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Labig, C. E. Jr. & Chye, T. Y., (1996). Problems with Performance Appraisal? Remedies for HR Executives, Research and Practice in Human Resource Management, 4(1), 107-113.

Problems with Performance Appraisal? Remedies for HR Executives

Chalmer E. Labig Jr. & Tan Yew Chye


A 1993 survey indicated that many Singaporeans are dissatisfied with the performance appraisal systems of their employers. Reports in the popular press here appear to gloss over the many difficulties presented by performance appraisal and/or performance management systems. The purposes of this paper are to review recent research and thought on overcoming the problems encountered with common appraisal practices, and to suggest options available to Singaporean employers. An employee survey from one organization is used to illustrate how employee input can be helpful to human resource practitioners in diagnosing problems with appraisal systems and in recommending remedial actions.


The reported 70% of Singaporeans who perceive their appraisal systems to be ineffective is consistent with world-wide reactions to appraisal. For example, in the United States surveys by both the Mercer and Wyatt consulting firms report that a majority of firms are currently experiencing problems with their performance appraisal/management systems (Cameron, 1995; McNerney, 1995; Stamps, 1995). One major problem with these systems is an inability to translate organisational goals into appropriate goals for jobs and individuals. Other problems include achieving accurate assessments of individuals’ performance and individuals’ negative and demotivated reactions to appraisal.

Current suggested solutions to these appraisal problems include: 1) modification of the appraisal format either by adding or deleting performance categories, quantifying performance standards, or substituting goal achievement for dimensional ratings; 2) training of appraisers to more accurately observe and evaluate individual performance; and 3) abolishing individual performance ratings and merit-related pay by substituting other performance related policies, group and work unit appraisal, or practices based on total quality management. These suggestions warrant careful examination in light of recent research.

Searching for the Perfect Format. The wealth’ of appraisal formats currently available is readily apparent, from graphic rating scales to behaviorally-anchored and behavior-observation scales; and from essays and critical incidents to management-by-objectives and other types of goal setting programs. Despite all these attempts to develop foolproof formats, research continues to reveal that format has little to do with the effectiveness of performance management and appraisal systems (Gomez-Mejia, 1988). Even pleas for use of objective, quantifiable criteria have not solved appraisal problems (Condrey, 1994), However, there is evidence that goal setting used in place of ratings can improve the contribution of appraisal processes to individuals’ performance (Klein and Snell, 1994).

Rater Training. Rater training usually focuses on one or more strategies: reducing rating errors, establishing performance dimensions or frames-of-reference, and iniproving accuracy of observation of performance (Woehr and Huffcutt, 1994). Rater error training attempts to teach appraisers how to avoid such judgment errors as halo (generalizing from one incident or attribute) or contrast (comparing one employee to another) effects. Performance dimension training often involves appraisers in developing rating scales which are defined in terms of the performance dimensions they are to measure. Frame-of-reference training provides raters with a common set of standards with which they are to use to do their rating. Finally, behavior observation training teaches raters processes for improving their abilities to detect, recognize and recall behavioral episodes of work performance. An overall review of the studies on rater training shows that as long as appraisers are not forced to follow a predetermined distribution of ratings, each of these approaches helps to produce more accurate performance ratings (Woehr and Huffcutt, 1994).

Arguably, the ideal rater training program should incorporate all of these forms of training in order to maximize rating accuracy. There is only one major caveat with regard to this research on appraisal training - the performance which must be the focus of the training should represent the ratees’ respective contribution to organizational goals, an identification task which we have yet to do well (Cameron, 1995).

Abolishment of Appraisals. Recently, an increasing number of organizations are abolishing their performance appraisal systems along with their traditional merit-pay plans and replacing them with a variety of programs. A survey of 181 manufacturing and service companies in midwestern U.S.A. found that 11% have stopped using annual appraisals and a further 25% are planning to abolish them within the next two years (Antonioni, 1994). For example, Lyondell Petrochemical replaced its appraisal/merit system with market rates of pay for jobs and profit-sharing bonuses accompanied by special recognition for outstanding individual contributions (McNerney, 1995). Eastern Realty Investment eliminated its performance rating system and substituted annual reviews of individual’s strengths, contributions, and accomplishments as well as areas for improvement. Its employees who are also at market rates of pay receive lump-sum annual payments.

