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A performance appraisal, also referred to as a performance review, performance evaluation, (career) development discussion, or employee appraisal, sometimes shortened to "PA", is a periodic and systematic process whereby the job performance of an employee is documented and evaluated. This is done after employees are trained about work and settle into their jobs. Performance appraisals are a part of career development and consist of regular reviews of employee performance within organizations.

Performance appraisals are most often conducted by an employee's immediate manager or line manager. While extensively practiced, annual performance reviews have also been criticized as providing feedback too infrequently to be useful, and some critics argue that performance reviews in general do more harm than good. It is an element of the principal-agent framework, that describes the relationship of information between the employer and employee, and in this case the direct effect and response received when a performance review is conducted.

Main features

A performance appraisal is a systematic, general and periodic process that assesses an individual employee's job performance and productivity in relation to certain pre-established criteria and organizational objectives. Other aspects of individual employees are considered as well, such as organizational citizenship behavior, accomplishments, potential for future improvement, strengths and weaknesses, etc.

To collect PA data, there are three main methods: objective production, personnel, and judgmental evaluation. Judgmental evaluations are the most commonly used with a large variety of evaluation methods. Historically, PA has been conducted annually (long-cycle appraisals); however, many companies are moving towards shorter cycles (every six months, every quarter), and some have been moving into short-cycle (weekly, bi-weekly) PA. The interview could function as "providing feedback to employees, counseling and developing employees, and conveying and discussing compensation, job status, or disciplinary decisions". PA is often included in performance management systems. PA helps the subordinate answer two key questions: first, "What are your expectations of me?" second, "How am I doing to meet your expectations?"

Performance management systems are employed "to manage and align" all of an organization's resources in order to achieve highest possible performance and to eliminate distractions procured from individual agents that neglect the companies goals. "How performance is managed in an organization determines to a large extent the success or failure of the organization. Therefore, improving PA for everyone should be among the highest priorities of contemporary organizations".

Some applications of PA are compensation, performance improvement, promotions, termination, test validation, and more. While there are many potential benefits of PA, there are also some potential drawbacks. For example, PA can help facilitate management-employee communication; however, PA may result in legal issues if not executed appropriately, as many employees tend to be unsatisfied with the PA process, as well as, the misuse of PA's can incur apathy towards organizational goals and values. PAs created in and determined as useful in the United States are not necessarily able to be transferable cross-culturally.

Use of Performance Appraisal Results

Performance appraisals (PAs) have wide-ranging uses in organizations across sectors and are intended to serve various purposes including:

Performance improvement

Employee performance improvement is considered a central purpose of PAs that contributes to enhancing organizational effectiveness. Due to greater demand for transparency, accountability, and effective public service delivery. PAs in public sector organizations help identify strengths and weaknesses, and development opportunities that algin employees' efforts with organizational and public service goals, while enabling public sector employees to adjust their performance in order to foster a more effective government workforce.

Informing employment decisions

PAs are used to inform employment decisions such as promotion, termination, and transfer of employees. Transparent and objective PAs can help ensure fairness in these employment decisions as well as help identify high-potential employees from groups that may be more traditionally excluded, thus, contributing to career progression and, at the same time, increasing diversity in leadership positions.

From a labor union perspective, PAs should be embedded within fair and culturally sensitive appraisal systems and should not reinforce managerial bias or justify unfair terminations or promotions, particularly for employees of indigenous background, women, and ethnic minorities that are often at greater risk of being unfairly evaluated due to unconscious bias or inequitable standards.

The use of multisource feedback – incorporating evaluations from peers, subordinates, and customers to provide a holistic view – over traditional supervisory ratings may assist to improve rating accuracy by reducing leniency bias and centrality bias where raters may give overly positive evaluations or avoid extreme ratings, respectively.

Organizational research, tools and practices

Research shows that effective PAs are reliable indicators of employee competencies and future job performance. In public sector organizations that serve diverse populations, inclusive PAs can contribute to better hiring practices and employee development programs. Labor unions emphasize that these systems should reflect collective efforts rather than focusing solely on individual accomplishments, as collaboration is key in creating an inclusive public workforce.

Communication

PAs are used as mechanisms for feedback, to clarify job expectations and organizational goals, and to prevent misunderstandings that may arise, including those stemming from cultural differences. Transparent appraisal systems also reduce the risk of surprise negative evaluations, a concern especially pertinent for socially excluded groups that may already face systemic bias in the workplace.

Research has found that face-to-face discussions and continuous feedback help improve the performance appraisal process by enhancing clarity and mutual understanding.

Development and training

PAs can assist in identifying training needs and setting professional development goals fostering both individual growth and a more skilled workforce at an organizational level.

Cognitive biases such as the anchoring effect and halo effect can impact the accuracy of appraisals used to identify training and professional development needs by relying too heavily on initial information (anchor) when making judgments; or a rater's overall positive impression of an individual, both of which can influence the assessment of performance, leading to biased judgments that influence evaluations.

Documenting performance

PAs serve the purpose of documenting appraisal processes and results – essential in public sector organizations, where accountability to citizens and legal regulations is required. Proper documentation ensures performance is recorded transparently, safeguarding all parties in case of disputes around wrongful termination or discrimination.

Labor unions advocate that such documentation should be accessible to employees and their representatives, ensuring that vulnerable employees are protected from biased evaluations.

Reward systems

PAs are often used to determine salary levels and rewards placing a greater emphasis on the need for transparency in how compensation decisions are made.

Research has found that clear communication of performance metrics, management support, and fair reward distribution are essential for successful reward implementation.

Job evaluation and selection

Performance appraisals also assist in formulating job criteria and selecting individuals suited for specific tasks. By identifying key competencies, PAs help ensure that recruitment and selection processes are inclusive, enabling public sector organizations to meet the needs of diverse communities.

Motivation

PAs serve as critical tools for motivating employees. In the public sector, where intrinsic motivators such as public service motivation often drive performance, PAs can enhance motivation by recognizing the contributions of employees and providing them with growth opportunities. Public sector unions emphasize the importance of non-monetary rewards, such as career development or increased responsibility, which can be particularly meaningful for employees from groups that more traditionally suffer from social exclusion, as these provide pathways to leadership and broader representation.

