer (Gehrman, 1984; Gibb, 1985; Locke et al., 1981). Several studies conducted in the 1980s and 1990s found that, in order for job performance to improve, employees should participate in the appraisal process. Buch and Spangler (1990), who studied one particular company, found that employees who participated in the appraisal process produced better job performance and received significantly better performance ratings and promotions than non-participating employees. Though these arguments carry intuitive appeal, empirical evidence on this issue is not conclusive, and further research is required to understand all the determinants that affect the value of participation.

When organizations assess employee performance, organizational goals and objectives provide the first and most logical yardstick. However, other studies point toward additional factors that determine employee performance and its relationship with appraisal. A certain expectancy theory states that the motivation behind a person's willingness to engage in certain behavior is a multiplicative function of that person's expectations about the probable results of that behavior and the degree to which the individual desires those results (Vroom, 1964). This suggests that using corporate objectives as the basis for performance appraisal can sometimes create problems rather than coordination. If an employee holds expectations about the outcomes of personal behavior that are not aligned with corporate objectives, those expectations may undermine the company's use of such objectives as performance benchmarks. Several difficulties may also arise from problems in accurately measuring goal achievement or communicating how employees are expected to reach corporate objectives (Jagacinski, 1991).

There have been relatively few studies conducted at the intersection of accounting techniques and performance appraisal. In the academic accounting literature, a body of research in budgetary control has attempted to determine the results of placing excessive emphasis on incomplete performance targets, finding that such an approach can result in undesirable consequences. The accounting-based performance measures have shown the most probable dysfunctional consequential behavior (Hopwood, 1972; Otley, 1978; Hirst, 1981). All of these studies concluded that dysfunctional outcomes may result when accounting-based measures are not fully representative of a manager's complete job responsibilities, and when these measures are the only ones used to assess performance against targets.

For the performance appraisal to be effective, an employee's job description and associated tasks and activities must be specific, for several reasons. Evidence shows that employees who know exactly what their responsibilities are and how to meet expectations are far more likely to be efficient than employees who have not been part of the appraisal process (Meyer et al., 1965; Odiorne, 1990). These studies also concluded that there is increased attention to work ethic and improved job performance when a performance appraisal is conducted properly. Participating employees can achieve increased job performance because their efforts are more likely to be focused and their tasks more clearly defined. Specific job descriptions also allow senior management to identify shortcomings and inadequacies in job responsibilities, enabling economies through changes in task sizes, procedures, or organizational structure. Furthermore, when employees have a thorough understanding of their tasks, management tends to have greater control and can prevent failures in control systems. Participative performance appraisals also result in more effective measurement of employee performance because employees understand what is required of them and that they will be assessed accordingly. Planning also benefits, and over time more effective and meaningful information and performance measurement systems can evolve. A study conducted by Schneier et al. (1991) concluded that effective performance measurement can increase job performance through enhanced ability for strategy execution; however, they also argued that beyond the clarity of corporate objectives, there must be adequate managerial accountability for these objectives if a firm is to compete in changing business environments.

The purpose of performance measurement and appraisal is to help employees improve their ability to identify with their given tasks so that their overall job performance improves. If appraisals are conducted regularly, recorded for comparison with previous results, and if the results are shared and discussed, an employee's understanding of what is required increases — which is then reflected in improved performance. Such well-defined, periodic performance appraisals are used in many companies. However, there are organizations where appraisals are often conducted orally, irregularly, and casually, or where employee performance is not assessed at all. In these cases, superiors overlook the opportunity to use performance evaluation as a tool to sharpen subordinates' understanding of their jobs and responsibilities.

A study conducted in 1995 concluded that, all else being constant, performance measurement is often not effectively carried out because of the interaction between superior and subordinate — a situation labeled "impression management" in the associated literature (Wayne, 1995). The study stated that a subordinate's use of supervisor-focused impression management behaviors would have a positive effect on how much the supervisor liked the subordinate. It is generally accepted in the psychology literature that people make an extra effort to maintain positive self-images. As a result, superiors who receive compliments from their subordinates experience an elevated sense of self-image and are drawn to subordinates who make them feel good about themselves. This creates a reciprocal dynamic that can inflate the appraisal a superior gives a subordinate, reducing the effectiveness of performance measurement. The Wayne study also noted that supervisor-focused impression management behaviors would positively influence a supervisor's perceptions of similarity to the subordinate, leading to more favorable appraisals — again undermining accurate performance measurement. Self-focused behaviors, including false modesty and boasting, represent attempts by subordinates to project the image of a friendly, hard-working, model employee.

The Wayne study further stated that a subordinate's self-focused impression management behaviors could have a negative effect on a supervisor's liking of that subordinate, resulting in an unnecessarily negative assessment. It also noted that a supervisor's liking of a subordinate would be positively related to the supervisor's appraisal of that subordinate, meaning that personal affinity can distort appraisals in either direction, rendering them unrepresentative of actual performance.

