Τετάρτη, 23 Ιανουαρίου 2008

Performance Appraisal Methods

A Comparison of the Different Performance Appraisal Methods: Traditional, 360 Degree and TQM Performance Appraisal Systems

Maria Helen Maras and Efstratios Papanis

“The term performance appraisal has been called by many names, including performance review, performance evaluation, personnel rating, merit rating, employee appraisal or employee evaluation. A performance appraisal has been defined as any personnel decision that affects the status of employee regarding their retention, termination, promotion, transfer, salary increase or decrease, or admission into a training program” (Hansen, 2004). It is considered a process through which an organization retrieves information on how well an employee is doing his or her job (Gerhart, Hollenbeck, Noe, & Wright, 2003). “Performance appraisals are essential for the effective management and evaluation of staff. Appraisals help develop individuals, improve organizational performance, and feed into business planning. Formal performance appraisals are generally conducted annually for all staff in the organization” (Chapman, 2004). The purpose of these annual performance appraisal systems is to enable the organization to manage and monitor standards, to enable agreement on the objectives and expectations of the organization, and to facilitate the delegation of various responsibilities and required tasks (Chapman, 2004). In addition, these performance appraisals can be used to establish training needs (both individual and organizational) and the planning of training (Chapman, 2004). Moreover, performance appraisals can be used for career development, selection and recruitment of future employees, and as a tool for individual performance management. However, this was not always the case. Originally, performance appraisal systems were designed as methods of income justification; to decide whether the salary of an employee was justified (Archer North Performance Appraisal System). Based on this system, if the performance of an employee was below standards, a pay cut would inevitably follow. Likewise, if an individual’s performance was above standards and expectations, a pay increase would follow (Archer North Performance Appraisal System). However, this system did not take into consideration the developmental possibilities of employees. This indicated that there was a serious flaw in the traditional performance appraisal system. This flaw led researchers to conduct studies on possible developmental issues that may affect individual performance (Archer North Performance Appraisal System). This “developmental approach to performance appraisals has been concerned with the use of performance appraisal as a contributor to employee motivation, development, and human resources planning” (Hansen 2004). Performance appraisals are - and should be viewed as – a beneficial process of individual performance management. Employers should review the performance of all employees and provide timely and constructive feedback to all employees concerning their performance. “The key elements of an effective performance appraisal system are: clearly defined performance standards, an effective monitoring system, regular discussions of performance, development of appropriate action plans as a consequence of the appraisal. These elements will help to ensure that performance appraisals conducted in any organization will yield the desired benefits and be more readily accepted by all concerned” (BNET). The focus will be on three methods of performance appraisals systems which are as follows: traditional, 360 degree, and Total Quality Management (otherwise known as TQM) performance appraisal systems. The analysis in the following pages will consist of an examination of the different types of performance appraisal systems and a comparison between them.

The traditional performance appraisal system is known as the supervisor-employee appraisal because only “one person is responsible for reviewing the performance of an employee in his or her department” (Human Resource Learning Center) – the supervisor. This system uses an approach that is known as the organizational or overall approach. The traditional approach has been primarily concerned with the overall organization and has been involved with past performance (Hansen, 2004). The purposes of traditional performance appraisal systems are as follows: this system is used for promotion, separation and transfer decisions. It is also used as feedback to the employee in terms of the views of his/her performance in the organization. In addition, it is used as criteria for evaluating the effectiveness of selection and placement decisions. Moreover, it is used to ascertain training and development decisions and as criteria for evaluating these training and development decisions. Furthermore, it is used for reward decisions and the information provided by this system can be used to determine work scheduling plans, budgeting, and human resources planning (Hansen, 2004). This type of performance appraisal is an assessment of past performance and normal consists of a controlled, formal procedure that can in fact limit the breakdown of the activities of an employee. Another drawback of the traditional performance appraisal system is that it may discourage teamwork; as a result both individual and team performance must be appraised. In addition, as is known, these performance appraisals are conducted by supervisors. A particular supervisor may be responsible for a rather large number of subordinates; as a result, it is quite infeasible that the supervisor can have detailed knowledge of all of the employees’ performances. Furthermore, the traditional performance appraisal system does not annotate developmental issues of the employee. One of the purposes of the development of the 360 degree performance appraisal system was to address such issues.