Potential benefits

There are a number of potential benefits of organizational performance management conducting formal performance appraisals (PAs). There has been a general consensus in the belief that PAs lead to positive implications of organizations. Furthermore, PAs can benefit an organization's effectiveness. One way is PAs can often lead to giving individual workers feedback about their job performance. From this may spawn several potential benefits such as the individual workers becoming more productive.

Other potential benefits include:

• Facilitation of communication: communication in organizations is considered an essential function of worker motivation. It has been proposed that feedback from PAs aid in minimizing employees' perceptions of uncertainty. Fundamentally, feedback and management-employee communication can serve as a guide in job performance.
• Enhancement of employee focus through promoting trust: behaviors, thoughts, or other issues may distract employees from their work, and trust issues may be among these distracting factors. Such factors that consume psychological energy can lower job performance and cause workers to lose sight of organizational goals. Properly constructed and utilized PAs have the ability to lower distracting factors and encourage trust within the organization.
• Goal setting and desired performance reinforcement: organizations find it efficient to match individual worker's goals and performance with organizational goals. PAs provide room for discussion in the collaboration of these individual and organizational goals. Collaboration can also be advantageous by resulting in employee acceptance and satisfaction of appraisal results.
• Performance improvement: well constructed PAs can be valuable tools for communication with employees as pertaining to how their job performance stands with organizational expectations. "At the organizational level, numerous studies have reported positive relationships between human resource management (HRM) practices" and performance improvement at both the individual and organizational levels.
• Determination of training needs: "Employee training and development are crucial components in helping an organization achieve strategic initiatives". It has been argued that for PAs to truly be effective, post-appraisal opportunities for training and development in problem areas, as determined by the appraisal, must be offered. PAs can be especially instrumental for identifying training needs of new employees. Finally, PAs can help in the establishment and supervision of employees' career goals.

Potential complications

Despite all the potential advantages of formal performance appraisals (PAs), there are also potential drawbacks. It has been noted that determining the relationship between individual job performance and organizational performance can be a difficult task. The ones conducting performance appraisals, such as line managers also often face complexities. Generally, there are two overarching problems from which several complications spawn. One of the problems with formal PAs is there can be detrimental effects to the organization(s) involved if the appraisals are not used appropriately. The second problem with formal PAs is they can be ineffective if the PA system does not correspond with the organizational culture and system.

Potential complications that may arise:

• Detrimental impact to performance improvement: It has been proposed that the use of PA systems in organizations adversely affects organizations' pursuits of quality performance. It is believed by some scholars and practitioners that the use of PAs is unnecessary if there is total quality management.
• Subjective evaluations: Subjectivity is related to judgement based on a supervisor's subjective impressions and opinions, which can be expressed through the use of subjective performance measures, ex post flexibility in the weighting of objective performance measures, or ex post discretional adjustment, all of which are based on factors other than performance measures specified ex ante. Traditional performance appraisals are often based upon a manager's or supervisor's perceptions of an employee's performance and employees are evaluated subjectively rather than objectively. Therefore, the review may be influenced by many non-performance factors such as employee 'likeability', personal prejudices, ease of management, and previous mistakes or successes. Reviews should instead be based on data-supported, measurable behaviors and results within the performers control.
• Negative perceptions: "Quite often, individuals have negative perceptions of PAs". Receiving, or the anticipation of receiving, a PA can be uncomfortable and distressful and potentially cause "tension between supervisors and subordinates". If the person being appraised does not trust their employer, appraiser or believe that they will benefit from the process it may become a "tick box" exercise.
• Central tendency: This is where the evaluator fails to make extreme ratings to either direction-low or high but remains at the intermediate. The evaluator fails to use extremes of the scale and uses the central points e.g. rating all employees as average.
• Inflationary pressure: This is where there is low differentiation with the upper range of the rating choices defining outstanding performance as 90 or above good as 90 or above, average or above 70 or above and inadequate performance as anything below 70 leaves one wonder for a promotion.
• Errors: Performance appraisals should provide accurate and relevant ratings of an employee's performance as compared to pre-established criteria/goals (i.e. organizational expectations). Nevertheless, supervisors will sometimes rate employees more favorably than that of their true performance in order to please the employees and avoid conflict. "Inflated ratings are a common malady associated with formal" PA.
• Legal issues: When PAs are not carried out appropriately, legal issues could result that place the organization at risk. PAs are used in organizational disciplinary programs as well as for promotional decisions within the organization. The improper application and utilization of PAs can affect employees negatively and lead to legal action against the organization.
• Performance goals: Performance goals and PA systems are often used in association. Negative outcomes concerning the organizations can result when goals are overly challenging or overemphasized to the extent of affecting ethics, legal requirements, or quality. Moreover, challenging performance goals can impede an employee's abilities to acquire necessary knowledge and skills. Especially in the early stages of training, it would be more beneficial to instruct employees on outcome goals than on performance goals.
• Derail merit pay or performance-based pay: Some researchers contend that the deficit in merit pay and performance-based pay is linked to the fundamental issues stemming from PA systems.

Improvements

Although performance appraisals can be biased, there are certain steps that can be taken to improve the evaluations and reduce the margin of errors through the following:

• Training – Bringing awareness to the potential for bias by training the Evaluators to be aware of the difference of skills and abilities between employees and how to subjectively consider these traits.
• Providing feedback to raters – Trained raters provide managers who evaluated their subordinates with feedback, including information on ratings from other managers. This has the potential to reduce leniency errors.
• Subordinate participation – By allowing employee participation in the evaluation process, there is employee-supervisor reciprocity in the discussion for any discrepancies between self ratings and supervisor ratings, thus, increasing job satisfaction and motivation.
• Use multiple raters to avoid the likely bias with using only one rater.
• Conduct post appraisal interviews. interview employees after appraisal to get their comments, views and opinions on the whole exercise and general performance.
• Use selective rating. Use people as raters on areas where they have job knowledge since no single person is knowledgeable in all areas.
• Reward accurate appraisers. It is good practice to reward performance and hence it means those who appraise accurately have performed and should be rewarded.

