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performance appraisal

The questions in this book have come from two sources. First, they have come from the thousands of questions I have responded to from top executives, human resources professionals, managers, and individuals both in my consulting practice in helping companies create a new appraisal system, and in the management seminars I have conducted to help managers maximize the effectiveness of their existing systems.

Second, questions poured forth from hundreds of managers in response to the e-mail I sent clients, colleagues, and friends just before I began writing this book. I explained the project that I had undertaken and asked them to send me the most difficult and important



questions they had about performance appraisal. They responded almost overwhelmingly. The questions in this book are real; they represent the actual issues of managers whose goal is to create a climate of performance excellence.

The book begins with an overview of why performance appraisal is an incredibly powerful but underappreciated management technique. Chapters 2 through 5 deal with the four phases of an effective performance management system: performance planning, execution, assessment, and review.

The sixth chapter deals specifically with the performance appraisal form. Yes, there is an ideal form. In Chapter 6, I will tell you exactly what an ideal appraisal form looks like-what it contains and how to create one.

But we all know that performance appraisal isnt a form. Its a system. In Chapter 7, I will explain exactly how the most effective performance appraisal process works.

Chapter 8 deals with building performance excellence. In this chapter I will cover two critical issues: First, I will describe what actually works in developing human talent. Second, I will tell you how to solve people problems when they arise.

The last chapter is the shortest. In this final chapter, I will respond to only one question. But this question is the most important of all the questions, and the one that truly does deserve a chapter all to itself: Now that all is said and done, is performance appraisal really all that important? Yes, it is, and Ill tell you why.

For almost thirty years, I have been a consultant whose work focuses exclusively on performance management. My goal is to help organizations create performance management systems that reward excellence and demand personal responsibility; to help their managers understand how to maximize the contributions of every person on their team. I know that the single most important competency required to build performance excellence is not knowledge or skill or desire: It is courage. I hope this book gives every reader the incentive to muster the courage to build performance excellence into every aspect of life.

This book will probably generate as many questions as it answers. If you have a question-or an insight, or a success story- please share them with me at DickGrote@GroteConsulting.com or visit my website, www.PerformanceAppraisal.com.



PERFORMANCE APPRAISAL

QUESTION and ANSWER BOOK



Chapter 1

Thelmportanceof Performance Appraisal

1.1 What is performance appraisal ?

Performance appraisal is a formal management system that provides for the evaluation of the quality of an individuals performance in an organization. The appraisal is usually prepared by the employees immediate supervisor. The procedure typically requires the supervisor to fill out a standardized assessment form that evaluates the individual on several different dimensions and then discusses the results of the evaluation with the employee.

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Too often, performance appraisal is seen merely as a once-a-year drill mandated by the personnel department. But in organizations that take performance appraisal seriously and use the system well, it is used as an ongoing process and not merely as an annual event. In these companies, performance appraisal follows a four-phase model:

Phase 1: Performance Planning. At the beginning of the year, the manager and individual get together for a performance-planning meeting. In this hour-long session they discuss what the person will achieve over the next twelve months (the key responsibilities of the persons job and the goals and projects the person will work on) and how the person will do the job (the behaviors and competencies the organization expects of its members). They typically also discuss the individuals development plans.

Phase 2: Performance Execution. Over the course of the year the employee works to achieve the goals, objectives, and key responsibilities of the job. The manager provides coaching and feedback to the individ-



ual to increase the probability of success. He creates the conditions that motivate and resolves any performance problems that arise. Midway through the year-perhaps even more frequently-they meet to review the individuals performance thus far against the plans and goals that they discussed in the performance-planning meeting.

Phase 3: Performance Assessment. As thetimefortheformalper-formance appraisal nears, the manager reflects on how well the subordinate has performed over the course of the year, assembles the various forms and paperwork that the organization provides to make this assessment, and fills them out. The manager may also recommend a change in the individuals compensation based on the quality of the individuals work. The completed assessment form is usually reviewed and approved by the appraisers boss. Others-perhaps the department head or the compensation manager-may also review and approve the assessment.

