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Imagine a performance evaluation system that promotes roles, behaviors, and work outcomes appropriate to achieve organizational strategic objectives throughout the firm. Take into consideration the Two Sides of Performance Management as illustrated in your textbook on page 164, Figure 6.1. What would such a system look like? Would it be similar to the one used in your organization? How would individual and/or team performance assessment be conducted? What tools would you recommend? Would you use MBO, 360 Degrees or another system? Why? Present your views in 200 words or more in your discussion post.
Figure 6.1 WHY IS PERFORMANCE MANAGEMENT SO DIFFICULT?
Performance management is not a new concept. There are references to it in the Old Testament, and the government of China used documented performance management processes as early as the third century AD.1 Despite or perhaps because of its longstanding use, performance management is frequently criticized as a process that is neither enjoyable nor effective. A recent Google search on “problems with performance management” returned over 21 million (!) separate entries. Many criticisms level particularly harsh accusations at performance appraisals, the portion of performance management focused on evaluating individual employee contributions. Some critics urge companies to abolish performance appraisals and scrap performance management altogether.
Most extreme condemnations of performance management are misguided (for more discussion, see the discussion: “Why Claims to Abolish Performance Appraisals Are Wrong and Dangerous”). Nevertheless, it is reasonable to ask why people have such negative attitudes toward performance management. It
has been around for thousands of years and almost every company uses it. You'd think that by now, we would have figured out how to do it well.
WHY CLAIMS TO ABOLISH PERFORMANCE EVALUATIONS ARE WRONG AND DANGEROUS
Most attempts to achieve weight loss through dieting fail. Does that mean dieting is an ineffective way to lose weight? Should people ignore their diet and just focus on exercise? No, of course not. Many people struggle to follow healthy diets. But just because it's difficult to manage what we eat does not mean we should ignore our diet altogether. This analogy applies to claims that performance evaluations do not work and should be completely eliminated or replaced by processes that rely solely on performance coaching.
Do Performance Evaluation Processes Improve Organizational Performance?
Rigorous empirical research shows that performance evaluation processes work when they are appropriately designed and deployed. Following is a small sample of evidence from researchers who have studied this topic. With the exception of the passage by Eichinger et al., these are from academics who to my knowledge have no financial interest in what sort of talent management process a company chooses to use. Some excerpts are taken from peer review journals and have somewhat confusing language and terminology. But it is important to present these quotes verbatim to emphasize that these are research findings, not my personal opinions.
A performance management system can make the following important contributions: motivation to perform is increased, self-esteem is increased, managers gain insight about subordinates, the definitions of job and criteria are clarified, self-insight and development are enhanced, administrative actions are fair and appropriate, organizational goals are made clear, employees become more competent, there is better protection from lawsuits, better and
more timely differentiation between good and poor performers, supervisors' view of performance are communicated more clearly, organizational change is facilitated. (Aguinis, 2007 p. 4)
Researchers have begun to try to determine the return on investment of … using better selection methods, better training and development, and better performance management applications … At this time, the order from most to least is rigorous performance management, then training and development, then selection … So the fastest way to improve performance of any unit is to set rigorous performance standards and get rid of those who do not measure up. (Eichinger, Lombardo, & Ulrich, 2006, p. 208)
Results suggested that forced distribution rating systems of the type we simulated could improve the performance potential of the typical organization's workforce and that the great majority of improvement should be expected to occur during the first several years. (Scullen, Bergey, & Aiman-Smith, 2005, p. 24)
The practice evaluation tool [measures the use of] eighteen key management practices … The monitoring section focuses on the tracking of performance of individuals, reviewing performance (e.g., through regular appraisals and job plans), and consequence management (e.g., making sure that plans are kept and appropriate sanctions and rewards are in place) … Better management practices are strongly associated with superior firm performance in terms of productivity, profitability, Tobin's Q, sales growth, and survival. (Bloom & Van Reenen, 2007, pp. 1361, 1391)
Research shows that a well-designed and well-implemented performance evaluation process is a key part of a high-performance organization. But research also shows that performance evaluation is a double-edged sword:
Some negative consequences associated with low-quality and poorly implemented systems [include] increased turnover, use of misleading information, lowered self-esteem, wasted time and money, damaged relationships, decreased motivation to perform,
employee burnout and job dissatisfaction, increased risk of litigation, unjustified demands on managers' resources, varying and unfair standards and ratings, emerging biases, unclear ratings system. (Aguinis, 2007, p. 7)
A well-designed performance evaluation process significantly improves workforce productivity, and a poor process can severely hurt productivity. The key question is not whether to do performance appraisals, but how to do them effectively.
