Performance Appraisals - A Key to Organizational Effectiveness. C. David Crouch. Western Carolina University, Cullowhee

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1 Performance Appraisals 1 Running Head: PERFORMANCE APPRAISALS Performance Appraisals - A Key to Organizational Effectiveness C. David Crouch Western Carolina University, Cullowhee HR 615: September 2008

2 Performance Appraisals 2 Performance Appraisals: A Key to Organizational Effectiveness The essence of organizational effectiveness lies in the quality of each individual s performance. The key, then, is to create an environment that enables each individual team member, regardless of their position in the organization, to passionately and voluntarily perform at their best every day. An effective performance management system guides the leader in creating such an environment. Although research indicates variation in the elements that make up an effective performance management system, most researchers agree that the central element is the performance appraisal, a process that provides feedback to teams and individuals on their performance contributions. The history of the formal performance appraisal process in organizations is rather brief, finding its roots as a formal approach in the evaluation of work performance some sixty years ago around the time of World War II (Archer, 2008). However, viewed in a broader sense, the idea of appraising another human beings performance is as ancient as the human existence itself. According to Dulewicz (1989) as recorded by Archer (2008), making judgments about another person s performance as well as one s own is a basic human tendency. The formal performance appraisal process began as a simple way to structure those judgments in order to justify income and pay adjustments. Through the years, it has evolved to include other motivational and developmental implications and to help differentiate between high and low performers. The validity and reliability of performance appraisals is a highly litigious issue. Many reputable researchers, psychologists and management consultants have expressed serious concerns about the process and suggest it s so highly flawed that it creates more harm than good. On the other extreme are those who view it as the core of organizational effectiveness (Jackson & Schuller, 2003). Most agree that for an organization to be effective there must exist some form

3 Performance Appraisals 3 of a legal, viable and consistently executed process to guide the leader in fairly and accurately assessing individual performance. Most CEO s require such a process, if for no other reason, to keep themselves and the organization out of court over unfair labor practices (Certo, 2000). An effective performance appraisal process can add value to the organization in many ways. According to Jackson et al. (2003), performance appraisals can enhance employee motivation and productivity, ensure legal compliance, and provide feedback for strategic planning and organizational change. In practice, other benefits emerge such as enabling differentiation of high and low performance, driving team and organizational outcomes, focusing on performance excellence as opposed to mediocrity or minimum standards, minimizing rater bias, and maximizing employee engagement (Crouch, 2007). The process generally involves four main activities: gain clarity on performance expectations, establish performance standards for measurement, measure the performance against the standards, and provide positive reinforcement or feedback for improvement (Jackson et al, 2003). Most organizations today prefer the appraisal be linked to pay (Rummler & Brache, (1995). Known as pay for performance or merit pay, this enables them to differentiate between high and low performers in the formal pay adjustment process. Methods of effective performance appraisal vary and are typically dependant upon the individual s position in the organization. Senior leaders should be measured against overall organizational objectives. Middle managers should be measured against objectives for the team they lead (Studer, 2003). Individuals should be measured against behavior outcomes that drive team and organizational objectives (Buckingham & Coffman, 1999). Appraisal methods at the senior and middle management levels generally involve some type of MBO, or management by objectives, approach (Cummings & Worley, 2005). At this level, determining specific and relevant outcome measurements that can be counted, rated, or ranked is relatively simple. An

4 Performance Appraisals 4 objective performance appraisal is most effective (Norton & Russell, 2004). Less subjectivity in the measurements simplifies the appraisal process and reduces the opportunity for rater bias. At the individual level, however, determining objective outcomes of performance becomes more difficult and may sometimes even be wrong and unfair, especially in roles where job related activity is highly centered on human interaction such as customer service or nursing (Wagner & Harter, 2006). In these cases, attempts to reduce the performer s impact to things that can be counted, rated, or ranked is either impractical or inefficient. For example, one way to measure the effectiveness of a nurse s performance with patients would be to use patient survey data collected from the specific patients that particular nurse served. While seemingly logical and practical on the surface, many problems arise when this method is put into practice. To be statistically valid and perceived as fair by the nurse, the survey data would have to include enough data points to render it fair and accurately representative of the nurse s overall service to patients during the entire performance period and would have to be collected by a non-partial, unbiased source. While possible, this would not be practical or cost effective. Attempting this method would cause labor costs to quickly skyrocket in an organization of any size at all. And that s just one aspect of performance for a nurse that would need to be measured. Moreover, practitioners have discovered that high performance at the individual level can be achieved without incurring such costs or challenges (Crouch, 2007). Consequently, more practical and cost-effective methods for appraising individual performance have emerged. Graphic rating scales, paired-comparison, forced-choice, essay, behaviorally anchored rating scales (BARS), checklist, critical-incident, work standards, peer review, and feedback are among them (Certo, 2000; Jackson et al, 2003). Some of these methods are totally subjective in nature, while others provide some combination of subjective and objective rating criteria. Most of them require the appraiser to judge the actual performance