Phase 4: Performance Review. The manager and the subordinate meet, usually for about an hour. They review the appraisal form that the manager has written and talk about how well the person performed over the past twelve months. At the end of the review meeting they set a date to meet again to hold a performance-planning discussion for the next twelve months, at which point the performance management processstartsanew.

Of course there may be many individual variations on the basic theme, but most sophisticated companies generally follow this four-phase process. Figure 1-1 illustrates the basic four-phase process.

1.2 Where did performance appraisals come from?

There are early references to performance appraisal in America going back over a hundred years. The federal Civil Service Commissions merit rating system was in place in 1887. Lord & Taylor introduced performance appraisal in 1914. Many companies were influenced by Frederick Taylors scientific management efforts of the early twentieth century and concocted performance appraisals.

Before World War II, however, very few organizations conducted any formal performance appraisals. A handful of companies and the military were the only ones using the procedure regularly. Most appraisals that were done concentrated more on an individuals personality and traits than on actual achievements against goals and formal analyses of the behaviors that produced those results.



Overall Organization Strategy

Strategic Plan Mission/Vision/Values Department/Unit Objectives Common Organizational Competencies


Managers Responsibilities

Q Create conditions that motivate Q Eliminate performance problems Q Update objectives Q Provide development opportunities Q Reinforce effective behavior

Individuals Responsibilities

Q Achieve objectives

Q Solicit feedback and coaching

Q Communicate openly

Q Collect and share data

Q Prepare for reviews

Phase II: Performance Execution

Phase III: Performance Assessment

Coaching Training Development Immediate Prospects Career Planning

Source: Grote Consulting Corporation.

Then, in the 1950s Peter Druckers novel idea of management by objectives (MBO) and Douglas McGregors book The Human Side of Enterprise, which introduced his notions of Theory X and Theory Y, gained a lot of attention. A few companies moved from a mere trait assessment to the development of a procedure that concentrated on goal setting and made the appraisal process a shared responsibility between the individual and the manager. From the work of Drucker and McGregor, the performance appraisal procedure has grown to the point where a huge majority of companies now have a formal appraisal system.

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Effective development of managers, McGregor wrote in a 1957 Harvard Business Review article, does not include coercing them (no matter

Figure 1-1. Strategy-based performance management.



how benevolently) into acceptance of the goals of the enterprise, nor does it mean manipulating their behavior to suit organizational needs. Rather, it calls for creating a relationship within which a man can take responsibility for developing his own potentialities, plan for himself, and learn from putting his plans into action.

Druckers initial proposal of an MBO process to replace trait appraisals and McGregors integration of a Theory Y approach into the appraisal process produced a change in the way organizations went about assessing the contributions of their members. General Electric was singled out by McGregor as an example of a company that was using an MBO/Theory Y approach to performance appraisal. GE conducted a truly scientific study in the early 1960s to test the effectiveness of its annual, comprehensive appraisal approach. It found that:

Criticism has a negative effect on achievement of goals.

Praise has little effect one way of the other.

Performance improves most when specific goals are established.

Defensiveness resulting from critical appraisal produces inferior performance.

Coaching should be a day-to-day, not a once-a-year activity.

Mutual goal setting, not criticism, improves performance.

Interviews designed primarily to improve a mans performance should not at the same time weigh his salary or promotion in the balance.

Participation by the employee in the goal-setting procedure helps produce favorable results.

These findings remain today as valid as they were when GE first developed them.

Performance appraisal as a management tool spread quickly in the 1950s, when about half of 400 employers surveyed reported using appraisal systems. Today, depending on the survey, somewhere between three-quarters and nine-tenths of all companies use a formal performance appraisal procedure.

1.3 What is the purpose of performance appraisal?

Performance appraisal serves over a dozen different organizational purposes:



Providing feedback to employees about their performance

Determining who gets promoted

Facilitating layoff or downsizing decisions

Encouraging performance improvement

Motivating superior performance

Setting and measuring goals

Counseling poor performers

Determining compensation changes

Encouraging coaching and mentoring

Supporting manpower planning or succession planning

Determining individual training and development needs

Determining organizational training and development needs

Confirming that good hiring decisions are being made

Providing legal defensibility for personnel decisions

Improving overall organizational performance

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Providing Feedback. Providing feedback is the most common justification for an organization to have a performance appraisal system. Through its performance appraisal process the individual learns ex-actlyhowwellshedidduringtheprevioustwelvemonthsandcan then use that information to improve her performance in the future. In this regard, performance appraisal serves another important purpose by making sure that the bosss expectations are clearly communicated.