Until the end of the 1980s, despite a large body of research on appraisal accuracy, employee participation, and types of performance measurement, there was no substantial research that specifically linked increased job performance and effective performance measurement with performance appraisals. Then in 1994, a study by Bruns and McKinnon examined these hypotheses directly. The first hypothesis stated that employees in organizations with well-defined, regular performance appraisal systems have more knowledge of their daily activities in more specific, precise terms than employees in organizations where this is not the case — and that these organizations experience increased employee performance as a result. The second hypothesis stated that employees in companies with well-defined and periodic appraisal systems concentrate their efforts on areas on which they are evaluated, meaning that such appraisals effectively measure employee performance. This study is used throughout the present paper as a recent advance in this evolutionary body of research, with earlier studies treated as foundational references.

Conclusion and Recommendations

The achievement of organizational goals and objectives can be measured in part by effective performance appraisals. This becomes possible when well-defined performance appraisals guide managers towards a better understanding of their tasks and responsibilities. This increased knowledge makes them more focused on daily targets and hence better able to achieve goals, resulting in increased job performance over time. Considering the Bruns and McKinnon (1994) study, in which eleven firms were used as a sample, it can be concluded that performance appraisals make managers more specific in describing their work, thereby enhancing job performance. This confirms the hypothesis that effective performance appraisals are good indicators of the achievement of an organization's goals and objectives.

Well-defined performance appraisals also have a direct effect on determining the types of daily tasks that managers perform. Although the studies reviewed cannot directly establish causality with respect to the achievement of organizational goals, they do indicate a strong association between effective performance appraisals and organizational goals, mediated through the daily tasks employees perform and on which they are evaluated. This is particularly true for organizations with very well-defined appraisal plans. The studies also indicate a close relationship between quantifiable tasks and performance appraisals. If a firm attaches a tangible reward to the completion of a task after appraising it, employees are most likely to concentrate on completing those tasks — thereby increasing job performance for those specific activities. As a result, it is extremely important for firms to carefully consider the nature of the goals used to assess managers and to strike a proper balance between quantifiable and non-quantifiable goals. When non-quantifiable tasks are more important to reaching the firm's goals, the appraisal should be designed in a way that rewards those non-quantifiable tasks so that employees do not redirect their attention exclusively toward tasks for which they receive more recognition.

The studies reviewed also showed that for a performance appraisal to be effective in measuring employee performance, it should be conducted with employees as active participants throughout the entire process. This increases the chances of success. However, the studies used in this paper have several limitations, making it important that new research be conducted with adequate sample sizes. For example, the Bruns and McKinnon study was limited by the small number of firms without discernible appraisal plans, and by the subjectivity of the measurements of task specificity and task-goal association. Though sufficient empirical evidence was provided to test the hypotheses, there remains substantial room for further research with larger and more varied samples. The Wayne study was limited to two universities, which not only constitutes a small sample but is also specific to the academic environment; results may therefore be influenced by factors unique to academia and may not be generalizable to other industries. Similarly, the Bruns and McKinnon sample comprised only twelve firms, all in specific manufacturing sectors, limiting the applicability of results to other fields such as the services sector.

After reviewing all of the above studies, several areas have been highlighted as directions for future performance appraisal practice.

The primary purpose of performance appraisal should be to aid employees in improving their performance. Within all types of organizations, the main purpose is to reach a conclusion about the worth of the individual's contribution over a given period. However, appraisal cannot stop at an assessment of past achievements or failures — it must remain an ongoing process. It is widely agreed that an associated purpose of appraisal is the development of the individual.

While both judgmental and developmental aspects are important to all organizations, a firm that seeks to pursue quality over time should make individual development a primary concern of the appraisal activity. In most cases, the judgmental aspect would serve as a basis for advising, directing, and helping the individual improve future performance in the interest of organizational goals. In those instances where appraisals must be negative — for example, when a termination or other adverse action is involved — a visionary firm, committed to fairness, should provide the individual with an adequate and accurate assessment of the behavior that led to the decision.

It is also apparent from the studies above that some form of modification of the existing performance appraisal system should be undertaken with the active participation of all those affected by the activity. Since appraisal systems reflect a firm's achievement of its goals and objectives, it is important that they are well-rounded and cover all aspects. Participants range from employees to customers and everyone in between. Participation of all stakeholders — defined as any component affected by the working of the system — is a basic quality management principle. With regard to performance appraisal, the different people affected by appraisal activity include employees and their peers, supervisors, and customers. Given a commitment to appraisal that is directed at improving performance, a wide range of individuals should be included in all stages of the activity. Employees are more likely to view the appraisal process as fair and to accept its results when they have had a share in shaping the system. Customers, on the other hand, can serve as sources of information about how the established system works and what needs to be done to improve it, including whether the system is measuring what is required and whether the methods used are fair.

