Brilliance Lab

There is a long-standing argument that performance appraisals, ratings and annual reviews don’t work and should no longer be used as they don’t provide a valid basis for human resource development. There is literature dedicated to the inaccuracies of performance evaluation systems due to factors that include the ability of the supervisor, bias, and organisational politics. Although there are counter-measures to diminish these factors such as upward appeals and calibration committees, are there better alternatives to performance evaluations that minimise the subjective nature of performance appraisals and ratings or are do we just have to accept that what we’ve got is the best we’re going to get?

Performance appraisals evaluate the past performance of employees so that supervisors can give feedback and set goals for the future development of the employee. Usually, a supervisor observes and judges the qualitative and quantitative components required of the employee to carry out their role. This is so they can improve the performance of the employee and align their behaviour to organisational outcomes. This process results in a performance rating being awarded to the employee that is used to inform organisational administration, future goal setting and employee development actions.

The accuracy of performance appraisals are imperative to ensure the validity and usefulness of the output, however the accuracy is jeopardised by those who operate the system.

This has led us to a point where employees and leaders correctly doubt the accuracy of performance appraisals as it is not seen as a true reflection of the employee’s accomplishments, resulting in neither party making use of ratings in development decisions. Basically, a whole bunch of effort is made for something that isn’t trusted or used, which is a massive waste. The discontent towards performance appraisals has led to appraisals being called the “Achilles’ heel” of performance management systems as it is believed the process does not deliver truthful feedback or provide a meaningful or accurate output that can assist in creating performance goals or managing employee performance

The extent of the discontent can be seen in organisations including Deloitte and Microsoft who have already eliminated or minimised the use of performance appraisals. So, what is it exactly that makes these systems so unreliable? Well, most of it comes down to the people using them, their motivators and their training.

One factor contributing to the inaccuracy of performance appraisals is the ability of the supervisor carrying out the evaluation. The supervisor’s knowledge of the job being performed, their memory of the employee performing the job and how competent the supervisor has been trained to evaluate performance all contributes to the supervisor’s ability to produce accurate ratings. Don’t worry – the irony of a supervisor evaluating the performance of another person while using a system that they themselves can’t operate properly isn’t lost on L&D professionals.

But it isn’t just whether or not they know how to properly evaluate. The supervisor’s ability can also be impacted by assumptions based on stereotypes of the subordinates age, disability, race, gender, or ethnicity causing inaccuracy due to biased treatment. As performance appraisals are subjective in nature, it is difficult to eliminate bias from the process as organisations commonly lack the measures required to prevent biased thinking. One way bias can arise is through the appropriation of stereotypes, although other forms that could impact the accuracy of a performance appraisal include favouritism, the halo effect, centrality bias, and recency bias just to name a few.

Organisations are attempting to remove or diminish the impact bias has by standardizing ratings through the management control innovation of calibration committees. In theory, this is a great concept – but, in theory, so are performance appraisals. So what is a calibration committee exactly? Well, a calibration committee is made up of senior leaders within the organisation who are given final decision with the authority to adjust ratings. Market research suggest that over 50% of firms are using calibration committees, involving calibration sessions to discuss the employee’s performance based on insights provided by stakeholders who provide observations about the employee’s performance.

If there is a discrepancy between the rating given by the supervisor, and the rating the committee believe the employee deserves, the committee may adjust the rating to ensure equal performance standards are used. But in contrast to this claim, and this highlights another issue in the reliability of the market research being conducted, there are counter arguments suggesting that supervisors are rarely held accountable and that calibration meetings do not take place, despite leadership being in favour of calibration occurring and having the structure set up as part of the performance management system.

While the ability and bias of the supervisor are somewhat passive reasons appraisals fail, the accuracy of performance appraisals can also be intentionally misrepresented due to organizational politics that result in a politicised appraisal system. This discourages justice by providing an opportunity for motivated supervisors to distort the accuracy of performance appraisals to push their own vested self-interests. Organizational politics also inhibits the accuracy of performance appraisal systems as supervisors may perceive they have “more important things to do” than dedicate time to ensuring performance appraisals are executed accurately.