Effectiveness

Leadership development coach Jack Zenger urges companies to find alternatives to annual performance reviews, and says that research supports the following:

• Frequent discussions with employees are better than annual reviews
• Talking about future goals is more productive than past performance, especially with clear targets, deadlines, and the participation of the employee
• Negative feedback can cause defensiveness and worsen productivity
• Positive feedback does little to improve productivity, though does improve the interpersonal relationship with the person giving the feedback
• Neither managers nor employees like performance reviews
• Higher-level employees receive performance reviews less frequently
• Annual reviews are often justified on the grounds they are needed for salary changes, but they are not actually necessary, and empirically they would make little difference for most employees

Seniority and Labor Contracts

Labor union contracts often include seniority provisions, specifying that promotions, layoffs, and benefits are determined based on the length of service rather than performance. Historically, these provisions aimed to prevent favoritism, cronyism, and corruption, promoting a sense of solidarity among workers. Seniority serves as job security, protecting long-serving employees from arbitrary layoffs or demotions. It is commonly seen in sectors like manufacturing, education, and public services, offering employees a predictable path to career advancement and rewards.

The Last-In, First-Out (LIFO) Rule

A common application of seniority is the Last-In, First-Out (LIFO) rule, which dictates that employees with the shortest tenure are laid off first during downsizing. This system provides stability for longer-serving employees and is considered fair in workforce reductions. However, critics argue that LIFO can hinder productivity by retaining employees based solely on tenure, regardless of their current performance or skills. For example, in technology-driven industries, newer employees may possess valuable skills or innovative approaches that senior workers might lack. As such, organizations sometimes face difficulties maintaining a competitive edge when LIFO rules limit their ability to retain high-performing but less-tenured staff. Nevertheless, the LIFO rule remains a vital aspect of many union agreements, particularly in traditional industries where seniority is highly valued.

Seniority's Impact on Wages and Promotions

Seniority significantly influences wage structures and promotions, often resulting in a wage premium for employees with longer tenures. Union-negotiated contracts may include regular wage increases based solely on years of service. This approach can enhance job satisfaction and loyalty, as employees feel rewarded for their long-term commitment. However, this system may also lead to inefficiencies if individual performance and skills are overlooked. High-performing employees with shorter tenures might feel demotivated if they see senior colleagues receiving higher wages and opportunities simply due to their length of service. This structure can also impose financial burdens on organizations during economic downturns, as they must continue paying higher wages to senior employees regardless of business performance. To address these issues, some companies have implemented hybrid wage systems that combine seniority with performance-based incentives, allowing them to recognize both experience and merit.

Balancing Seniority and Performance

While seniority offers job security and a sense of fairness, it also presents challenges in modern workplaces. To address this, many labor contracts have adopted flexible seniority systems, where an employee’s abilities, skills, and job performance are also considered alongside their tenure. For example, companies might use performance reviews to guide decisions related to promotions, salary increases, and even layoffs. This approach allows employers to respect seniority while ensuring that productivity and contributions to the organization are fairly acknowledged.

Union rules may also include probationary periods and warnings as mechanisms to balance seniority with performance. Employers are often required to warn poorly performing employees and give them a probationary period to improve before considering dismissal. During disputes, records from performance reviews and probation periods often play a crucial role in arbitration, helping to determine whether a firing was justified. This structured process ensures that performance issues are managed fairly without undermining the seniority system's core principles.

Recent Trends and Debates

In recent years, some organizations have increasingly questioned traditional seniority-based approaches, arguing that they can stifle innovation and adaptability, especially in fast-paced markets like technology and healthcare. This has led to a push for more performance-oriented contracts that still incorporate elements of seniority to ensure a balanced approach. Mixed evaluation systems, combining seniority with performance metrics, human resource metrics, skills assessments, and peer feedback, are becoming more popular. These systems aim to balance the stability provided by seniority with the need for a dynamic, merit-based workforce. The ongoing debate reflects the complexities of modern labor relations and the need for adaptive strategies that can meet diverse business needs.

Finding the Balance in Seniority Systems

Seniority in labor contracts remains a complex issue. It offers job security and guards against favoritism but also poses challenges in balancing merit and productivity. Modern labor contracts increasingly seek a middle ground, integrating seniority provisions with performance-based assessments to create a fair and efficient work environment. By valuing both experience and performance, organizations can foster a culture that recognizes long-term loyalty while also rewarding high achievers. This balanced approach is key to building a workforce that is both stable and dynamic, capable of meeting the demands of a rapidly changing economy. The evolving nature of workplaces makes finding this balance more important than ever.

Resistance from managers

Managers who have had unsatisfactory experiences with inadequate or poorly designed appraisal programs may be skeptical about their usefulness. Academic literature has also been unable to appropriately define exclusive measure of PA effectiveness. The skepticism is also reflected in the decline in the use of traditional PA processes in the U.S. corporate sector. It is estimate of a third of the U.S. private companies have now switched to a more informal and frequent engagement between managers and employees to enhance performance. The shift is attributed to a greater focus on talent development, business agility, and a preference for teamwork over individual responsibility.

The government and public sector organizations continue to use PA worldwide. In the 2005 Merit Performance Survey (MPS) conducted by the United States (U.S.) Merit Systems Protection Board (MSPB), 16.41% of federal supervisors reported that they had rated their employees' PAs either higher or lower than the employees should have received. Among nine potential problems identified in the 2005 MPS on structure and operation of the U.S. federal government appraisal system; inflated ratings, flawed standards, and lack of support were ranked as the top three problems, respectively.

Inflated Ratings

Occurs when employees receive higher-than-expected performance ratings due to systematic bias by raters when conducting PA. This consequently affect the effectiveness of PA evaluations due to the impact of halo effect and anchoring effect on PA rating. Research shows that managers tend to give better ratings to subordinates they favor, influenced by both direct bias and indirect bias. Inflated ratings are more common when PAs are conducted for judgmental and administrative purposes, such as promotions, pay increases, or job retention, rather than for developmental reasons.

Research studies have identified various factors contributing to inflated ratings. First, raters may be lenient to avoid administrative burdens, such as compiling documentation to justify low ratings. This could be because managers view PAs as time-consuming and routine tasks. Second, raters may hesitate to give harsh ratings to avoid damaging work relationships and creating an unproductive environment.

