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Performance appraisal has been one of the most praised, criticized, and debated management practices for decades. It also has been the subject of a great amount of research, which has provided considerable information about its impact on organizational effectiveness.
Recently, discussions about performance appraisal have changed as a result of the increased adoption of total quality management practices (TQM) and the use of teams and employee involvement strategies. These trends have focused attention on some new and some old problems with performance appraisal.
WHY DO THEM?
There are some good reasons for doing individual performance appraisals. Proponents argue that appraisals can help a supervisor define the work of a subordinate, measure the subordinate's performance, and reward the subordinate in a way that will create motivation. Also, as part of the process of setting goals and evaluating and rewarding performance, supervisors can counsel individuals on skill deficiencies and guide them in the development of new capabilities and competencies. Clearly, these are all worthwhile objectives.
WHAT IS THE PROBLEM?
The problem--and it is well documented--is that most performance appraisal systems do not motivate individuals nor guide their development effectively. Instead, they cause conflict between supervisors and subordinates and lead to dysfunctional behaviors. These dysfunctions often are exaggerated when performance appraisals are tied to traditional merit pay systems. They are particularly severe when the system forces supervisors to compare subordinates--evaluating some of them favorably and some unfavorably--creating the classic forced distribution problem.
Putting in place a well-designed and administered system can correct some of the problems inherent in performance appraisal. For example, if the company intends to use pay as a motivator, it is better to tie the results of a performance appraisal to variable pay than to a merit pay system. With merit pay, only small changes in pay occur, old raises become an annuity and, as a result, significant amounts of pay are not tied to current performance. With variable pay, important amounts of pay can be tied to current performance.
If the purpose is to produce cooperative behavior, it is counterproductive to use a forced distribution system that produces competition among the individuals being appraised. There is also considerable evidence that if the company intends to use the appraisal system to improve skill development and...