The effectiveness of performance appraisals has been widely criticised for its shortcomings such as being unnecessarily complex and inefficient, not being able to accurately evaluate or enhance employee performance and not being effectively used as a tool to build capacity within organisations. Many organisations are therefore discarding the practice altogether as it is not always aligned to organisational objectives and as such does not effectively identify training and development needs, potential for promotion or succession, change requirements for the remuneration structures or incentive and bonus schemes and ultimately how employees are managed. In future, it will likely be replaced by a system which is underpinned by a new way of collecting reliable performance data or otherwise referred to as performance intelligence. This new perspective promises to be much simpler to administer and manage by both business and HR managers.

What is a performance appraisal?

A performance appraisal is an initiative designed to periodically evaluate the job performance of an employee in terms of cascaded organisational goals. Performance ratings are used to measure employee performance and determine annual increases, bonuses and profit sharing.

Is there a link between managing performance and engagement?

The intent of having a performance appraisal conversation, is to provide an opportunity for a manager and an employee to meet and discuss organisational priorities; talk about personal performance and set work-related objectives. It should therefore facilitate communication between the manager and employee; provide a developmental opportunity; enhance an individual’s focus; provide a feedback opportunity which most employees want; foster positive relationships; improve morale and employee engagement; inform goal setting; prevent waste and errors; and provide guidelines for the planning of developmental initiatives.

Research shows that in the absence of performance feedback, employees become nervous and suspicious. It further shows a positive correlation between receiving regular constructive feedback and the productivity and motivation of employees.

Why are performance appraisals perceived as problematic?

As mentioned, performance appraisals may have certain shortcomings. Being a one-way, top-down and backward-looking “measurement” process, it often delivers invalid results. Its questionable validity may be related to its lenience or strictness, central tendencies, halo and horn effects as well as recency and primacy effects. It has also been found that 61% of performance ratings can be attributed to the bias of the manager. In addition, performance appraisals may have legal and cross-cultural implications (perceived discrimination), and can even potentially demotivate employees. It is often regarded as just another administrative exercise enforced by HR, which inhibits collaboration and engagement.

With regards to performance issues, these are not always proactively addressed or constructively managed. Employees may therefore feel victimised or experience the evaluation as a means of constructive dismissal. It is therefore vital that performance appraisals are conducted according to legal guidelines with mindfulness of potentially unfair or biased conclusions.

What are the emerging trends to consider?

Instead of discarding performance management as a practice, its potential benefits can be enhanced by more frequent discussion, reviews and feedback sessions. Shorter cycles for performance discussions seem most effective in improving the performance, alignment and engagement of employees.

Many organisations also capitalise on the relationship employees have with technology nowadays. The use of web-based software applications to standardise performance appraisal processes and ensure employee participation, is thus becoming more popular. Such systems may incorporate a variety of performance indicators including feedback processes, 360 degree results, management reviews and periodic alignment of performance with strategic business goals. These systems can address tracking, onboarding, compensation and developmental aspects. The information obtained, can also be used for analytics, and given the option of continuous feedback, can change the emphasis of performance appraisals from judgement to that of development.

Not only is it therefore beneficial to keep track of the individual’s performance via such feedback mechanisms, but it is bound to increase the work-related performance, engagement and retention of employees. This is because employee feedback provides a sense of control and fundamentally changes the employee experience. The use of feedback apps may even redefine how organisations are managed.

In addition, the use of rating techniques can re-introduce integrity into the business environment. An increased reliance on reputational scoring and feedback mechanisms in a variety of industries are contributing to the emergence of an “economy of trust”.

The effective use of psychometric assessments, can further enrich performance discussions. A holistic and contextualised approach to assessment, focusing on cognitive, motivational and behavioural aspects, within a particular organisational competency framework, is recommended.

Tracking individual performance via the evaluation and feedback mechanism described above and adhering to these principles, performance ratings can be used effectively in the work context and offer individuals valuable insights into their own performance as well as the performance of their peers, managers, departments and the organisation as a whole.