Recent HRM studies also suggest raters’ experiences cognitive bias influenced by contextual factors, such as institutional, political, and cultural influences, as well as environmental factors. For instance, an environmental, such as, a national crisis can impair raters to rely on heuristic thinking rather than making an objective and cognitive evaluation of subordinates PA, as described by dual-process theory.

Third, the perceived importance of accurate PA ratings may be positively influenced by motivational factors, such as felt accountability, incentive structures, and public service motivation. Finally, close relationships between raters and subordinates can also lead to inflated ratings. For example, a line manager who regularly engages with subordinates may develop strong interpersonal relationships, which can impair objective evaluation.

Flawed performance standards or measures are attributed to the use of subjective criteria or ambiguous measures by raters during PAs. One cause of this issue is the difficulty in defining objective performance standards due to the complexity of job tasks or outcomes. This challenge may be influenced by how organizations structure their employees' duties. Factors such as job autonomy, teamwork, and job rotation affect the setting of performance standards, and in some cases, subjective criteria may be necessary due to the nature of the job. For example, empirical findings suggest that subordinates with a high degree of job autonomy may have a positive relationship with the inclusion of subjective measures in their PA, due to the variation of day-to-day job tasks need to meet performance targets and provided there is frequent level monitoring by their line managers.

Clear performance standards are shaped by well-defined organizational goals. The absence of clear goals and targets can disrupt goal alignment, which affects the effectiveness of PAs in monitoring and managing how employees' work contributes to organizational priorities. Organizational goals provide employees with a clear line of sight, helping them understand how their duties contribute to organizational performance. A study suggests that PAs help moderate the relationship between employee alignment and organizational performance. Government departments and public service organizations often face challenges in developing clear organizational goals, which makes it further challenging for managers evaluate the performance of subordinates based on individual performance goals that are not clearly aligned to organizational goals.

Lack of support from higher management can undermine raters' confidence and their ability to conduct employee PA effectively, which can compromise the independence and integrity of PA decision-making. Employees often rely on higher management to validate the organization's decisions. When higher management emphasizes the importance of PAs by providing endorsements, resources, training, and time for participation, it can motivate raters to be more accountable and thorough in conducting accurate appraisals. However, political and institutional factors, such as, political ideologies, norms, and organizational culture can influence the effective implementation of PA outcomes.

Conducting

Human resource management (HRM) conducts performance management. Performance management systems consist of the activities and processes embraced by an organization in anticipation of improving employee performance, and therefore, organizational performance. Consequently, performance management is conducted at the organizational level and the individual level. At the organizational level, performance management oversees organizational performance and compares present performance with organizational performance goals. The achievement of these organizational performance goals depends on the performance of the individual organizational members. Therefore, measuring individual employee performance can prove to be a valuable performance management process for the purposes of HRM and for the organization. Many researchers would argue that "performance appraisal is one of the most important processes in Human Resource Management".

The performance management process begins with leadership within the organization creating a performance management policy. Primarily, management governs performance by influencing employee performance input (e.g. training programs) and by providing feedback via output (i.e. performance assessment and appraisal). "The ultimate objective of a performance management process is to align individual performance with organizational performance". A very common and central process of performance management systems is performance appraisal (PA). The PA process should be able to inform employees about the "organization's goals, priorities, and expectations and how well they are contributing to them".

Frequency of PAs

Performance appraisals (PAs) are conducted at least annually, and annual employee performance reviews appear to be the standard in most American organizations. However, "it has been acknowledged that appraisals conducted more frequently (more than once a year) may have positive implications for both the organization and employee." It is suggested that regular performance feedback provided to employees may quell any unexpected or surprising feedback to year-end discussions. In a recent research study concerning the timeliness of PAs, "one of the respondents even suggested that the performance review should be done formally and more frequently, perhaps once a month, and recorded twice a year."

Other researchers propose that the purpose of PAs and the frequency of their feedback are contingent upon the nature of the job and characteristics of the employee. For example, employees of routine jobs where performance maintenance is the goal would benefit sufficiently from annual PA feedback. On the other hand, employees of more discretionary and non-routine jobs, where goal-setting is appropriate and there is room for development, would benefit from more frequent PA feedback. Informal performance appraisals may be done more often, to prevent the element of surprise from the formal appraisal.

Methods of collecting data

There are three main methods used to collect performance appraisal (PA) data: objective production, personnel, and judgmental evaluation. Judgmental evaluations are the most commonly used with a large variety of evaluation methods.

Objective production

The objective production method consists of direct, but limited, measures such as sales figures, production numbers, the electronic performance monitoring of data entry workers, etc. The measures used to appraise performance would depend on the job and its duties. Although these measures deal with unambiguous criteria, they are usually incomplete because of criterion contamination and criterion deficiency. Criterion contamination refers to the part of the actual criteria that is unrelated to the conceptual criteria. In other words, the variability in performance can be due to factors outside of the employee's control. Criterion deficiency refers to the part of the conceptual criteria that is not measured by the actual criteria. In other words, the quantity of production does not necessarily indicate the quality of the products. Both types of criterion inadequacies result in reduced validity of the measure. Regardless of the fact that objective production data is not a complete reflection upon job performance, such data is relevant to job performance.

Happy-productive worker hypothesis

The happy-productive worker hypothesis states that the happiest workers are the most productive performers, and the most productive performers are the happiest workers. Yet, after decades of research, the relationship between job satisfaction and job performance produces only a weak positive correlation. Published in 2001 by Psychological Bulletin, a meta-analysis of 312 research studies produced an uncorrected correlation of 0.18. This correlation is much weaker than what the happy-productive worker hypothesis would predict.

Personnel

The personnel method is the recording of withdrawal behaviors (i.e. absenteeism, accidents). Most organizations consider unexcused absences to be indicators of poor job performance, even with all other factors being equal; however, this is subject to criterion deficiency. The quantity of an employee's absences does not reflect how dedicated that employee may be to the job and its duties. Especially for blue-collar jobs, accidents can often be a useful indicator of poor job performance, but this is also subject to criterion contamination because situational factors also contribute to accidents. Once again, both types of criterion inadequacies result in reduced validity of the measure. Although excessive absenteeism or accidents often indicate poor job performance rather than good performance, such personnel data is not a comprehensive reflection of an employee's performance.