The 360 degree performance appraisal is a technique that consists of having multiple raters (for example, supervisor, peers, subordinates, and customers) provide input for an employee’s evaluation. These multiple raters include raters from both internal and external sources. The raters from internal sources includes - but is not limited to - supervisors, peers, subordinates, upper-level management, and colleagues from other department and/or divisions who the individual interacts with. External sources can include customers, suppliers, community officials, consultants, family, and friends and so on. In essence, this type of performance appraisal system draws on anyone in or outside the organization who is familiar with the employee’s performance. These multiple perspectives that are provided can help an employee’s acceptance of the feedback on his or her performance because it provides a consensus-driven view of the employee’s performance. However, caution must be taken when using this type of appraisal for compensation issues. In this case, there is a possibility that rater bias may occur. It must also be noted that problems may arise when peer review exists and this may have a detrimental effect on employee-to-employee working relationships. An advantage of this type of rating system is that it manages to provide a more accurate measurement of employee performance. This is true because the employee is not only evaluated by the supervisor - who may not be able to ascertain the employee’s performance in all of his or her daily interactions within the organization. Meaning, the employer can not be sure of whether or not the employee is an effective worker when the employer is not around. This is where the 360 degree performance appraisal solves this problem by using other sources of input as well. When the employee is rated from both internal and external sources (if any), a broader, overall picture of the employee’s performance in all aspects of his or her activities is provided. This type of appraisal is used primarily for strategic and developmental purposes (Gerhart et al., 2003). “360 degree appraisals are a powerful developmental method and quite different to traditional manager-subordinate appraisals (which fulfill different purposes). As such the 360 degree process does not replace the traditional one-to-one process - it augments it, and can be used as a stand-alone development method” (Chapman, 2004). This type of appraisals involves “receiving feedback from people whose views are considered helpful and relevant. The feedback is typically provided on a form showing job skills/abilities/attitudinal/behavioral criteria and some sort of scoring or value judgment system” (Chapman, 2004). “The 360-degree appraisal incorporates appraisals from supervisors, co-workers, subordinates, and even external customers” (Human Resource Learning Center). This type of appraisal system has the ability to “strengthen the relationship between employee and employer” (Human Resource Learning Center). Unlike the traditional performance appraisal system, its emphasis is on the future. However, it must be noted that the 360 degree performance appraisal system costs a significant amount of money and it is time-consuming. Since this type of evaluation requires the use of a large number of people, which can be time intensive, it requires the support of executive management in order to conduct such a procedure.

According to Capezio & Morehouse, “Total Quality Management refers to a management process and set of disciplines that are coordinated to ensure that the organization consistently meets and exceeds customer requirements. TQM engages all divisions, departments and levels of the organization. Top management organizes all of its strategy and operations around customer needs and develops a culture with high employee participation. TQM companies are focused on the systematic management of data of all processes and practices to eliminate waste and pursue continuous improvement” (Bacal, 2004). TQM was inspired by W. Edwards Deming. In essence, TQM suggests that organizations should become more focused on quality rather than on quantity. The focus on quality is imperative if the organizations are aspiring to effectively compete in the global market. TQM is a process and it entails the concept that quality is manageable (Hansen, 2003). In order to understand TQM, the words that adhere to the letters in the acronym must be broken down to determine what lies beneath the use of each. Total represents the quality involving everyone and any and all activities within a company. Quality is the extent to which customer requirements are met. Management refers to the idea that ‘quality can and must be managed’ (Hansen, 2003). When put together these words represent “a process for managing quality” (Hansen, 2003). The key concept of TQM is employee empowerment; meaning, this type of performance appraisal emphasizes the need to allow employees and managers to work in a team-oriented environment. The emphasis of this performance appraisal system is on collectivism and not individualism as is the other two methods of performance appraisals. In this type of appraisal, supervisors act as consultants while employees provide information about their own performance. In addition, this type of appraisal aims at a qualitative improvement of the organization’s system. Moreover, this appraisal refers to specific behaviors rather than results. Essentially, there are three basic principles of TQM that require further analysis. The first principle is based on TQM’s belief that the focus should be on the customer and whether or not his or her needs and expectations have been met satisfactorily. The second principle consists of TQM’s belief of necessity of involving the entire work force in the decision-making process. This principle is based on the notion of employee empowerment and the membership of employees in teams. The third principle involves TQM’s commitment to continuous improvement. This principle is based on the notion of the requirement of the organization to have a proactive approach to organization, processes and product improvements (Haberer & Webb, 1994). Therefore, an apparent difference between TQM and the traditional performance appraisal system is that TQM takes place continuously, whereas the traditional performance appraisal system takes place annually.

As mentioned earlier, the traditional performance appraisal system provides feedback to employees based on past performance and future potential from one perspective only; that of the supervisors. On the other hand, the 360 degree performance appraisal system provides feedback to employees based on past performance and future potential from various perspectives (supervisors, peers, and subordinates etc. – internal and external sources). In the traditional performance appraisal system the questionnaires used are not anonymous. The employee knows that a particular supervisor is the one who is evaluating him or her on their performance. On the other hand, in the 360 degree performance appraisal system, the questionnaires used are anonymous. This anonymity is imperative in order to preserve the positive relationships among employees within the company. If it is not preserved, this may have a detrimental effect among employees in the workplace; especially when confidentiality is ignored when dealing with peer-review. Also, in the traditional performance appraisal system, the reports on behavior are based on work units. On the other hand, in the 360 degree performance appraisal system, the reports on behavior are based on developmental dimensions. In addition, in the traditional performance appraisal system, Likert scales are used plus qualitative data. In contrast, in the 360 degree performance appraisal system, only Likert scales are used. The uses of the traditional performance appraisal system are linked to pay, rewards, promotion, task assignment, transfers and training. On the other hand, the use of 360 degree performance appraisal system is linked to training needs for developmental issues. Another difference is that the traditional performance appraisal system is a top-down process whereas the 360 degree performance appraisal system is a spherical system. This notion of a spherical system can be illustrated through an analogy used by David Lassiter. According to David Lassiter, “the term 360° feedback comes from the analogy to a compass: A circle with 360 points of reference used to determine and monitor direction. 360° feedback provides performance data from multiple points of reference, not just one. Like a compass, 360° feedback is a navigational tool that lets us know when we are on or off course. It can fill the gaps that invariably exist between how you see yourself and how others see you. Its' purpose is, first, to gain deeper insight into how we, and others, see our performance, and second, to reinforce and accelerate the need for continuous development” (2004). As indicated earlier, another difference between the two methods is that the traditional performance appraisal system is a yearly process whereas the 360 degree performance appraisal system is a continuous assessment. In addition, the 360-degree systems accumulate more information about an employee’s performance and development areas than does a traditional performance appraisal system. The information that is accumulated from using a 360 degree performance appraisal is used to provide an employee with the most beneficial feedback possible. Furthermore, as specified earlier, an apparent disadvantage of the 360 degree performance appraisal system is that it can be quite costly and time consuming in comparison to the traditional performance appraisal system.

