1. Establish a Solid Understanding of Performance Appraisal
Clean up the performance appraisal mess.
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2. 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.
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:
This Research Will Help You:
Human Resources professionals.
Line-of-business managers.
Anyone who applies or designs PA tools.
The benefits and challenges of PA methods, and how to overcome limitations.
Advice on the contested use of 360-degree feedback and forced ranking.
Next steps towards creating an effective PA program.

3. Executive Summary
Most organizations have a performance appraisal (PA) program that has evolved over time and is likely not meeting the needs of employees and managers.
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.
An effective PA program can improve key business measures such as Return on Assets, Return on Equity, profit margins, and earnings.
Every strong PA program has three elements: performance tracking, informal feedback, and formal appraisal.
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.

4. Understand
PA benefits for executives, managers, employees, and HR, and the effect on the bottom line.
Current state of PAs, including opposing opinions and what makes a solid program.
The five main PA challenges described.
Understand
Find Your Fit
Next Steps

5. Effective performance appraisal programs positively impact the bottom line through the effective management of talent
Including performance appraisal processes in management systems result in significant financial gains.
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.
Measuring employee performance has become more and more important as intangible assets, such as key knowledge, skills, and services, are increasingly driving organizational value.
You can’t manage what you can’t measure – evaluations of employees will help you manage intangible assets.
-VP of HR, Public Utility
Source: Hackett Group, through The Society for Human Resource Management (SHRM).

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

7. Source: U.S. Office of Personnel Management
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:
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

8. Solid Performance Appraisals
Effective PA programs identify goals that drive the need to evaluate employees and make decisions about their employment
Solid Performance Appraisals
Organizational Goals
Employment Decisions
Drive the need to do PAs
Decisions are
based on goals
PAs inform
decisions
Clarify expectations
Maintain/improve performance
Increase effectiveness, productivity and engagement
Help employee develop as a professional
Promotion
Reward
Salary increases
Layoffs
Cutbacks
Professional development (identify skills to build)
Choose components of several PA methods that achieve organizational goals
Not about the components themselves, but about the outcomes they will enable

9. Within the mess of theories and opinions, there are five main challenges to effective performance appraisals
Look for this symbol as you learn about PA challenges.
Providing inaccurate assessments that are based on prior biases or judgments.
Mitigating the Performance Paradox, which shows that PA systems need to continually change as the majority of employees eventually learn how to surpass existing standards.
Using appraisals ineffectively due to a lack of clarity around the purpose of PA in the organization.
Getting buy-in from managers who see the PA process as unnecessary paperwork.
Failing to communicate clear performance goals and expectations to employees.
More Information:
Tips on how to avoid these challenges is included in subsequent slides.
Additional supporting resources can be found in the appendix.

10. Lack of Differentiation
Develop an awareness of four types of bias that can infiltrate even the most well-intentioned PA 1 2 3 4
Occurs when an employee performs particularly well (or poorly) in one area and is then rated correspondingly high or low in all other areas.
Halo Effect
Occurs when a manager tends to score all employees similarly; for example, by giving everyone high scores, low scores, or average scores.
Lack of Differentiation
The more characteristics a manager shares with an employee, such as age, race, gender, work values, work experience, and personality, the more favorably the manager will tend to rate that employee’s performance.
Personal Bias
Occurs when a manager weighs an employee’s recent performance too heavily, as opposed to assessing the employee’s average performance over the entire evaluation period.
Recency Effect
Tips to Overcome
Having an awareness of this type of bias is the most effective step toward overcoming it.
Ranking employees from best to worst (even as a private exercise) can help managers differentiate between employees.
Awareness of this bias is an important step towards overcoming it.
Engaging in ongoing coaching and having employees send regular updates can serve to remind managers what employees are up to.

11. Avoid bias in the performance appraisal process through awareness, training, and accountability
Despite the prevalence of bias in the performance appraisal process, there are three ways for managers to evaluate employees more accurately.
Simply being aware of the four types of bias outlined on the previous slide can go a long way towards helping managers practice impartiality during the appraisal process.
Awareness
In a typical training program administered by HR or a consultant, managers are asked to rate the performance of a videotaped employee.
Example: The managers’ ratings are shared with the group, along with the best informed rating. The trainer then highlights the rating errors made by the group, and discusses strategies to reduce these errors.
Training
Having someone in HR review a department’s appraisals can also help reduce bias, as HR is often removed from the immediate department in which the appraisal was made.
In some cases, the performance appraisals a manager completes for their employees are reflected in their own performance appraisal.
Accountability

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