Judgmental evaluation

Judgmental evaluation appears to be a collection of methods, and as such, could be considered a methodology. A common approach to obtaining PAs is by means of raters. Because the raters are human, some error will always be present in the data. The most common types of error are leniency errors, central tendency errors, and errors resulting from the halo effect. Halo effect is characterized by the tendency to rate a person who is exceptionally strong in one area higher than deserved in other areas. It is the opposite of the Horns effect, where a person is rated as lower than deserved in other areas due to an extreme deficiency in a single discipline. These errors arise predominantly from social cognition and the theory in that how we judge and evaluate other individuals in various contexts is associated with how we "acquire, process, and categorize information".

An essential piece of this method is rater training. Rater training is the "process of educating raters to make more accurate assessments of performance, typically achieved by reducing the frequency of halo, leniency, and central-tendency errors". Rater training also helps the raters "develop a common frame of reference for evaluation" of individual performance. Many researchers and survey respondents support the ambition of effectual rater training. However, it is noted that such training is expensive, time-consuming, and only truly functional for behavioral assessments.

Another piece to keep in mind is the effects of rater motivation on judgmental evaluations. It is not uncommon for rating inflation to occur due to rater motivation (i.e. "organizationally induced pressures that compel raters to evaluate ratees positively"). Typically, raters are motivated to give higher ratings because of the lack of organizational sanction concerning accurate/inaccurate appraisals, the rater's desire to guarantee promotions, salary increases, etc., the rater's inclination to avoid negative reactions from subordinates, and the observation that higher ratings of the ratees reflect favorably upon the rater.

The main methods used in judgmental performance appraisal are:

• Graphic rating scale: graphic rating scales are the most commonly used system in PA. On several different factors, subordinates are judged on 'how much' of that factor or trait they possess. Typically, the raters use a 5- or 7-point scale; however, there are as many as 20-point scales.
• Employee-comparison methods: rather than subordinates being judged against pre-established criteria, they are compared with one another. This method eliminates central tendency and leniency errors but still allows for halo effect errors to occur. The rank-order method has raters ranking subordinates from "best" to "worst", but how truly good or bad one is on a performance dimension would be unknown. The paired-comparison method requires the rater to select the two "best" subordinates out of a group on each dimension then rank individuals according to the number of times each subordinate was selected as one of the "best". The forced-distribution method is good for large groups of ratees. The raters evaluate each subordinate on one or more dimensions and then place (or "force-fit") each subordinate in a 5 to 7 category normal distribution. The method of top-grading can be applied to the forced distribution method. This method identifies the 10% lowest performing subordinates, as according to the forced distribution, and dismisses them leaving the 90% higher performing subordinates.
• Behavioral checklists and scales: behaviors are more definite than traits. The critical incidents method (or critical incident technique) concerns "specific behaviors indicative of good or bad job performance". Supervisors record behaviors of what they judge to be job performance relevant, and they keep a running tally of good and bad behaviors. A discussion on performance may then follow. The behaviorally anchored rating scales (BARS) combine the critical incidents method with rating scale methods by rating performance on a scale but with the scale points being anchored by behavioral incidents. Note that BARS are job specific. In the behavioral observation scale (BOS) approach to performance appraisal, employees are also evaluated in the terms of critical incidents. In that respect, it is similar to BARS. However, the BOS appraisal rate subordinates on the frequency of the critical incidents as they are observed to occur over a given period. The ratings are assigned on a five-point scale. The behavioral incidents for the rating scale are developed in the same way as for BARS through identification by supervisors or other subject matter experts. Similarly, BOS techniques meet equal employment opportunity because they are related to actual behavior required for successful job performance.

The frequency of an evaluation, and policies concerning them, varies widely from workplace to workplace. Sometimes, an evaluation will be given to a new employee after a probationary period lapses, after which they may be conducted on a regular basis (such as every year). According to the 2014 Performance Management survey, 96% of employers perform annual performance evaluations and 44% of employers perform a 90-day performance review for new employees.

Peer and self assessments

For assessment to be successful and effective it must be conducted as a managed process. The process must be given sufficient time and space and be supported by appropriately trained and purposed personnel. Key activities to support the appraisal process are identified as:

• A suitable model of assessment (for example: narrative self-assessment, goal-based assessment, SWOT analysis or rating scales)
• appropriately credentialed staff to manage the process
• A supported approach to the assessment (employees understand the process, are given time to engage with it and are motivated to)
• Improvement actions are identified and acknowledged where achieved, further planning is undertaken where new or unresolved improvement actions are identified.
• The improvement cycle has a ‘closed loop’ structure, allowing employees to reset prior to progressing to new goals.
• Employees can see how their development relates to the wider organisational plan.

While performance appraisal is typically performed along reporting relationships (usually top-down), assessment can include both peer and self-assessment.

Self Assessment

Self-assessment incorporates a “wide variety of mechanisms and techniques through which students describe (i.e., assess) and possibly assign merit or worth to (i.e., evaluate) the qualities of their own learning processes and products” (p. 804)

Threats to successful implementation of self-assessment are scarcity of time, overemphasis on scoring tools, failure to follow-up improvement actions and lack of communication. It’s a Self-reflective process meaning that structure, and the ability to remain objective about one’s own achievements and qualities are essential to the success of self-assessment.

The risk of flawed self-assessment is that self-perceptions of behaviours, knowledge and skill can fail to align with the reality of an individual’s performance. This can either absorb excessive management time in addressing flawed self-perceptions of performance or, if the behaviour is not addressed, can detract from the achievement of organisational goals. Therefore, evolved reflective skills are essential to successful self-assessment.

Peer assessments

In peer assessment the appraisee is subject to feedback from peers – that is members of an organisation who function at the same level as the appraisee. In general, tools are made available to peer assessors to grade the appraisee against pre-determined criteria. These tools typically take the form of a multi-format questionnaire that might include VAS, Likert scoring and the collection of both quantitative and qualitative data by a number of means.

