EMPLOYEE BENEFITS

Evaluating Your Most Important Asset: The Employee Performance Appraisal Process

August 2001

By Dana R. Scott
For New Hampshire Business Review

The employee performance appraisal enables you to identify, evaluate and develop an individual's performance. It is a tool to encourage strong performers to maintain their high level of performance and to motivate poor performers to do better.

Other important benefits of a formal appraisal process are:

• validation of hiring practices — are the right people in the right positions?
• provision of an objective measuring tool on which compensation decisions, and promotions can be based
• identification of training needs — individually, departmentally and organizationally
• identification of employees who have the potential for advancement or who might be better suited in other areas of the organization

In short, it is critical that your organization appropriately evaluate its employees. Let's see how best to do it.

Performance standards

A key component of the performance appraisal process is the creation of specific performance criteria or competencies. These performance standards must be developed, defined and communicated to the incumbent with performance monitored against those standards throughout the year. Without equitable and objective standards, questions will continue to arise about how performance is measured and how compensation decisions are made.

The standards should be:

• included in the job description
• based on the position, not the present or former incumbent
• reasonable, measurable and specific
• subject to change as the position evolves

Once developed and communicated, the standards may need to be modified. In some cases, they are revised as a result of feedback from the incumbent. This is especially true in the case of a newly created position. In other instances, performance standards may need to be revised for particular business units or departments as the focus of the organization changes. In all instances, the performance standards should accurately reflect the skills, behaviors and goals that the organization values.

Here is an example of how standards might be modified. An organization's call center employees or sales staff will typically be evaluated on how well they service the external customer. However, many employees don't have the opportunity to "touch" the customer. If your organization believes that service is its true value proposition, then you must consider internal customer service. Doing so will ultimately enhance your external service. For instance, employees of your service departments (i.e. systems, human resources, finance) might best be evaluated utilizing a standard measuring how well they service other departments within the organization.

Preparing the evaluation

Whether the actual evaluation tool is numerically based, a narrative overview or some combination of both, the performance appraisal tool needs to be user friendly for the manager, and easily understood by the employee. If numerical rankings, or categories such as "Above Average", "Below Average" and the like are used, a detailed definition should accompany each category so that the standard is clear to the reviewer and the employee.

The evaluation should be a comprehensive and detailed account of the employee's performance. Try to be specific. Use concrete examples whenever possible. Detail how the employee met, surpassed or fell short of the previously established performance standards and goals.

There are at least three common mistakes to avoid. Too often, managers simply check off a numerical rating on an evaluation form and then try to write a narrative justifying the chosen rating. Actually, the process should be just the reverse. The reviewer should first thoughtfully detail the employee's performance in each relevant area. The resulting narrative will then allow you to naturally select the rating. Using this approach avoids the artificial task of justifying a rating which was selected before you actually evaluated the employee's performance.

A second common mistake is not making enough time available to complete the process. Employees are an organization's most important asset. This is especially so in our information based economy. You must take the appropriate time to properly complete the employee performance appraisal process or the quality of your most important asset will erode over time.

A third type of problem is presented by overrating the average performer or underrating the good one. A manager who avoids dealing with a poor performer and rates the employee inappropriately high places the organization at risk if corrective action is necessary in the future.

Finally, make sure that your performance appraisal tool is updated on a periodic basis to remain relevant to your employees and business objectives.

Two primary approaches: "date of hire" and "focal" reviews

Some organizations use a "date of hire" or anniversary date evaluation review. Others use a focal review process that is tied to the organization's budget. There are advantages and disadvantages to both approaches.

"Date of hire" or anniversary reviews allow managers to stagger evaluations throughout the year. Some months there may not be any evaluations to complete. At other times during the year, many may be necessary. Most managers indicate that the employee evaluation process is less burdensome when the date of hire or anniversary date method is employed. However, there are disadvantages. A manager can easily overspend the salary increase portion of the budget in the beginning of the year leaving less money for good performers whose anniversary dates fall at the end of the year. Additionally, it is difficult to measure similarly tasked employees against each other when reviewing them at different times of the year.

The focal review process coordinates employee reviews and related compensation decisions with the company's budget process. All reviews are done at the same time. Performance is evaluated in a more comparative setting than when the date of hire or anniversary method is used. However, focal reviews place a heavy burden on managers who have numerous direct reports. Additionally, focal reviews place a strenuous burden on the payroll manager and have an immediate, substantial impact on cash flow because all of the related salary increases occur at the same time.

If you are thinking of converting from an anniversary date to a focal method of employee evaluations, make sure you speak to a colleague who has made the change to get her perspective.

Delivering the performance appraisal

The best performance appraisal will be perceived by the employee as a disaster if it is not delivered effectively by the manager. "One-on-One" dialogue between the manager and the employee is critical. The review should be conducted in a private, quiet place with plenty of uninterrupted time set aside for a true dialogue, not a soliloquy by the manager. Employees wait all year for this feedback even though there shouldn't be any surprises if you have followed the process throughout the year. Most employees want an opportunity to talk about how they think things are going. They want to be able to express their aspirations and comment generally on the organization. While a self-evaluation tool can provide this opportunity, uninterrupted discussion time with the manager shows employees that they are indeed the valued asset they truly are. This personal exchange can also be used to set goals for the following year and to confirm that the employee understands your expectations.

Whose job is this anyway?

Responsibility for the performance appraisal process resides with the organization's supervisors and managers, not simply the human resource department. In fact, senior management must support the process in order to create maximum value for the organization. The human resource department functions merely as the coach. All managers, including senior management, must take the field.

Think about it

The performance appraisal system should be equitable, accurate and timely. It should create a process whereby strong performers are acknowledged and rewarded, average performers are encouraged and poor performers are coached and counseled toward improvement or ultimately separated from the organization.

Performance appraisal training can help your organization avoid the problems described in this article by showing managers how to objectively measure performance, prepare an evaluation, communicate with the employee and follow up as appropriate. The cost of this training is minimal compared to the return you will receive on your investment. Remember, employees are your most important asset!

 

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