Performance Management and Appraisal Systems Explained

What we are witnessing today is a performance-focused corporate culture, and clearly performance-focused organizations are among the most successful. Therefore, the system of performance management — encompassing performance appraisal, developmental feedback, and the broader evaluation process — assumes great significance from a human resource perspective. Using well-developed job criteria as the basis for assessing standards is of utmost importance. A good performance management system considers both objective and subjective factors in the evaluation process.

Performance measures must be carefully chosen depending on the nature of the job, so that deficient or irrelevant aspects do not undermine accurate employee assessment. It is equally important that a balanced approach is maintained when quantifying performance measures, since overemphasis on any single criterion — to the exclusion of other factors — can create an unethical atmosphere. Additionally, the performance management process needs to be adapted to different cultural settings, particularly in the context of multinational corporations.

Performance appraisal is regularly conducted by organizations to evaluate employee performance, identify areas for improvement, and ensure that strong performance is appropriately rewarded. While some organizations use a single performance appraisal system for all categories of employees, others use different methods for different groups. In a well-functioning performance management system, the manager plays a vital role. He or she is responsible not only for identifying employee strengths and weaknesses, but also for acknowledging good performance and providing developmental suggestions. This latter part is especially important — it does little good to identify an employee's deficiencies without offering constructive guidance for improvement.

Employees, for their part, must be encouraged to provide their input at every stage of the process. Some organizations, for example, collect feedback from employees to evaluate the performance of their superiors. An appraisal, therefore, does not denote only supervisors assessing their subordinates; it can also include ratings from team members, upward ratings by employees of their managers, and reviews by the HR department. Once such active and collaborative participation is achieved, the performance appraisal process is better positioned to meet its central objective: increasing overall employee performance.

The growing number of corporate scandals — such as those involving Enron and WorldCom — that have surfaced in recent times clearly illustrate that employees and executives may be motivated to resort to unfair and unethical practices in order to satisfy overemphasized performance criteria. This demonstrates that it is essential for both quantitative and qualitative data to be considered in the appraisal process. An exclusive focus on numerical targets or financial metrics, without regard for how results are achieved, can incentivize behavior that undermines organizational integrity.