As in any method of performance appraisal, high quality of feedback is a key to the effectiveness of peer evaluation, as is closing the loop on the appraisal process. There are threats to both the quality and perception of feedback in peer-assessment, for example peers may be biased by pre-existing relationships and less trust or value might be put in the appraisal of a peer than a senior. Additionally in an organization where peer assessment is undertaken, employees may have concern for how the analysis of other is perceived, and how this my impact on their own assessment in turn.

Potential benefits of peer assessment are:

• Decreased “social loafing” (mitigates the tendency to be less productive when part of a team).
• Improved performance.
• An environment that better reflects the culture of the team.
• Individuals take greater of each other and their relationships.

360 Degree Feedback

360 degree feedback contains elements of self, peer and manager appraisal as it aims to incorporate feedback from multiple sources to produce a more comprehensive evaluation of the appraisee. The feedback is divided to reflect formative and summative domains – formative feedback is taken from peers; Summative feedback is taken from managers. Both are combined to inform development, but it is the summative feedback which counts most toward organizational performance indicators and potential rewards or punishments related to performance.

The principal advantage of 360 degree feedback is that it is comprehensive and makes it possible for the “organization” to feed back on an individual, thus blunting potential biases that might occur in less fulsome processes, as such the 360 process promotes organizational trust, and mitigates against staff members’ intent to leave.

Negotiated Performance Appraisal

In negotiated performance appraisal the appraisal follows the typical format, but a facilitator is present who may mediate perceived risks of defensiveness, bias or conflict and can prevent the tendency of appraisers to leave areas of under-performance unaddressed. This approach has little presence in the literature around performance appraisal but may be of benefit in supporting face to face peer performance conversations.

In general, optimal PA process involves a combination of multiple assessment modalities. One common recommendation is that assessment flows from self-assessment, to peer-assessment, to management assessment – in that order. Starting with self-assessment facilitates avoidance of conflict. Peer feedback ensures peer accountability, which may yield better results than accountability to management. Management assessment comes last for need of recognition by authority and avoidance of conflict in case of disagreements. It is generally recommended that PA is done in shorter cycles to avoid high-stakes discussions, as is usually the case in long-cycle appraisals.

Research has shown that the source of the feedback (either manager or peer) does not matter in influencing employees' subsequent innovative or extra-role behaviors after the feedback is received. As long as the feedback is provided, the source does not matter.

Principal–agent framework

The principal–agent framework is a model describing the relationship of information held between an employer and an employee. It is used to forecast responses from employees and strategies at finding resolutions against misaligned incentives that interfere with the goals of the employer. The model makes two assumptions: the principals wants agents to work for the principal's best interest, but agents possess different goals than the principals; and, the agents have more information than the principals resulting in the asymmetry of information between the two parties. This paradigm creates adverse selections and moral hazards for the hiring company in deciding how to effectively minimize the potential threat of shirking; disruption to daily operations; and loss in output margins due to actions of the employee.

Incentive conflict resolutions

Incentive pay leads to the increase of agents awareness of their own actions and seek to maximize their pay by considering the best possible actions that can be taken for the success of the firm and actively explore several options to minimize opportunity costs. The issue with this form of resolution is the firm must compensate the agents for bearing a risk premium and inequitable pay.

Fixed payment ensures a safer, standardized mode of contract that delivers reassurance in spite of performance fluctuations and external environment volatility. However, lack of motivation occurs more readily and incurs shirking and adverse selections.

Organizational citizenship behavior

Also referred to as contextual behavior, prosocial behavior, and extra-role behavior, organizational citizenship behavior (OCB) consists of employee behavior that contributes to the welfare of the organization but is beyond the scope of the employee's job duties. These extra-role behaviors may help or hinder the attainment of organizational goals. Research supports five dimensions of OCB: altruism, conscientiousness, courtesy, sportsmanship, and civic virtue. Researchers have found that the OCB dimensions of altruism and civic virtue can have just as much of an impact on manager's subjective evaluations of employees' performances as employees' objective productivity levels. The degree to which OCB can influence judgments of job performance is relatively high. Controversy exists as to whether OCB should be formally considered as a part of performance appraisal (PA).

Interviews

The performance appraisal (PA) interview is typically the final step of the appraisal process. The interview is held between the subordinate and supervisor. The PA interview can be considered of great significance to an organization's PA system. It is most advantageous when both the superior and subordinate participate in the interview discussion and establish goals together. Three factors consistently contribute to effective PA interviews: the supervisor's knowledge of the subordinate's job and performance in it, the supervisor's support of the subordinate, and a welcoming of the subordinate's participation. The objective of performance appraisal is to assess the training development needs of employees.

Employee reactions

Numerous researchers have reported that many employees are not satisfied with their performance appraisal (PA) systems. Studies have shown that subjectivity as well as appraiser bias is often a problem perceived by as many as half of employees. Appraiser bias, however, appears to be perceived as more of a problem in government and public sector organizations. Also, according to some studies, employees wished to see changes in the PA system by making "the system more objective, improving the feedback process, and increasing the frequency of review." In light of traditional PA operation defects, "organizations are now increasingly incorporating practices that may improve the system. These changes are particularly concerned with areas such as elimination of subjectivity and bias, training of appraisers, improvement of the feedback process and the performance review discussion."

According to a meta-analysis of 27 field studies, general employee participation in his/her own appraisal process was positively correlated with employee reactions to the PA system. More specifically, employee participation in the appraisal process was most strongly related to employee satisfaction with the PA system. Concerning the reliability of employee reaction measures, researchers have found employee reaction scales to be sound with few concerns through using a confirmatory factor analysis that is representative of employee reaction scales.

Researchers suggest that the study of employees' reactions to PA is important because of two main reasons: employee reactions symbolizes a criterion of interest to practitioners of PAs and employee reactions have been associated through theory to determinants of appraisal acceptance and success. Researchers translate these reasons into the context of the scientist-practitioner gap or the "lack of alignment between research and practice."

Schultz and Schultz notes that opposition to performance appraisals generally do not receive positive ratings from anyone involved, "so employees that will be directly affected by the Performance Appraisals are less than enthusiastic about participating in them". When an employee knows that their work performance has been less than perfect it is nerve-racking to be evaluated. Employees tend to be hostile knowing they could be given bad news on their performance.

