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Performance Appraisals: a failing formula?


Business success is directly related to employee performance. Love them or loathe them, most employers use appraisals to review staff performance and set objectives – appraisal is now one of the most widely used management tools in industry.

However, based on research among almost 1000 UK managers, a new report from the Institute for Employment Studies (IES) claims that many performance appraisals systems are failing both employees and organisations, and having limited impact on business performance.

Director Richard Pearson explains the problem:

‘In theory, performance appraisal is a good opportunity to give feedback to employees and motivate them to improve their performance still further. In practice, appraisals can too frequently be stale, artificial or overloaded with bureaucracy. They are often dreaded by both managers and staff alike.’

A matter of balance

Most employers aspire to use performance appraisal and review as a ‘strategic lever’ over not only individual performance, but over the performance of the business as a whole. But as IES Senior Research Fellow and author of the report Marie Strebler commented:

‘This assumes that managers have the ability and motivation to make performance review work, by translating strategic goals into operational practice. Ideally, they should use the appraisal to help the employee see how their contribution adds value to the business as a whole. Too often, however, they are rushed discussions where performance ratings are handed out, where petty lapses in performances are picked upon, or where performance-related pay is awarded.’

In addition, the report details how performance review is becoming an over-burdened management tool, with line managers additionally expected to identify staff training needs, provide career counselling, spot high flyers of the future and manage poor performers. While each of these is a legitimate part of managing, the report argues that, in seeking to do so many things at once, it is hardly surprising to find that many appraisal schemes fail to deliver any of them effectively.

A changing role for review

Many performance review systems were conceived when organisations were more hierarchical, and despite modification still drive pay and promotion decisions. This has questionable relevance in today’s flatter organisations, where career progression is limited and rewards may be more flexible. Systems now need to be designed to deliver in the context of the individual organisation, for which text book models may not exist, and remain adaptable to shifts in business strategy and structure.

Transforming performance review ‘from a beast of burden into a thoroughbred’ starts with the business strategy, followed by clarity about the roles, skills and behaviours required to deliver it. IES then recommends some simple rules:

  • have clear aims and measurable success criteria
  • involve employees in the system design and implementation
  • keep it simple to understand and operate
  • make its effective use one of managers’ core performance goals
  • make sure employees can always see the link between their performance goals and those of the organisation
  • use it to keep roles clear and focus on performance improvement
  • back it up with adequate training and development
  • make any direct link with reward crystal clear, with proper safeguards to guarantee equity
  • review it regularly and openly to make sure it’s working.

If Human Resources functions can deliver this, they will be making a real and visible strategic contribution to their organisations.

The study

Seventeen organisations took part in the study, focusing on both performance appraisers and appraisees, including 926 managers from private and public sector organisations. The Report was sponsored by the IES Research Club which comprises 30 of the UK’s leading employers. Marie Strebler is a consultant and researcher on organisational performance, skills and competencies.

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