Performance evaluation is a technique that has been credited with improving performance and building both job satisfaction and organizational commitment (which has been related to lower levels of turnover). Performance evaluation as “an evaluation and grading exercise undertaken by an organization on all its employees either periodically or annually, on the outcomes of performance based on the job content, job requirement and personal behavior in the position”.
The importance of these definitions becomes clear as we discuss the reasons why organizations conduct performance evaluations. A classification of the reasons for conducting appraisals in organizations, and these included documentation, within-person decisions (feedback on strengths and weaknesses) and between-person decisions (who to promote). Performance evaluation objectives can be classified in a number of ways. One of the best known classifications of the objectives is as follows:
- Administration – Providing an orderly way of determining promotions, transfers and salary increases.
- Informative – Supplying data to management on the performance of subordinates and to the individual on his or her performance.
- Motivational – Creating a learning experience that motivates staff to develop themselves and improve their performance.
Performance Evaluation in a Management Context
Performance management, in its broadest context, is a managerial process that links corporate objectives, performance standards and evaluation, to which the performance review, or performance evaluation, are often applied. In its broadest sense performance evaluation serves three major purposes within an organization: administration, development and communication. Administrative functioning can be viewed as staffing, compensation, promotion, along with the systems of reward and punishment; whilst development refers to the identification and development potential for future performance, which is linked to personal development planning. Finally, communication aims to provide feedback to employees about their performance and future goals. A more negative view of performance evaluation is offered by those claiming that performance evaluation records can be used as by an organization to guard against cases of wrongful dismissal.
Three broad areas are identified in the literature as more closely relating to performance evaluation. Firstly, the development of appraisal instruments to accurately and objectively measure human performance. Secondly, a focus on supervisor and employee characteristics and their potential bias on performance evaluation ratings. The third area concentrates on the uses and types of performance evaluation systems within organizations.
HRM is based on the Western model of the rational employee, which may differ significantly from people of other cultures. In particular, Western performance evaluation models are likely to experience difficulty when applied to different cultural environments, with China having been identified as a specific area of concern. Of particular importance are studies that suggest that Chinese organizations have utilized appraisal criteria that does not parallel those commonly used in UK companies.
In Western organizations performance evaluation is often used to determine employee compensation, merit pay and other organizational rewards. The process can equally facilitate other human resource management functions. Performance evaluation can, for example, provide information on the effectiveness of the organization’s selection and placement programs, or help identify training and development needs. Further, performance evaluation can, in leading to improved performance, directly support organizational objectives. Deficiencies in performance evaluation processes and practices have been highlighted, which include areas relating to inappropriate focus, inadequate training, poor communication and subjective criteria.
A considerable interest in the impact of national culture on management has evolved. In parallel, an interest has developed on the transfer ability of Western management theories to other cultures. Research has predominately focused on a comparative analysis of human resource management functions and activities, with few researchers having paid attention to the cultural impact on performance evaluation.
There is evidence that when process and outcomes are perceived as fair employee morale and effectiveness is likely to increase , which in the competitive market China is facing can be viewed as a positive outcome. Thus, the findings for the assertion that a basic requirement for an effective performance evaluation system is that those involved in the process accept it as fair. If the reverse is applied, then a performance evaluation that is perceived as unfair, is likely to have dysfunctional outcomes. In contrast, employees with a positive view of performance evaluation are more likely to be more embrace the process, be better motivated and improve their performance overall.
Approaches to performance evaluation range from relatively simple techniques, such as ranking and traits rating, to the more complex method of behaviorally anchored scales. Techniques also vary with regard to temporal emphasis, either focusing on the past through rating and ranking, or using management by objectives to provide a future focus. Conversely, the emergent performance evaluation procedure for organizations includes self-assessment, peer group discussion and feedback from the superior. When employees feel unfairly treated, they are likely to react by changing their job attitudes, especially with respect to employee satisfaction. Perceptions of procedural justice have also been shown to affect organizational outcomes. Further, it is suggested that the perceived fairness of performance evaluations is an important criterion in judging their effectiveness and usefulness for an organization.
In any appraisal system there are likely to be opportunities for appraiser bias, although the majority of appraises in the study considered the process to be fair. There is a link between procedural justice and distributive justice, with the former relating to the perceived fairness of the appraisal process. Distributive justice, again supported in the study, refers to outcomes and the perceived fairness of these.
Models relate to the development of those involved in performance evaluation, asserting that training is likely to increase satisfaction in the appraisal process. The training of employees to participate in the performance evaluation process as an appraisee is an important element in ensuring that objectives are realistic, with the enhanced likelihood of feedback being acted on. The importance of training people to participate in performance evaluation to achieve maximum effectiveness, the process should be an ongoing process.
There is an increasing use being made of the performance evaluation process generally motivated by an organizational desire to affect employee behaviors and attitudes and, ultimately, organizational performance. This occurs as a consequence of the establishment of goals at the beginning of the evaluation cycle which provide employees with clear performance targets, the monitoring of performance during the evaluation cycle (which can be used to assist poor performers) and the reinforcement provided for good performance through the provision of rewards, usually in the form of higher pay. This process is seen to encourage employee performance in subsequent performance cycles.