Another alternative to appraisal based merit systems is the return to the old practice of gift-giving. Gifts as reward for outstanding performance are provided by organizations as diverse as Avon Products, the British Automobile Association, Levi Strauss and the British brewery, Whitbred Inns (Economist, 1994). Yet, other organizations have replaced performance appraisal of individuals with appraisal of work groups/teams (Campbell et al.,1996; Lawler, 1994). Work unit performance can be measured by ratios of outputs to inputs which are determined by the unit’s characteristics and objectives. Feedback from such measures can greatly reduce negative employee reactions if performance is below expectations, as (1) relationship with superiors is not an issue and (2) unit results are more easily accepted by the unit’s employees (Campbell et al.). However, if an organization’s reward system revolves around team performance, similar financial rewards for each team member can create individual perceptions of inequity as individual contributions are likely to be dissimilar. Such inequities are thought to be resolved by team members developing their own intangible rewards such as recognition (Lawler, 1994).

Another substitute for performance appraisal asks executives and their managers to motivate their employees by focusing on work processes rather than individuals’ behavior - that is, adopting some type of total quality management program. Deming, one of the strongest opponents of traditional appraisal systems, argued that appraisals, particularly when ranking of individuals was involved, are demeaning to those appraised. He believed that appraisals allow managers to shift to their employees the major responsibility of creating effective organizational outcomes with the human and material capital available to them (Deming, 1986).

Other TQM experts, who have referred to individual performance appraisal practices as the most serious obstacle to the successful implementation of TQM programs, support Deming’s opinion of individual appraisals for several reasons (Moen, 1989; Bowman, 1994). First, the goal of TQM programs is to constantly strive for the improvement of work processes rather than the improvement of individual employee behavior and/or performance. Management, in conjunction with its employees, seeks to identify barriers to quality, serves the interests of internal and external customers, and thereby maintains an organizational climate of continuous improvement. Second, a key to a TQM approach is the concept of variability. It occurs naturally within any work process. The causes of that variability need to be identified. Deming believed that less than 10% of variability is usually under the control of employees. By holding employees accountable for their performance through performance appraisals, managers fail to address the problems their employees face with the work processes. Therefore managers miss the opportunity to control most causes of variability in performance, and contribute to suboptimal organizational performance. Third, statistical process control is used to systematically uncover, communicate, and deal with problems that impede quality and productivity. The process is seen by all involved as that which needs evaluating and blaming, not the employees. As long as management has selected and/or trained employees to be competent in their jobs, appraisal of their performance becomes unnecessary. The employees who contribute the most to the organization are asked for input into how their personal processes enable them to accomplish more than their peers so that they may be emulated. Individual performance appraisal, which usually assumes that employees are solely responsible for their performance, can only divert attention from the sources of most perforniance problems within the work system. Employees become defensive for many reasons, not least of which is fear of losing Out to their peers and are not motivated to improve the work system (Bowman, 1994).

Given this research evidence and expert recommendations for improving performance appraisal systems, how should HR executives apply this knowledge? First of all, continuous assessment of personnel practices should be an ongoing HR practice. An especially effective method of evaluating appraisal practices is to ask for anonymous feedback about the system from both appraisers and appraised. Secondly, with this feedback, many problems can be identified and effective solutions can be derived from the application of our recently gained knowledge about appraisals. As an example, we will review the results of such a feedback exercise carried out within a currently, highly successful Singaporean organization, and illustrate how to interpret the findings and suggest appropriate countermeasures.

A Singaporean Case Study

Over a year ago an organization modified its performance appraisal/management system. The system was well-conceived and incorporated a number of current trends in appraisal practices. The purposes of this appraisal system are to appraise employees’ perforniance and potential objectively and to reward them accordingly. This system consists of two components - a review of the past year’s performance and a developmental assessment of potential for higher level jobs and accompanying training needs. As such, each component is treated separately -employees’ potential is ranked or rated by category but their past year’s perforniance is not rated or ranked. Consistently, there is feedback to employees about their past year’s performance but no indication to them about their potential assessment results. The description of the past year’s performance is done by the supervisor with input from the employee; whereas the potential evaluation is completed by a panel of supervisory employees at the next hierarchical level and reviewed by a yet higher level of executives.

