The Problems with Performance Appraisal

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The Problems with Performance Appraisal


Formal performance appraisals form an integral part of overall performance management programs in many organisations. Indeed, for many decades performance appraisals have been a key method for monitoring employee performance and they often play a major role in promotion or salary increments. However, though appraisals continue to be widely used, there is significant and ongoing debate about the validity of results obtained, as well as their effectiveness in positively influencing employee productivity and performance.

This paper examines performance appraisals in the modern organisation. It discusses the development of performance appraisal theory, the perceived problems with performance appraisal systems as well as the potential performance and productivity improvements that may be achieved with their use. OK!

Performance Appraisals

It is widely contended that many (if not most) organisations conduct regular employee performance appraisals (Gliddon 2004; Varma & Pichler 2007). Thus, it is understandable that there is a very large body of literature around the subject (Schraeder & Simpson 2006). Indeed DeNisi and Pritchard (2006, p. 253) state that ‘performance appraisal has been the focus of considerable research for almost a century’. Yet there is surprisingly little consensus on any aspect of performance appraisals, not merely in terms of how they should be constructed or conducted, but even whether or not they offer any value at all (Connell & Nolan 2004; Waite & Stites-Doe 2000).

When studying the literature and the seeming lack of progress or consensus, it is clear that even on a terminology level, there is significant divergence. DeNisi and Pritchard (2006) define performance appraisal as being a formal evaluation process that assigns quantitative scores to employee performance. The broader term performance management is defined by Dessler (2005) as combining three main activities into one process, these being: goal-setting, performance appraisal and ongoing employee development.

However, in the literature the distinction between performance appraisal and performance management is blurred, some authors use the terms indistinguishably (DeCenzo & Robbins 2007) and many authors refer extensively to pre and post appraisal activities such as training and ongoing feedback when discussing appraisal (e.g. Latham & Wexley 1981; Schraeder, Becton & Portis 2007). This complicates study of the area and widens the scope for debate. For the purposes of this paper it is important to refer to the development of both performance appraisal and performance management (specifically where centred on performance appraisal). Good – you set the boundaries…

Several literature reviews have traced the development of the performance appraisal field (Levy & Williams 2004; Schraeder & Simpson 2006). They argue that the field initially focused on measurement issues (including rating methods and scales), developed to include cognitive aspects (including accidental rating errors) and is now developing to include social and organisational contextual factors. However, a review of the literature would seem to indicate that there is ongoing debate on all of these levels, especially the cognitive (e.g. Schraeder & Simpson 2006; Varma & Pichler 2007) and social levels (e.g. Lilley & Hinduja 2007; Shore & Strauss 2008).

On the cognitive level, many sources of rating inaccuracy have been identified and documented. Bernardin and Beatty (1984, pp. 237-253, referring extensively to works by Landy & Farr, Thorndike, Werry, Cooper and others) identify many of the most well known issues including the halo effect (where one trait overrides the perception of others), attribution errors (whether results are due to the employee effort, ability or the situation), memory errors (where the most recent results are recalled) and affect (whether the appraiser ‘likes’ the appraisee). The general solution for these cognitive errors has long been suggested to be rater training (Henderson 1984; Latham & Wexley 1981), yet these issues continue to be studied and debated (DeVoe & Iyengar 2004; Schraeder & Simpson 2006; Varma & Pichler 2007). Indeed, it could be argued we are yet to see an end to the complexities and nuances of this area.

For example: a study by Duarte, Goodson and Klich (1991) showed that the amount of time the employee had worked with the supervisor could significantly inflate ratings; a study by Wayne and Liden (1995) showed that impression management could trigger similarity feelings in a supervisor and thereby inflate ratings; and a study by Padgett and Ilgen (1989) showed that consistent performance resulted in the performer being attributed non-present prototypical behaviours. While it is unclear whether these studies are merely discovering additional practical examples of the cognitive errors discovered earlier, there is clearly ongoing difficulty in overcoming these errors. Beyond these cognitive problems, appraisal research has developed further to include the effect of the social or organisational context.

Longenecker and Gioia (2000) refer to this simply as the ‘politics’ of appraisal and argue that even where appraisals are well structured and appraisers are well trained, they will still deliberately fudge the results for contextual reasons they feel are compelling. In their study they found this deliberate manipulation was common and that the most common reasons for manipulating ratings were to avoid confrontation, positively influence the employee’s motivation and to influence employee pay rises.

Providing further evidence for this manipulation, a study by Boswell and Boudreau (2000) found that when the purpose of the freview was evaluative rather than developmental, ratings were inflated, suggesting an attempt to avoid confrontation or influence pay. On the organisational level, a study by Shore and Strauss (2008) designed to measure the impact of the organisational context found that raters would give significantly differing ratings for the same task and assessment depending on the organisational goals. The research into this area brings into question whether appraisals can ever be accurate given that even if cognitive errors were eliminated, ratings would still be subject to deliberate manipulation.