5 Performance Appraisals 5 of the individual against a set of standards or definitions within the criteria guidelines or compared against others in a similar role. The effectiveness of these types of approaches varies, but the success or failure of such methods depends largely on the execution of the system by the appraiser, thereby requiring high degrees of training and development (Jackson et al, 2003). Consequently, consistent and fair execution by all appraisers becomes critical and creates the opportunity for variation and bias to emerge in large degree. While more practical and easier to execute, such methods produce varying results and enjoy little respect by appraisers or employees (Certo, 2000). In a survey of over 80,000 leaders and nearly one million employees representing dozens of industries over a twenty year period, the Gallup Organization discovered critical elements that must exist if a leader is to effectively engage their staff in the accomplishment of team and organizational objectives through performance appraisal (Buckingham et al, 1999). The leader must determine the critical behavior outcomes of that role, gain mutual understanding with the employee of those behavior outcomes and how they will be measured, and then let the employee find their way to those outcomes in the best way they can. The leader then provides support along the way by daily reinforcing what they observe, immediately addressing behaviors that lead to contrary outcomes, regularly discussing the performance with the employee (at least once per quarter), heavily involving the employee in the process, and culminating the discussion with a final review at the end of the performance period. This process is rarely followed effectively in practice, but is found in some form or variation in all teams who experience consistent great results. While most practitioners seem to prefer a simple checklist method that requires little interaction with the employee (Crouch, 2007), Buckingham et al. (1999) portend that to expect high performance from employees without regular personal interaction is absurd.

6 Performance Appraisals 6 Blue Ridge Healthcare (BRHC), a mid-size organization of 1700 employees in western North Carolina, has attempted to apply the Gallup research to the appraisal process. By identifying eight behavior outcomes at the individual level that drive team and organizational excellence, BRHC has experienced tremendous improvements in results. Knowing how to perform the job (competence) and performing the work right (accuracy) drives high quality of care and service. Building strong customer relationships (relationship) and remaining available for customers when they need you (availability) drives high customer service and increased revenues. Becoming a positive contributor to the team (teamwork) drives high employee engagement and low turnover. Quickly assimilating changes (resilience) and proactively initiating positive change (innovation) drives growth. Handling company resources of time, money, and materials efficiently (efficiency) reduces costs (Crouch, 2007). These eight behavior outcomes form the foundation of the appraisal process. They are supported by detailed general guidelines of performance in each of five rating categories ranging from unacceptable to distinguished. Bias is reduced by forced alignment of the aggregate of all individual appraisals in a team to the team s total performance score from the leader s appraisal. As a result, organizational results across all performance areas have improved dramatically. When each individual contributor in an organization knows exactly what s expected of them, how those expectations will be measured and rewarded, and how their individual performance enables team and organizational outcome achievement, organizational effectiveness becomes possible. Daily performance appraisal executed by an engaged leader through personal interaction unleashes the passion and potential of each individual and creates a collective synergy that drives excellence at all levels. Performance appraisals are a key to organizational effectiveness!

7 Performance Appraisals 7 References Archer North. (2008). Introduction to performance appraisal. [Electronic version]. Retrieved September 21, 2008 from Archer North Website: Brache, A. (2002). How organizations work. New York: John Wiley & Sons, Inc. Buckingham, M., & Coffman, C. (1999). First, break all the rules. New York: Simon & Schuster. Certo, S. (2000). Supervision: concepts and skill building. Boston, MA: McGraw-Hill Higher Education. Cummings, T., & Worley, C. (2005). Organization development & change. Mason, OH: South- Western. Crouch, D. (2007). Staff evaluation manager, creating paperless accountability at the individual performance level. Morganton, NC: Crouch. Jackson, S., & Schuller, R. (2003). Managing human resources through strategic partnerships. Mason, OH: South-Western. Norton, D., & Russell, R. (2004, October). Align the organization to the strategy, balanced scorecard report. Boston, MA: Harvard Business School. Rummler, G., & Brache, A. (1995). Improving performance, how to manage the white space on the organization chart. San Francisco, CA: Josey-Bass. Studer, Q. (2003). Hardwiring excellence. Gulf Breeze, FL: Firestarter Publishing. Wagner, R., & Harter, J. (2006). The 12 elements of great managing. New York: Gallup Press.