Facilitating Promotion Decisions. Almost everyone in an organization wants to get ahead. How should the company decide who gets the brass rings? Performance appraisal makes it easier for the organization to make good decisions about making sure that the most important positions are filled by the most capable individuals.

Facilitating Layoff or Downsizing Decisions. If promotions are what everybody wants, layoffs are what everybody wishes to avoid. But when economic realities force an organization to downsize, performance appraisal helps make sure that the most talented individuals are retained and that only the organizations marginal performers are cut loose.

Encouraging Performance Improvement. How can anyone improve if he doesnt know how hes doing right now? A good performance appraisal points out areas where individuals need to improve their performance.



Motivating Superior Performance. This is another classic reason for having a performance appraisal system. Performance appraisal helps motivate people to deliver superior performance in several ways. First, theappraisalprocesshelps them learnjustwhatitisthatthe organization considers to be superior. Second, since most people want to be seen as superior performers, a performance appraisal process provides them with a means to demonstrate that they actually are. Finally, performance appraisal encourages employees to avoid being stigmatized as inferior performers (or, often worse, as merely average).

Setting and Measuring Goals. Goal setting has consistently been demonstrated as a management process that generates superior performance. The performance appraisal process is commonly used to make sure that every member of the organization sets and achieves effective goals.

Counseling Poor Performers. Not everyone meets the organizations standards. Performance appraisal forces managers to confront those whose performance is not meeting the company s expectations.

Determining Compensation Changes. This is another classic use of performance appraisal. Almost every organization believes in pay for performance. But how can pay decisions be made if there is no measure of performance? Performance appraisal provides the mechanism to make sure that those who do better work receive more pay.

Encouraging Coaching and Mentoring. Managers are expected to be good coaches to their team members and mentors to their proteges. Performance appraisal identifies the areas where coaching is necessary and encourages managers to take an active coaching role.

Supporting Manpower Planning. Well-managed organizations regularly assess their bench strength to make sure that they have the talent in their ranks that they will need for the future. Companies need to determine who and where their most talented members are. They need to identify the departments that are rich with talent and the ones that are suffering a talent drought. Performance appraisal gives companies thetooltheyneedtomakesuretheyhavetheintellectualhorsepower required for the future.

Determining Individual Training and Development Needs. If the performance appraisal procedure includes a requirement that individual development plans be determined and discussed, individuals can then make good decisions about the skills and competencies they need to acquire to make a greater contribution to the company. As a result, they increase their chances of promotion and lower their odds of layoff.



Determining Organizational Training and Development Needs. Would the organization be better off sending all of its managers and professionals through a customer service training program or one on effective decision making? By reviewing the data from performance appraisals, training and development professionals can make good decisions about where the organization should concentrate company-wide training efforts.

Validating Hiring Decisions. Is the company hiring stars, or is it filling itself with trolls? Only when the performance of newly hired individuals is assessed can the company learn whether it is hiring the right people.

Providing Legal Defensibility for Personnel Decisions. Almost any personnel decision-termination, denial of a promotion, transfer to another department-can be subjected to legal scrutiny. If one of these is challenged, the company must be able to demonstrate that the decision it made was not based on the individuals race or handicap or any other protected aspect. A solid record of performance appraisals greatly facilitates legal defensibility when a complaint about discrimination is made.

Improving Overall Organizational Performance. This is the most important reason for an organization to have a performance appraisal system. A performance appraisal procedure allows the organization to communicate performance expectations to every member of the team and assess exactly how well each person is doing. When everyone is clear on the expectations and knows exactly how he is performing against them, this will result in an overall improvement in organizational success.

1.4 The performance management process in our organization has conflicting purposes. We use it to determine merit increases and performance feedback for work done during the previous twelve months, to determine training needs, and as a key tool in succession planning. Can one procedure really serve all those functions well?

One of the fundamental problems with performance management is that we load one system with too many expectations.



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