The capacity to achieve these positive outcomes will be a function of the quality of the performance evaluation performance evaluation experience. Taking a lead from the operations management field, quality is typically defined as establishing and operating processes that promote organizational efficiency. The aim of a quality approach is to reduce variation in every process in order to obtain greater consistency. Performance evaluation is a complex process and there is scope for variation, particularly when the supervisor is required to make subjective judgments of employee performance (as compared with an objective performance evaluation where the measurement focuses on the quantifiable aspects of job performance).
Subjective judgments have the potential to dilute the quality of the performance evaluation process as they may be influenced by bias or distortion as a result of emotion. Understanding the impact of performance evaluation quality is particularly important as performance evaluations are becoming increasingly subjective. Assessments of quality typically require the involvement of stakeholders. In the context of performance evaluations, a critical stakeholder is the employee: the performance evaluation process is designed to stimulate employee performance.
Performance Evaluation: Rater’s Experience
The psychological contracts literature, especially relational contracts, suggests that when an employer possesses a high quality performance evaluation experience it will increase the employees’ perceived obligations to the employer which in turn affect their attitudes and potentially their behaviors. In the absence of a high quality performance evaluation experience, we anticipate that employees will not feel any sense of reciprocal obligation. If the organization is not able to provide a high quality performance evaluation experience, employees are less likely to know of, internalize, and be committed to the goals and values of their employing organization. Further, employees are less likely to have faith in the performance evaluation processes or regard it as a legitimate tool of HR management, both of which are likely to contribute to lower levels of organizational commitment.
Quit intentions are a form of withdrawal from the organization and may be influenced by the quality of the performance evaluation experience. Turnover research has suggested that employees tend to withdraw from situations that are counter to their best interests. A low quality performance evaluation experience could be counter to the best interests of an employee. Uncertainties about the requirements of the performance evaluation process and poor information flows means that the employee is likely to feel confused about how to meet their performance obligations. They are also likely to feel undervalued when they believe that their contributions to the organization are not being effectively assessed or recognized. This in turn will contribute to negative attitudes about their work and organization.
Performance Evaluation: Rater’s Skills
Organizations are on the hot seat to face dissatisfaction of their employees with their performance evaluation system. It is because the raters possess minimum rating skills; therefore, they rate employees according to their judgments. To address the challenges and to place these organizations in positions of future success will require raters with distinctive knowledge, skills, attributes and competencies. The manager, placed in the challenging role of performance “rater,” must have both the skills and motivation to conduct effective performance evaluations.
Most supervisors have little, if any, training on how to properly assess employees’ performance. A weakness of many performance evaluation programs is that managers and supervisors are not adequately trained for the appraisal task and provide little meaningful feedback to subordinates. Because they lack precise standards for appraising subordinates’ performance and have not developed the necessary observational and feedback skills, their appraisals often become non-directive and meaningless. Recent estimates suggest that very few organizations conduct rigorous, skills-based training with their raters.
Training raters to reduce rating errors might actually have the effect of decreasing rating accuracy. Rating accuracy can be improved through training that focuses on improving the observation skills of raters. Rater training needs to focus on the process of managing, motivating and evaluating employee performance. Research has demonstrated that proper rater training can increase the overall quality of the rating experience for employees and managers alike while at the same time improve rating accuracy.
Performance Evaluation: Rater’s Attitude
The attitudes and approach of supervisors to the performance evaluation process has been identified as a source of quality variations in performance evaluation. One source of quality variation derives from the general attitudes that supervisors have towards the process. Many writers have identified the reluctance of supervisors to undertake appraisals. When surveyed about most disliked tasks, managers say they hate conducting appraisals, second only to firing employees”. Many practitioners see appraisal as a necessary evil in corporate life.
Schematic processing may also bias rater assessments in an ethical performance evaluation context. Research has shown that performance ratings are significantly influenced by ratee behavior, outcomes, and rater trait inferences. An evaluator characteristic that might be expected to play a critical role in the assessment of ethical behavior is ethical beliefs. Research in performance evaluation has shown that beliefs about human nature (trustworthy, altruistic, independent, etc.) are related to the accuracy of ratings.
As a consequence, some suggest that supervisors conduct appraisals in an “arbitrary and perfunctory manners” as they believe that “conducting performance evaluations requires considerable amounts of time and effort, generates few rewards and adds considerably to the manager’s level of conflict and stress”. Others believe that managers often avoid the appraisal process because they either fear the consequences or they feel the potential returns from their appraisal efforts are not worthy of the required investments.
A second source of quality variation derives from the way supervisors exercise their responsibilities under an appraisal process. Researchers have demonstrated that supervisors make mistakes for example, halo errors and central tendency etc, and are uncomfortable about providing negative feedback, often put off doing appraisals or apply their own set of internal values about performance when assessing their employees.
In order to encourage supervisors to conduct high quality performance evaluations, a supervisor is likely to recommend the assessment of their performance is partly a function of the way they manage the evaluations of those who report to them. This discussion demonstrates that supervisors are a major source of quality variations in performance evaluation, but quality is ultimately the assessment made by the recipients of the process, namely employees.