This is just one example of how office politics damages the appraisal process, and its due to this and other extenuating political factors impacting the performance appraisal process that the results don’t afford the level of accuracy needed to award effective ratings. This is a generalisation and it doesn’t meant that there aren’t good supervisors out there. Not all supervisors are equally affected by contextual influences and there are still many that approach the process with integrity.
It’s just the bad apples that spoil the barrel.

So, what happens if an employee feels like they’ve been treated unfairly? Well, in the event an employee feels they have experienced an unfair process, they can push for a better appraisal with an upward appeal. The problem with this is that upward appeals are also impacted by a lack of procedural justice as the appeals process is carried out by senior leadership who manipulate the results depending on who they favour, which doesn’t really fix the problem.

This dissatisfaction with appraisals has led to organisations reconsidering the evaluation process completely, with some estimating over one-third of organisations within the U.S. have replaced formal appraisal systems with other forms of employee development. There is also one view that inaccurate appraisals are a benefit, rather than a hinderance. The argument for this is that employees perform better when using unreliable performance evaluations as, while accurate performance evaluations only increase the performance of top employees, unreliable performance evaluation increases the performance of all employees. In any case, either scenario accepts that performance appraisal methods are not achieving the purpose they were designed for which has left organisations searching for alternatives.

Suggested alternatives include self-managed teams and continuous 360-degree feedback as substitutions as a self-managed team takes responsibility for most human resource management functions usually executed by a supervisor including performance appraisals. However, while this eliminates the supervisor, it does not improve the accuracy of performance appraisals as it is a transference of responsibility. The same can be said for continuous 360-degree feedback as, due to its subjective nature, it carries the same risk of inaccuracy. So neither of these are true alternatives in the same way that switching annual reviews for quarterly reviews is not a true alternative.

So, what are true alternatives? For that, we need to consider an alternative to achieve the outcome, employee development, rather than a substitution of the process. Social control and individual agency are both developmental alternatives to subjective performance appraisals. Social control uses repeated actions to cultivate the organizational behaviour, values and beliefs needed to achieve goals. This method requires goodwill and is useful when governing in environments of uncertainty. Individual agency avoids performance appraisals in favour of optional training aligned to organizational outcomes and personal interests. This requires an exclusive talent management strategy focused on recruiting a select group of people with the belief that some employees are inherently more talented than others. While both alternatives remove the subjective nature of performance appraisals, they both require responsibility of development to be transferred to the employee.

Although there are substitutions and true alternatives, most employees and supervisors continue to doubt the accuracy of performance appraisal and ratings as they just don’t believe it truly represents employee performance. This inaccuracy jeopardises the validity of the appraisal process as a basis for employee development. This has led to a substantial number of organisations abandoning or minimising performance appraisals in favour of other paths to development, as demonstrated by Deloitte and Microsoft.

The accuracy of performance appraisals is impacted by the ability of the supervisor as well as bias and organisational politics. While organisations have tried to minimize inaccuracy through upward appeals, the use of calibration committees, removing the supervisor from the process and relying on self-managed teams and continuous 360-degree feedback the same problems exist. True alternatives include leveraging informal control measures such as social control and individual agency.

However, the alternatives only offer a transfer of responsibility from the supervisor to other stakeholders within the organisation suggesting that the elimination of performance appraisals and ratings would only result in a shift, rather than removal, of the issue. So, while we know and accept that performance appraisal systems are inaccurate and untrusted, any alternative or substitution still carries with it the same subjectivity that makes the process inaccurate, or it requires a transfer of responsibility from the supervisor to the employee which relies on the employee being proactive in their own development. This could prove costly for the organisation in that they may not do anything at all or the steps they do take doesn’t align their development with the needs of the organisation.

So, for now at least, it seems that the performance appraisal systems we are familiar with may be the best option we have, as very few organisations can credibly say they have adopted an exclusive talent management strategy organisation wide. Until we find a solution that removes all margin of error that also keeps the responsibility with the supervisor, there is still no better option. Yes they’re inaccurate, subjective and untrusted; but they’re also no worse than the alternatives.