The content of the two components is also well-conceived. The review of the past year’s performance includes sections outlining the job involved and the extent of its dynamic nature, a description of the achievement of the previous year’s goals which were established for the appraisee, a discussion of the factors that aided and impeded goal achievement, mutual identification of areas of future development, a listing of goals for the upcoming year and space for employee comment about the review. The potential assessment categorizes the employee’s current performance in terms of expectations regarding performance levels for his position, as well as certain attributes deemed necessary for higher level positions. The number of years needed for development is also determined for appropriate timing of promotions.

This system, in particular the review of past performance, follows state-ofart principles in terms of: 1) using goal achievement in place of dimensional ratings, 2) tying goals to job responsibIlities, 3) recognizing the dynamic nature of jobs and adjusting accordingly, 4) identifying and addressing factors affecting performance outside of an employee’s control, and 5) seeking an employee’s input and reactions to the appraisal process. The recommended characteristics of the organization’s approach to assessment of potential include: utilization of multiple raters, several rating dimensions, and only a few categories of rank.

Recently a group of the organization’s employees and managers was asked to complete a questionnaire in order to evaluate this system. Three sets of questions were used to determine the degree of rater and ratee acceptance of the system and the reasons for their evaluation. The majority of those polled indicate that they are dissatisfied with the new appraisal system. Consistent with the headlines of the business press, 67% of ratees find the appraisal process to be demotivating. Only 36% believe that their pay is tied to their actual performance as they feel their performance has been inaccurately assessed. The performance to which they refer is not a numerical rating of traits or behaviors but a description of the degree to which they meet their pre-established goals.

While 80% of the appraisers agree that the system enables them to properly assess employee performance and potential, 42% state that they are uncomfortable using the system. That disconifort apparently leads to their not providing appraisees with a sense of participation in either the discussion of goal setting or the evaluation of goal achievement as prescribed by the appraisal format. Roughly half of appraisees report that they are given the opportunity to discuss their performance during their appraisal interview; and only 32% state that they have input into their performance goals for the upcoming year. Futhermore, 82% of those appraised feel that they have received inadequate feedback about their performance between their annual appraisal interviews.

The appraisees believe that their supervisor is, in part, responsible for their failure to achieve their performance goals, as only 39% report that their superior provides adequate guidance to enable them to achieve their performance goals. In summarizing appraisees’ overall reaction to their new appraisal system, it appears that they perceive that their supervisors dictate goals for them to achieve without providing insight as to how they can achieve them. Feedback is also not provided by superiors during the year as to how employees are progressing toward their goals. It is therefore not surprising that appraisees find the new system frustrating and demotivating.

The most obvious remedy for this particular shortcoming in the organization’s performance management system is for rater training, but not of the types mentioned above. These appraisers need assistance in goal setting processes and feedback which are integral parts of goal setting. If managers can successfully adopt the necessary goal setting and feedback skills, then this new system has an opportunity to, at least, not detract from employee performance. A less obvious question is the degree to which the goal setting process is consistent with the climate of this organization. Raising employee expectations of their participation in setting their own performance goals and evaluation of their own achievement without ensuring that their supervisors are prepared for their input can only exacerbate employee reactions to the appraisal process. If managers will not accept the principles inherent in goal setting, this organization will be better off eliminating this approach to appraisal. It can either eliminate appraisal altogether or revert back to the previous system which provided feedback only to employees when their performance was deemed unsatisfactory.


Although the degree of dissatisfaction with this appraisal system is consistent with the degree of dissatisfaction in performance appraisals in general, it is important not to generalize about the findings of this case because of the myriad of reasons for shortcomings in performance appraisal systems. What is generalizable about this case is the importance of obtaining feedback about rater and ratee reactions to the implementation of any new appraisal system. Are not organizations better off pilot testing changes in their performance appraisal practices with small subsets of their employees before making radical changes in their systems as was done in this case? It is hoped that our arguments are persuasive in suggesting just how difficult it is to implement and maintain an effective performance appraisal system in any organization, let alone in a case like the one detailed here involving an excellently performing organization.


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