The importance of assessing the performance of people within an organisation is critical for a number of reasons. Individual performance drives the overall performance of the organisation. Regular performance assessments ensure that people in the organisation are not solely caught up in the day-to-day activities, but that they are also working towards overall organisational goals and objectives. Regular performance assessments can provide job incumbents with a clear understanding of what is required from them. In fact, one of the sources of stress in the workplace is the uncertainty of what an employee should be doing in terms of individual and organisation-wide objectives. Performance assessments can also facilitate communication between employees and their direct supervisor while ensuring regular flows of information (feedback), identifying ways of improving performance and also showing the necessary gratitude and praise when individuals perform well.

More often than not, the difficulty lies in how to measure job performance and in how to determine the best practice approaches in order to ensure that the assessment truly measures the performance of the individual while desisting from favouring particular job incumbents from others. In essence, companies find difficulty in designing a performance assessment method because there are many ways that role incumbents can demonstrate good or poor performance. By way of illustration, in a typical sales department, sales people may be allocated a sales route based on geographical areas. However, some areas may experience greater economic growth than others with the result that sales would increase without there being any changes in effort or performance. In such a case linking the measured performance of the sales team with their sales figure increases may not be a realistic and fair objective measure to pursue. Eventually some members of the team may perceive that their targets are unrealistic in view of the market area they service, which could create internal frictions for the possession of that section of the market that is doing well or undermine motivation and eventually lead to some persons leaving the organisation. Thus, generally, it is not always possible to measure the performance of individuals utilising quantitative data in a pre-established way. Moreover, relying solely on measurable data does not necessarily guarantee that the organisation is truly measuring the performance of the individual. There exist other performance indicators that a good sales person should generally demonstrate such as team work and customer care. As a result, more often than not, subjective methods for analysing performance are necessary. The key, therefore, is not solely to determine what needs to be measured and measuring it accurately, but also to ensure that your approach is perceived to be fair among job incumbents. This is seldom not an easy task. Essentially, it is critical for clarity to exist between a manager and a subordinate and that job incumbents know what level of performance is being expected from them.

Performance Appraisal

Perhaps this is one of the most widely-used techniques to measure the performance of an individual employee. A performance appraisal generally involves a meeting between manager and employee. It serves to provide feedback to the employee predominantly on the following:

  • Individual and Team performance
  • assess whether there is room for development
  • training requirements needed to improve performance
  • assess whether employee is worthy for promotion and/or reward
  • determine what the reasons have been for poor performance and
  • Establish future goals and objectives.

According to William (2002), the performance appraisal serves to demonstrate to the individual how his or her performance is linked to the overall business strategy. This is a delicate process which managers cannot afford to get wrong or do improperly. Performance appraisals may be as demotivating as they can be a motivating and positive endeavour. Research by Kluger and DeNisi (1996) showed that 33% of the participants in the study demonstrated reduced performance after their appraisal, clearly showing that the performance appraisal has the ability to reduce worker motivation. That said, the performance appraisal does provide the opportunity for manager and employee to discuss issues concerning the review, and may, on this showing, be viewed as a positive process. According to Arnold et al. (2010), this two-way discussion increases employees’ sense of control of the performance appraisal process which would encourage employee engagement. A recurring criticism of the performance appraisal system is that, more often than not, the ratings and final decisions are solely taken by the manager. Assessing performance on the basis of a single source could lead to bias and error. The assessor may, for example, give a low rating to a subordinate because he/she does not observe the totality of what the employee does, but only a fraction of the tasks performed. A assessor may consider an employee to be valuable or likes the individual and gives him or her a higher review assessment score relative to what the same employee would truly deserve. Furthermore, there is research evidence that suggests that some employees are skilled at giving a better impression of their work during their review (Rosenfeld et al, 2002). This could lead to a reduction in the validity and accuracy of the performance appraisal. A frequent recommendation given to organisations employing performance appraisals is to outsource the performance appraisal system setup and to provide managers with the skills to perform a performance appraisal through training interventions that are specifically tailored to the system established.

360-Degree Feedbacks

Multi-source feedback, also referred to as 360-degree assessment, has been designed in view of the criticism to performance appraisal. In a 360-degree feedback, an employee receives feedback from a number of sources, some of which would be anonymous e.g. a customer. This reduces the biases referred to earlier, such as giving a high score because the assessor likes or thinks that the person is valuable. While the manager/assessor also provides his or her feedback on the employee, s/he is not the sole source of feedback. This gives a more rounded, possibly more accurate, performance of the individual. Typically, in a 360-degree feedback exercise, a variety of stakeholders, such as clients, subordinates, colleagues and managers, contribute to provide their feedback to the employee. This allows for the opportunity of generating a substantial amount of data that can be collected on the employee with relative ease. Research on 360-degree feedback however shows that there were only modest improvements to employee behaviour following the introduction of this feedback and that the majority of organisations have dropped this method within two years it was introduced (Smither et al, 2005 and Fletcher, 1988). Indeed, when a source is anonymous, the lack of accountability given rise to by the system could have an impact on the rating. Moreover, having an assessment being made by people who the assessee may not know may cause distrust by employees in the system and may give rise to perverse incentives of trying to please everyone but the organisation employing the individual to score highly. Taken on its own, this system provides little if any post-feedback support, thereby lacking guidance that the employee might need to reach performance objectives. Empirical evidence that is starting to emerge now shows that, when planned carefully to avoid the pitfalls delineated above and to incorporate some features of the performance assessment method, 360-degree assessments can provide a good way of measuring performance and of motivating employees. It can also be a good way of identifying skills gaps that can be filled in either through training or one-on-one coaching.

More information on performance assessment methodologies is available in a presentation that our members of staff had given at the Malta Management Expo 2012, available here.

Our experience has shown that there is no one best way of doing things in order to measure performance and that a performance appraisal system sets corporate incentives which are at times not aligned to core corporate objectives.  It would be ideal, therefore, to utilise a number of different methods together with a view to be able to capture performance more accurately.Although objective measures of performance tend to be favoured in practice, such measures are not always the silver bullet that many people think them to be, especially in contexts where the nature of what is being produced is not standardised.

Equinox can help you find the best appraisal system in line with your unique operating environment, your business objectives and the incentive mechanism you want to set.

For more information about our Design of Compensation & Performance Appraisal Systems services, please contact us here.