Most managers prefer to begin with positive information and then add bad news or suggestions for improvement at the end. However, employees are most satisfied when bad news is addressed early in the interview and positive information is saved until the end, so that the meeting ends with a positive feeling.

Hidden cost of control

While performance appraisals are fundamental in the assessment of employees, frequent testing can result in the deterioration of employee performance, thus impacting overall business operations. The agent's perception of these 'control' devices are that they signal mistrust to the individual and reduce working autonomy. If these management practices are employed without consideration of the emotional response to said devices, then the agent's willingness to engage in the company's ambitions are greatly reduced as suggested in empirical studies.

Legal implications

There are federal laws addressing fair employment practices, and this also concerns performance appraisal (PA). Discrimination can occur within predictions of performance and evaluations of job behaviors. The revision of many court cases has revealed the involvement of alleged discrimination which was often linked to the assessment of the employee's job performance. Some of the laws which protect individuals against discrimination are "the Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act (ADEA), and the Americans with Disabilities Act (ADA)." Lawsuits may also results from charges of an employer's negligence, defamation, or misrepresentation. A few appraisal criteria to keep in mind for a legally sound PA is to keep the content of the appraisal objective, job-related, behavior-based, within the control of the ratee, and related to specific functions rather than a global assessment. Some appraisal procedure suggestions for a legally sound PA is to standardize operations, communicate formally with employees, provide information of performance deficits and give opportunities to employees to correct those deficits, give employees access to appraisal results, provide written instructions for the training of raters, and use multiple, diverse and unbiased raters. These are valuable but not exhaustive lists of recommendations for PAs.

The Employment Opportunity Commission (EEOC) guidelines apply to any selection procedure that is used for making employment decisions, not only for hiring, but also for promotion, demotion, transfer, layoff, discharge, or early retirement. Therefore, employment appraisal procedures must be validated like tests or any other selection device. Employers who base their personnel decisions on the results of a well-designed performance review program that includes formal appraisal interviews are much more likely to be successful in defending themselves against claims of discrimination.

Cross-cultural implications

Performance appraisal (PA) systems, and the premises of which they were based, that have been formed and regarded as effective in the United States may not have the transferability for effectual utilization in other countries or cultures, and vice versa. Performance "appraisal is thought to be deeply rooted in the norms, values, and beliefs of a society". "Appraisal reflects attitudes towards motivation and performance (self) and relationships (e.g. peers, subordinates, supervisors, organization), all of which vary from one country to the next". Therefore, appraisal should be in conjunction with cultural norms, values, and beliefs in order to be operative. The deep-seated norms, values and beliefs in different cultures affect employee motivation and perception of organizational equity and justice. In effect, a PA system created and considered effectual in one country may not be an appropriate assessment in another cultural region.

For example, some countries and cultures value the trait of assertiveness and personal accomplishment while others instead place more merit on cooperation and interpersonal connection. Countries scoring high on assertiveness consider PA to be a way of assuring equity among employees so that higher performing employees receive greater rewards or higher salaries. Countries scoring low on assertiveness but higher in interpersonal relations may not like the social separation and pay inequity of higher/lower performing employees; employees from this more cooperative rather than individualistic culture place more concern on interpersonal relationships with other employees rather than on individual interests. High assertive countries value performance feedback for self-management and effectiveness purposes while countries low in assertiveness view performance feedback as "threatening and obtrusive". In this case, the PA of the high assertive countries would likely not be beneficial for countries scoring lower in assertiveness to employ. However, countries scoring lower in assertiveness could employ PA for purposes of improving long-term communication development within the organization such as clarifying job objectives, guide training and development plans, and lessen the gap between job performance and organizational expectations.

Developments in information technology

Computers have been playing an increasing role in PA for some time. There are two main aspects to this. The first is in relation to the electronic monitoring of performance, which affords the ability to record a huge amount of data on multiple dimensions of work performance. Not only does it facilitate a more continuous and detailed collection of performance data in some jobs, e.g. call centres, but it has the capacity to do so in a non-obvious, covert manner. The second aspect is in mediating the feedback process, by recording and aggregating performance ratings and written observations and making the information available on-line; many software packages are available for this. The use of IT in these ways undoubtedly helps in making the appraisal process more manageable, especially where multiple rating sources are involved, but it also raises many questions about appraisees' reactions and possible effects on PA outcomes. Mostly, the evidence so far is positive.

Rater errors

Mistakes made by raters is a major source of problems in performance appraisal. There is no simple way to eliminate these errors, but making raters aware of them through training is helpful. Rater errors are based on the feelings and it has consequences at the time of appraisal.

Varying standards

• Problem: When a manager appraises (evaluates) his or her employees and the manager uses different standards and expectations for employees who are performing similar jobs.
• Example: A professor does not grade the exams of all students in the same standards, sometimes it depends on the affection that the professor has towards others. This affection will make professor give students higher or lower grades.
• Solution: The rater must use the same standards and weights for every employee. The manager should be able to show coherent arguments in order to explain the difference. Therefore, it would be easier to know if it is done, because the employee has provided a good performance, or if it because the manager perception is distorted.

Recency effects

• Problem: When the manager rates an individual above what the performance actually merits due to only considering the very latest performance and not taking into consideration a sufficient period for quality assessment.
• Example: When a professor gives the course grade based just in the performance of the student only in the last week.
• Solution: In order to avoid that, the manager can employ methods that track dominant traits as well as minor traits to understand adaptation over time. Total strength can be understood as the sum of the relative strengths.

Primacy effects

• Problem: When the person who evaluates gives more weight according to information the manager has received first.
• Example: During an evaluation the manager gives a higher score due to the initial impressions the employee made during their first few weeks, and is overlooking recent performance issues.
• Solution: When the manager has to make a decision, it is better not to do it according to what he or she remembers, but should be based on all the relevant and documented data of the employees performance.

Central tendency

• Problem: When the manager evaluates every employee within a narrow range, as the average because he or she is dismissing the differences in the performance that employees have done.
• Example: When a professor because the average of the class tends to grade harder. Therefore, if the performance of the class average is quite high, the professor will evaluate them more highly. On the contrary, if the average of the class is lower, he or she would appraise lower.

Leniency

• Problem: Rating of all employees are at the high end of the scale.
• Example: When the professor tends to grade harder, because the average of the class.