Unlike both traditional and 360 degree performance appraisal systems, TQM focus on team rather than individual performance and this process requires the rating of the individual as part of a team. Also, contrary to the other two methods, in TQM, feedback is provided to the individuals while in a team; as opposed to the other two methods which use one-to-one feedback, where the employer provides feedback to the employee concerning the results of the performance appraisal. Similarly to the 360 degree performance appraisal, TQM provides feedback to employees from multiple perspectives (supervisors, peers, subordinates, customers and so on). Also, similarly to the 360 degree performance appraisal system, peer feedback may cause problems and may have a detrimental effect on employee-to-employee working relationships. In addition, similarly to the 360 degree performance appraisal system, potential bias may occur when using peer feedback. As indicated previously, multiple raters are not used in traditional performance appraisal systems. The traditional performance appraisal system receives feedback on performance from one perspective – that of the supervisor. From the TQM perspective, this is considered a negative aspect of traditional performance appraisal systems because TQM, similarly to the 360 degree performance appraisal, considers that supervisors are not always the best individuals to provide feedback on an employee. Peers and/or customers are normally the individuals who spend more time with the employee. They can, therefore, provide input on the employee’s work activities and accomplishments. The use of peer input allows the employer to gain a better understanding of the employee’s overall activities within the organization. In the traditional performance appraisal systems, peers and customers are sometimes asked for their feedback. However, even though they are asked for their feedback, their input is normally screened (and can therefore be tampered with) by the supervisor. In addition, as seen from the TQM perspective, another negative aspect of traditional performance appraisals is that they can hurt quality and teamwork (Hansen, 2004). One of the reasons this can occur is that the traditional performance appraisal systems can foster competition amongst employees. This is apparent by the traditional performance appraisal system’s focus on individualism. This competition contradicts the nurtured environment of teamwork that exists within TQM systems. Another difference is that traditional performance appraisals reinforce a traditional hierarchy, where managers are expected to support their employees (Hansen, 2004). As opposed to TQM and the 360 degree performance appraisal, in the traditional hierarchy, “the manager sets (or approves) the goals and in effect, become a judge rather than working as a coach” (Hansen 2004). Furthermore, a danger exists when using the traditional performance appraisal system and it is as follows: “A danger of formalizing the performance appraisals into a highly structured, tightly defined process using rigid criteria tied to merit increases is that in the actual work world, goals are a moving target. Goals are constantly changing to meet a changing, dynamic work environment and never seem to fit an annual appraisal period. This can make it difficult for managers to assign a specific monetary value on employee contributions, particularly if they don't match the scale for allowable merit increases” (Hansen, 2004).

In conclusion, a performance appraisal system can be thought of as a tool used to measure performance within an organization. Depending on the method used the performance that is measured can either be individual or team performance. The performance appraisal system can be used for various reasons; including the determination of recruitment, selection, training, development, retention, termination, promotion, transfer, salary increase or decrease, career development, work scheduling plans, budgeting, human resources planning and so on. The use of a particular method of performance appraisal system is determined by the organization. Each performance appraisal system has its advantages and disadvantages. However, in the end, the organization chooses which performance appraisal system best suits their employee’s needs as well as the needs of the organization. If the organization requires the use of a performance appraisal system whose emphasis is on quality and whose choice of evaluation is team-oriented, the best choice for the organization is the TQM performance appraisal system. If the organization requires the use of a performance appraisal system, which evaluates an employee on a more hierarchical structure for determining pay, rewards, promotion, task assignment, transfers and training, the system of choice is the traditional performance appraisal. On the other hand, if the organization is looking for the determination of training needs for developmental issues, based on a system using multiple raters, than the system of choice is the 360 degree performance appraisal system. The method of performance appraisal used depends solely on the needs and wants of an organization. The best choice of performance appraisal system is the one which attempts to avoid conflict among employees and employers within an organization, and whose resulting information is considered essential for the effective operation of an organization.

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