Practical IT Research that Drives Measurable Results Develop a Solid Understanding of Performance Appraisal

Introduction Most organizations have cobbled together a performance appraisal (PA) program over time and aren’t experiencing the success they should be due to a lack of understanding, rater biases, and unclear goals. Info-Tech recommends combining formal methods to create a unique program that fits the needs of your organization. Use this research to get a handle on what effective performance appraisals can and should deliver. This solid understanding will help you build an effective (or remodel an ineffective) performance appraisal program by drawing components from several formal methods. This research is designed for: Human Resources professionals Line-of-business managers Anyone who applies or designs performance appraisal tools This research will give you: The benefits and challenges of performance appraisal methods, and how to overcome limitations. Advice on the contested use of 360-degree feedback and forced ranking. Next steps towards creating an effective performance appraisal program.

Executive Summary o Most organizations have a performance appraisal (PA) program that has evolved over time and is likely not meeting the needs of employees and managers. o Many competing PA theories and practices exist making development of an effective program difficult. However, done well, a strong PA program reinforces organizational culture and helps employees achieve high levels of performance. o An effective PA program can improve key business measures such as Return on Assets, Return on Equity, profit margins and earnings. o Every strong PA program has three elements: performance tracking, informal feedback, and formal appraisal. o Build on these three elements to customize your program to your organization’s goals and values:  Informal coaching is the single most significant factor in easing retention and developing talent.  Forced ranking and forced distribution are techniques that work well in competitive environments. Avoid them in team-based departments.  360-degree evaluations help to improve people management abilities. Stay away from using them for manager compensation or disciplinary purposes.

Find your Fit PA Methods To Rank or Not to Rank? When and How to Use 360 Feedback Understand PA Benefits The Current State of Performance Appraisals PA Challenges Next Steps Summary of RecommendationsGet Ready to Build

Understand PA Benefits The Current State of Performance Appraisals PA Challenges Effect on the Bottom Line Benefits for: Executives, Managers, Employees and HR

Effective performance appraisal programs positively impact the bottom line through the effective management of talent Organizations that set goals for employees and monitor progress towards these goals significantly outperform organizations that do not have this type of performance- enhancing culture. 49%Return on Assets 27%Return on Equity 22%Profit Margins 15%Earnings Source: Hackett Group, through The Society for Human Resource Management (SHRM).Hackett Grouphe Society for Human Resource Management Including performance appraisal processes in management systems result in significant financial gains. Increases PA Activity You can’t manage what you can’t measure – evaluations of employees will help you manage intangible assets. VP of HR, Public Utility “ ” Measuring employee performance has become more and more important as intangible assets, such as key knowledge, skills, and services, are increasingly driving organizational value.

When done well, performance appraisals also provide significant benefits to executives, managers, employees, and HR Executives Managers Employees Human Resources Improve employee performance. Measure departmental performance. Highlight top performers. Improve employee morale and work quality. Catch performance issues early. Make well-informed decisions. Enable the achievement of departmental objectives. Satisfy employee’s desire to know how they are performing. Connect employees to organizational objectives. Clarify performance expectations. Increase engagement. Reduce turnover and absenteeism. Provide a written record of performance. Identify training needs at a departmental level. Prepare for the future. Better organizational performance and increased revenue. Apparent opportunities for training and improvement. Identification of future leaders. Reduced turnover and absenteeism within a department. Manager awareness of progress. Develop a department through training, promotion, bonuses and terminations. Opportunities to improve performance are identified. There is a desire to achieve goals. Established sense of fairness and clarity when performance is appraised. Increased productivity. Focus on internal employee development as opposed to constant recruitment. Defend promotion and termination decisions. Deliver training. Succession planning. Benefits Impact on Organization

Understand PA Benefits The Current State of Performance Appraisals PA Challenges Definition: Performance Appraisal Opposing Opinions What Makes a Solid Program

This research report focuses specifically on performance appraisal. Other aspects of performance management will be covered in future reports. Performance appraisal is a key component of effective performance management programs Performance management encompasses all activities related to increasing employee effectiveness, productivity, performance and engagement. This can include things like: Planning Evaluating Rewarding Monitoring Developing A key aspect of performance management is the performance appraisal process. Performance appraisals are used to measure and analyze an employee’s work performance and inform actions that should be taken to enhance, maintain, or improve it. Source: U.S. Office of Personnel Management

Find compromise in the middle: while no performance appraisal program is perfect, effective ones are achievable Haters Think performance appraisals will: Take too much time. Be an artificial process with no real benefits. Be counterproductive. Likely backfire. Hinder creativity, innovation, and positive risk taking. Lovers Think performance appraisals will: Solve all performance issues. Increase employee satisfaction. Foster good relationships between Line-of-Business managers and subordinates. Encourage, motivate, and develop employees. Achieve financial improvements Middle Ground Most opinions fall between the extremes of love and hate when it comes to performance appraisals. Formal performance evaluations are unnecessary and also often actively harmful to motivation and happiness at work. - Director, Small manufacturing firm “ ” Employee performance feedback is very important as it contributes directly to the success of the employee. - Manager, Large property management firm “ ”

Extreme opinions are counter-productive because of the need for collaboration to build a successful PA program Next Steps Look for areas of improvement within the current PA program you use, and be aware of its limitations. Communicate with Line-of- Business managers that are not currently on-board. Be realistic about the issues that a PA can help with, and identify ones that it cannot. Next Steps Be open to the benefits of performance appraisals when they are done well. Talk to your employees to understand their professional development needs. Reach out to peers who administer effective performance appraisals and look for tips to make yours work. For more on how to bring the lovers and haters together to build key stakeholder relationships, see the Info-Tech Solution Set, “Navigate the IT Stakeholder Landscape.”Navigate the IT Stakeholder Landscape LoversHaters No matter where you stand, understand how performance appraisals can enhance your organization and make you a better leader. Collaborate with peers and come to a consensus on what your organization's PA program should be. A common opinion will strengthen buy-in.

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