Strictness

• Problem: When a manager uses only the lower part of the scale to rate employees.
• Example: When the professor tends to grade lower, because the average of the class.
• Solution: try to focus more on the individual performance of every employee regardless the average results.

Rater bias

• Problem: Rater's when the manager rates according to their values and prejudices which at the same time distort the rating. Those differentiations can be made due to the ethnic group, gender, age, religion, sexuality or appearance of the employee.
• Example: Sometimes happen that a manager treats someone different, because they think that the employee is homosexual.
• Solution: If then, the examination is done by higher-level managers, this kind of appraising can be corrected, because they are supposed to be more impartial.

Halo effect

• Problem: When a manager rates an employee high on all items because of one characteristic they like.
• Example: If a worker has few absences but the supervisor has a good relationship with that employee, the supervisor might give to the employee a high rating in all other areas of work, in order to balance the rating. Sometimes it happens due to the emotional dependability based on the good relationship they have.
• Solution: Training raters to recognize the problem and differentiating the person with the performance they do.

Horn effect

• Problem: This is the opposite to the halo effect and horns effect occurs when a manager rates an employee low on all items because of one characteristic that he or she dislikes.
• Example: If a worker performs well but at certain times loves telling jokes, but the supervisor dislikes jokes, the supervisor might give the employee a lower rating in all other areas of work. Sometimes it happens when they do not have a close relationship and manager does not like the employee.
• Solution: Is the same as in the halo effect. Training raters to recognize the problem and differentiating the person with the performance they provide.

Contrast

• Problem: The tendency to rate people relative to other people rather than to the individual performance.
• Example: At school, if you are sat down where all the chatty people are and you are silent but you do not pay attention and you do not do your homework, because you are drawing; when teacher gets angry with the group, you might be excluded of the bad behavior they have just because you are silent; but not because you are doing a good performance. Therefore, according to the group, you are not that chatty, but you are either doing the proper performance. However the rater will only get the idea that your behavior is not as bad as other, thus, you will be rate higher.
• Solution: The rating should reflect the task requirement performance, not according to other people attitude.

Similar-to-me / Different-from-me

• Problem: Sometimes, raters are influenced by some of the characteristics that people show. Depending if those characteristics are similar or different to the evaluators, they would be evaluated differently.
• Example: A manager with higher education degree might give subordinates with higher education degree a higher appraisal than those with only bachelor's degrees.
• Solution: Try to focus on the performance the employee is doing regardless the common characteristic that you have

Sampling

• Problem: When the rater evaluates the performance of an employee relying only on a small percentage of the amount of work done.
• Example: An employee has to do 100 reports. Then, the manager takes five of them to check how has the work been done, and the manager finds mistakes in those five reports. Therefore the manager will appraise the work of the employee as a "poor" one, without having into account the other 95 reports that the manager has not seen, that have been made correctly.
• Solution: To follow the entire track of the performance, not just a little part of it.

It is difficult to minimize rater errors, since humans are not objective. Moreover, sometimes, managers are not aware of having preferences towards people, but there are tools to have more objective information, such as using available technology to track performances and record it.

Consultant Marcus Buckingham and executive Ashley Goodall, reporting on a large-scale Deloitte performance management survey on Harvard Business Review, said, contrary to the assumptions underlying performance rating, the rating mainly measured the unique rating tendencies of the rater and thus reveals more about the rater than about the person who is rated. They referred to this as the idiosyncratic rater effect. In view of this effect, they advocate a radically different approach to performance management. In their scenario, 360-degree feedback and similar time-intensive exercises are replaced by team leaders' "performance snapshots" that focus on what they would do with each team member rather than what they think of that individual, and yearly appraisals of past performance are replaced by weekly check-ins among team leader and team member, preferably initiated by the team member, that focus on current and upcoming work.

See also

• Association of Business Psychologists
• Behavioral risk management
• Employee motivation
• Employment integrity testing
• Employment law
• Human resource development
• Human resource management
• Industrial and organizational psychology
• Industrial sociology
• Job analysis
• Job satisfaction
• Organizational commitment
• Organizational socialization
• Performance paradox
• Performance rating (work measurement)
• Personnel psychology
• Personnel selection
• Quality of working life
• Realistic job preview
• Systems psychology
• Work motivation

Notes

1. Often also called employee performance appraisal or employee performance review

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Sources

• Cardy, Robert L.; Dobbins, Gregory H. (1994). Performance Appraisal: Alternative Perspectives. South-Western Publishing Company. ISBN 978-0-538-81383-9.
• Gomez-Mejia, Luis R.; Balkin, David; Cardy, Robert (2011). Managing Human Resources. Pearson Higher Ed. ISBN 978-0-13-299823-9.
• Grote, Richard C. (2002). The Performance Appraisal Question and Answer Book: A Survival Guide for Managers. American Management Association. ISBN 978-0-8144-2669-2.
• Hofstede, Geert (2001). Culture's Consequences: Comparing Values, Behaviors, Institutions and Organizations Across Nations. SAGE. ISBN 978-0-8039-7324-4.
• Howes, Satoris S.; Muchinsky, Paul M. (2022). Psychology Applied to Work: An Introduction to Industrial and Organizational Psychology. Hypergraphic Press, Incorporated. ISBN 978-0-9749345-5-6.
• Mathis, Robert L.; Jackson, John Harold (2003). Human Resource Management. Thomson/South-western. ISBN 978-0-324-07151-1.
• Schultz, Duane P.; Schultz, Sydney Ellen (2010). Psychology and Work Today: An Introduction to Industrial and Organizational Psychology. Prentice Hall. ISBN 978-0-205-68358-1.
• Smart, Bradford D. (1999). Topgrading: How Leading Companies Win by Hiring, Coaching, and Keeping the Best People. Prentice Hall Press. ISBN 978-0-7352-0049-4.

External links

• Sample Employee Evaluation Form
• Self-assessment Form – anonymous and free
• Employee Assessments: Organisational Value and Purpose (A Focalworks article)

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Templates	Aspects of corporations Aspects of jobs Aspects of occupations Aspects of organizations Employment

• Job evaluation
• Personal development
• Industrial and organizational psychology
• Workplace