True, astute observation Putting aside the question of whether or not accurate and objective ratings are possible, it is not clear to what degree they would result in a better outcome in terms of employee satisfaction with the result and subsequent performance anyway. A study by Fulk, Brief and Barr (1985) found that the trust that employees had for their supervisor had a more significant impact on their view of the fairness and accuracy of the appraisal than did the structure of the appraisal itself. A different study by Kanfer et al. (1987) found that when the employee was given the opportunity to express an influential opinion (instrumental voice), they were more satisfied with the outcome and showed improved task performance. This result was confirmed by Korsgard and Roberson (1995) who found that employees that perceived they had instrumental voice were more satisfied with the outcome. Thus satisfaction with an appraisal is not simply a result of accuracy. This highlights the fact that appraisal systems have a myriad of hurdles to overcome to go from appraisal, to employee development and then to organisational improvement.

Perhaps the most serious gap in the literature on performance appraisals is in fact the most important one to be answered, how can performance appraisal deliver improved productivity and performance? Indeed, in their comprehensive review of the field DeNisi and Pritchard (2006) point out that the majority of the work in the area is concerned with rating accuracy and does not attempt to resolve the link between performance management / appraisal and improved performance. In their paper they argue that an expectancy theory motivational model provides a mechanism to guide performance management / performance appraisal processes towards better employee outcomes.

Buchner (2007) also perceives the need to link performance appraisal to motivational theories. His paper argues that a number of different motivational theories including goal theory, control theory and social cognitive theory may be applied to different aspects of appraisal. Unfortunately, while these approaches seem to have some merit based on the ongoing developments in motivational theory, they have several weaknesses. The main weakness is that they are conceptual rather than practical and at this stage they cannot be readily applied. Further, at this stage there is little empirical evidence to argue for their efficacy. Finally, the overarching concept expressed in these papers (and indeed in many of the studies and papers cited earlier) seems to be ongoing feedback and co-operative goal setting rather than performance appraisal (as traditionally defined). Are what?

It would certainly appear that a move from simple formal appraisal to ongoing feedback from supervisors to subordinates would be a popular move with subordinates. Gosselin, Werner and Hallé (1997) conducted a study in to employee preferences in appraisal and found a very strong desire for regular informal and formal feedback. This preference was also confirmed in a study by Stathakopolous (1997). In fact, it would seem that on the balance a very large number of authors (e.g. Connell & Nolan 2004; Longenecker 1989; Schraeder, Becton & Portis 2007) as well as employees all favour constant feedback.

This preference for constant feedback and the difficulties producing accurate appraisal ratings would bring into question whether or not performance appraisals are necessary at all. Nickols (2007) argues that performance appraisal systems devour a substantial amount of organisational resources both in terms of hard costs (monetary) and soft costs (negative impact on organisational effectiveness). While not rigorous research, he conducted an internet survey that allowed him to estimate the cost of the appraisal of one employee in a retailing organisation at $1,945. When repeated across an organisation, this is obviously a very serious cost that he argues should be justified with positive organisational outcomes. On balance however he suggests that the hard and soft costs outweigh any positive outcomes and therefore performance appraisal should be scrapped.

Waite and Stites-Doe (2000) present a banking case study that also proposes that performance appraisal should be scrapped, along with merit pay. As a theoretical basis they posit that removing merit pay and appraisal in favour of coaching and feedback will improve employees’ sense of distributive justice and result in greater employee satisfaction. Their case study shows that employees reacted positively to?, feeling that blanket pay rises were positive in the sense of distributive justice and that the feedback approach led to the supervisor moving from being a judge to being a coach. This effect of perception of distributive justice on attitudes and performance has also been shown to be significant in other studies (Magner, Johnson & Elfrink 1994).

Yet, while this paper has shown that there are significant problems with performance appraisals, both in practice and in theory, it seems that there is one thing certain about performance appraisals, as Longenecker (1989, p. 76) notes, they are here to stay. The substantial body of work around appraisal as well as the fact that they have been used for many decades seems to make this inevitable. Indeed, employees have been shown to desire formal feedback (Gosselin, Werner & Hallé 1997; Stathakopoulos 1997). Thus performance management systems should ideally integrate both formal performance appraisal and ongoing informal feedback. This will require significant organisational commitment. Accurate formal appraisal demands well constructed assessments, rater training to reduce cognitive errors and an attempt by the organisation to remove political motives for rating manipulation. Ongoing informal feedback may prove to be just as difficult given that it requires substantial interpersonal skills and time commitment on the part of supervisors.


Though the use of formal performance appraisal would appear to be close to universal in modern organisations, there are still substantial ongoing questions surrounding the practice. A review of the literature of the subject suggests that there are serious problems with accuracy due to cognitive errors as well as deliberate manipulation of results for political motives. Further, rather than an arbitrary goal of accuracy, the goal of appraisals must be to form part of a system directed to deriving improved satisfaction and performance from employees. Thus appraisals need to be surrounded with performance management systems that carefully consider motivational factors and provide ongoing informal feedback to employees. It seems that performance appraisals are here to stay, but their value must be considered as part of a larger performance strategy that will require significant organisational commitment.


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