Do You Really Need Performance Appraisals?
Last week, I met with a prospective client to discuss an HR consulting proposal that included building and implementing a performance management framework, among other things. During our discussion, the client mentioned that he recently read articles online about companies removing performance appraisals and asked why I included performance management in my proposal. This conversation has come up on multiple occasions and I think that the topic is worth addressing.
What is Performance Management Anyways?
The Society of Human Resource Management (SHRM) defines performance management as:
“Performance management is the management of employees, departments, and organizations for the purpose of ensuring that goals and objectives are being reached efficiently and effectively. It involves defining what effective performance looks like and includes the development and use of tools and procedures necessary to measure performance.”
Performance Management vs Performance Appraisals
The main purpose of managing performance is to ensure that employees are making a positive contribution to the company’s strategy. Performance excellence is highly subjective to each company, so defining what constitutes effective performance is a key to success. If a company does not define performance standards, then it has no idea what it is doing nor where it is going. Ideally, a company should develop clear metrics that will provide performance indications.
Performance appraisals, on the other hand, are the rating tools that companies use to grade the performance of each individual. Performance appraisals are one piece of the performance management process.
Differentiating between the two is important in understanding what this new trend of removing performance appraisals is all about.
Performance Appraisals Have a Bad Reputation
The main problem with performance appraisals is how companies use them:
- Measuring the wrong things: If you’re not measuring meaningful data, then the performance appraisal is useless and does not give any indication of true performance. Performance management should be based on a job analysis study in order to design competency-based job descriptions on which to base performance measurements.
- One-way feedback: Many line managers treat performance appraisals as one-way meetings, where the manager speaks and the employee listens. In order to effectively manage performance, line managers must encourage a two-way dialogue to understand how they can help their teams perform better.
- No resulting action: There’s no point to measuring performance if a company does not take action based on the data. I’ve seen endless cases where appraisals are used like report cards! Employees receive a grade on several factors and end of story. In other cases, appraisals have only been used to determine the amount of bonus an employee will receive at the end of the year. In reality, the results are much more valuable than that. Excellent performers should be the focus of their employers and be top candidates for promotions, additional responsibilities, and so forth. On the other hand, employees that do not perform up to expectations should be developed and coached or let go based on their potential and willingness to improve.
- Appraisal bias: Subjectivity in evaluating performance is a serious issue. If performance management is not properly implemented with consistent follow through and controls, line managers might assess employees based on their personal opinions, recent actions, or other subjective traits. When line managers are not properly trained on how to manage performance, the result is high employee turnover and a disengaged workforce. This is counterproductive and defeats the purpose entirely.
- One-off meetings: Performance cannot be effectively and objectively evaluated by meeting with employees once a year. Effective performance management is about detecting performance problems and successes as they happen in order to take appropriate action. Conducting scheduled performance meetings throughout the year allows managers to coach their team to success and reinforce performance excellence.
Why are Some Companies Removing Performance Appraisals?
The problems mentioned above are the main reasons that have prompted companies to rethink performance appraisals, but not all companies can remove performance appraisals and still be able to manage performance effectively.
In order to measure performance without conducting traditional performance appraisals, a company must have a sophisticated data analytics platform in place that is capturing and analyzing KPI’s in real time, so data is accessible instantly upon need.
Furthermore, the new trend is about transitioning performance management into a coaching and development practice as opposed to a “judgment day” approach. Without the stress of a performance appraisal, employees are more likely to share their thoughts and feedback since they aren’t being graded. The manager-employee relationship will be viewed in a different light.
Should You Dump Performance Appraisals?
If you have the data infrastructure in place to keep track of your performance indicators in real time, then removing performance appraisals is doable. But you need to ensure that line managers are continuously following up with employees and giving them the necessary feedback. In other words, management from top to bottom should be highly skilled in leading and managing performance.
Remember, the goal is to achieve and maintain performance excellence. As long as you can measure and track performance effectively, it doesn’t matter if you use performance appraisals or not.