Apart from the above, a performance appraisal system should be evaluated and re-evaluated periodically in order to refine its application. The evaluation of the existing system should be approached like any other quality improvement effort. This means using the same tools commonly employed in quality improvement processes — concentrating on locating sources of conflict and identifying room for improvement, and separating local causes of variance from common causes. Quality improvement tools generally used in manufacturing settings — such as process flowcharts, cause-and-effect diagrams, and Pareto diagrams — can also be used in evaluating the appraisal system. Process flowcharts can be used to understand the existing appraisal process and to locate process flaws, particularly those that result in rework of the appraisal, such as resentment resulting from unfair evaluations. Cause-and-effect diagrams can reflect, display, and group untested assumptions about problems with the appraisal system, helping to organize problems into workable classification categories such as person, method, or policies.

In order to effectively measure organizational achievements, the focus of appraisal should be on behavior, with output and input used for judgmental and developmental purposes. There are three aspects of the performance appraisal system: output, process, and input. Since input is relatively fixed from case to case and output can only be controlled through the process component, the focus should be on the process aspect of the appraisal. Process, in other words, refers to the behaviors and attitudes that people bring to the appraisal. As a performance determinant, behavior is observable, directly job-related, and relatively more controllable by the employee. Behavior-based appraisal systems are therefore likely to be viewed as fair by all parties. A focus on process also simplifies the identification and correction of individual performance problems that contribute to system failures when two or more parties depend on each other to complete a job.

There are also situations in which a combination of appraisal aspects would be more appropriate. Output as a performance dimension is also a valid determinant in simple job situations where employees produce single tangible products that are important to job success and traceable directly to individuals. However, even in such cases, output rarely exists in isolation; even salespersons in department stores typically manage multiple products and perform a variety of additional tasks.

Input — for instance, the personal skills an employee brings to the work situation — cannot be strictly considered a performance criterion, except when appraisal is used for promotion decisions. For general performance appraisal purposes, personal skills have little value as performance criteria. A focus on this dimension typically leads to preoccupation with personality traits, which should be avoided because it generally invites personal bias on the part of the rater.

The process of improving the appraisal system also includes the classification of behaviors by employees themselves. For each aspect of performance considered, employees should be asked to provide examples of two types of processes: task performance and quality improvement. There are two organizational goals to be achieved through appraisal systems: to attain current goals, and to take actions to preserve the long-term viability of the system. This dual need is experienced at all levels of the organization. Employees need to engage in two kinds of behavior to ensure both success and long-term viability: those pertaining to completing their tasks or job assignments, and those that promote cooperation, teamwork, and system improvement. Traditional appraisal systems have generally focused only on task achievement. However, it is important that both types of behavior be recognized and rewarded accordingly. The message to employees should be that in an organization dedicated to long-term success, mere task performance is not enough — they will be judged both by how proficiently they complete their tasks and by the contributions they make toward teamwork and system improvement.

The final recommendation for improving performance appraisal systems concerns the locus of responsibility for appraisal. It is recommended that responsibility for appraisal continue to rest with the manager. Although it has become increasingly fashionable to suggest that appraisal activity be opened to all those concerned, an all-encompassing commitment to broad-based involvement should not extend to allowing everyone to pass judgment on everyone else they interact with at work. No matter how an appraisal system is structured, it is the superior who is ultimately responsible for making the definitive assessment. Broadening the base of appraisals does not necessarily produce better results. While incorporating co-workers can increase the pool of information available about individual performance, there is a significant risk that co-workers will be partial in their judgments, coloring their evaluations with positive or negative personal relationships and producing distorted assessments.

Self-ratings are similarly problematic. Self-ratings tend toward leniency when the rater has a direct interest in receiving high ratings and when ratings are not checked against an objective criterion. Subordinates who are dissatisfied with their supervisors may withhold positive ratings by assigning neutral ones, out of a sense of intimidation.

Therefore, while people other than managers should be involved in the process, the ideal approach is to train supervisors and others involved in the appraisal activity to systematically gather information from co-workers — information that is then used exclusively by the superior in making the final appraisal determination.

In summary, effective performance appraisal systems that are well-designed, participatory, regularly evaluated, and focused on observable behavior are among the most powerful tools available for aligning individual employee contributions with the broader goals of the organization. Future field research on performance appraisals, achievement of goals, and incentive compensation could study more closely the issue of causality between appraisal goals and employee behavior. Future studies could also examine the problems of quantitative versus qualitative measurement in specific functional areas, the cost-benefit issues surrounding formal performance appraisal, and the potential differences between types of industries — ranging from manufacturing firms and the services sector to academic institutions — that could affect outcomes.