Should We Stop Doing Performance Evaluations Because People Don't Like Them?
Claims that we should do away with performance evaluations because people don't like them are misguided. First, it is misleading to say that people hate performance evaluations. To the contrary, many employees express frustration when their company delays or fails to conduct their performance review. What is more accurate is that people don't like poor performance evaluation processes. This is not the same as not liking any performance evaluation process. Second, just because some people may not like something is not adequate reason to stop doing it. Most people I know don't particularly like going through the financial budgeting process, but that doesn't mean we should stop creating budgets. Whether people like it or not, having a consistent performance evaluation process is critical to effective, efficient, and fair workforce management.
Should Companies Replace Performance Evaluations with Performance Coaching?
Performance evaluations are an important component of an effective performance management system, but they are only one component. Another equally critical component is performance coaching. Companies need both accurate evaluations and effective feedback and development to maximize workforce productivity. Just as you need to focus on both diet and exercise to maximize your health, performance evaluation and performance coaching are two separate but interdependent processes that contribute to workforce productivity. Evaluation gives people feedback on what they need to improve, and coaching provides them
with guidance on how to improve it. For example, a manager might give an employee evaluative feedback that his or her e-mail messages are too long and as a result people struggle to interpret them, and then provide coaching suggestions on how to write more succinctly. Each is valuable in different ways, and one should not be used to replace the other. The best results are achieved through using both in a coordinated fashion.
Can performance evaluations be improved? Absolutely! Are many of the performance evaluation processes currently used by companies causing more harm than good? Probably! Should companies invest more energy into creating better performance coaching and dialogue? Without a doubt! But this doesn't mean performance evaluations don't work. Recommendations to eliminate performance evaluations are misguided and harmful. Performance evaluations add tremendous value when they are appropriately designed and implemented. The focus should not be on abolishing them. The focus should be on how to improve their design, use, and impact.
Sources: Aguinis, H. (2007). Performance management. Upper Saddle River, NJ: Pearson Prentice Hall. Eichinger, R. W., Lombardo, M. M., & Ulrich, D. (2006). 100 things you need to know: Best people practices for managers and HR. Minneapolis: Lominger. Scullen, S. E., Bergey, P. K., & Aiman-Smith, L. (2005). Forced distribution rating systems and the improvement of workforce potential. Personnel Psychology, 58, 1–32. Bloom, N., & Van Reenen, J. (2007). Measuring and explaining management practices across firms and countries. Quarterly Journal of Economics, 122, 1341–1408
Performance management is difficult for two reasons. The first challenge has to do with the basic purpose of performance management. To be effective, performance management must differentiate between more and less effective employees. Deciding whether someone is doing his or her job the right way is an extremely sensitive topic. Rather than explaining the psychological reasons for this, let us do a quick self-reflective exercise. Imagine you were given the following feedback by your boss (for the record, I am not advocating these statements as examples of effectively worded feedback):
a. “You are not getting the job you wanted because we are giving it to a person who is better qualified.”
b. “You are not focusing on the things that matter most to this company.”
c. “You are not performing your job as well as your coworkers and that's why you are getting paid less than them.”
d. “You need to start acting differently if you want to get what you want.”
Of these statements, which one would you least like to hear from your supervisor? My guess is they all felt somewhat unpleasant because they all focus on performance weaknesses. Yet all four statements reflect the kinds of comments that may arise from the use of rigorous performance management.
Effective performance management requires dealing with the reality that some employees perform at a higher level than others. Performance management would be easy if everyone performed at the same level, if people never felt insulted or threatened by critical performance reviews, or if they never acted overly entitled because they received a high performance rating. But people do not perform at the same level, and it is important to differentiate employees based on their relative contributions. Similarly, people do react emotionally to performance evaluations, and it is important to ensure that employees do not feel they are losers just because they received a lower performance rating than some of their peers. Performance management requires balancing behavioral feedback with motivational support. People need to understand what they are doing ineffectively in order to change their behavior to do things the right way. They also need to be given recognition, rewards, and respect that instill the desire and confidence needed to build on past successes to achieve even higher levels of performance. This requires providing a mixture of critical yet supportive feedback on past performance, constructive suggestions for increasing future performance, and clarifying consequences and rewards associated with long-term performance accomplishments.
The second major challenge to performance management is that it is expected to do many different things that do not always align well with one another. Performance management programs often mix multiple, conflicting objectives related to coaching, evaluation, compensation, staffing, and development together into a single process. This can lead to processes that don't do any one of those things particularly well. A key to designing effective performance management processes is to clarify exactly what the process is expected to accomplish. Only then can you make appropriate design decisions to ensure that your performance management process does what it is intended to do.
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