Performance appraisals are one of the most frequently criticized talent management practices. The criticisms range from their being an enormous waste of time to their having a destructive impact on the relationship between managers and their subordinates.
Criticizing performance appraisals has a long history. For decades, the literature on talent management has pointed out the flaws in most performance management systems and in some cases recommended completely abandoning them. The problem with abandoning them is that they are vital to effective talent management.
I cannot imagine a company doing a good job of managing its talent without gathering information about how well individuals perform their jobs, what their skills and knowledge are, and what their responsibilities and performance goals are for the future. These types of data are simply fundamental to the effective management of the talent of any organization (and to its overall management).
A decade ago, I did a study on performance management in over fifty firms and found that every firm had a performance management system. In some cases they were functioning reasonably well. There were, of course, organizations that did not have an effective system and were saying that they expected to either redesign their system or cease doing performance appraisals. The latter is what you would expect organizations to do if they followed the advice of many of the critics of performance appraisals.
Recently, I took another look at whether organizations are doing performance appraisals. The results of the survey of one hundred relatively large U.S. corporations provide some interesting data on whether organizations are doing performance appraisals. The bottom line is that every company responded that they do have a performance management system, and only six percent said that they are considering getting rid of performance appraisals for some or all of their employees. In short, the death of performance appraisals is not occurring and is unlikely to occur.
Companies reported that on average ninety-three percent of their salaried employees receive a performance appraisal, and typically they receive at least one every year. Only one company reported that they had recently stopped doing evaluations for fifty or more of their employees. The survey did find that, on the average, companies are not more satisfied with their performance management systems than they were ten years ago. However, the vast majority, about eighty-five percent, report that their system is at least moderately effective.
The obvious conclusion is that companies will continue to do performance appraisals despite their shortcomings and despite the many criticisms of them that appear in the management literature. In my opinion, organizations have no choice. Instead of wasting our time debating whether to eliminate performance appraisals, we should be talking about how to make them more effective. The key is to make them part of a complete performance management system, which includes goal setting, development, compensation actions, performance feedback and a goals-based appraisal of performance.
Edward E. Lawler III is a distinguished professor of business at the University of Southern California (USC) Marshall School of Business and founder/director of the University’s Center for Effective Organizations (CEO), one of the country’s leading management research organizations. He’s authored or co-authored more than 40 books, including his most recent – Effective Human Resource Management (Stanford University Press, 2012)