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Talent Management Column

Rethinking Performance Appraisals

Why is it so difficult to change an organization's performance-appraisal process? Because it requires a change in the culture of the organization – an outcome that only can be brought about through some very different HR practices.

Thursday, January 2, 2014
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Would you be shocked to hear that performance appraisals are the least-popular task in modern business, one that is disliked by both supervisors and subordinates -- and also one that is routinely described as being "broken" by all parties? I didn't think so.

It's probably fair to say that it was never a popular task, although reports of it being dysfunctional seem to have increased in recent years. Why does it appear to be such a disaster, and why is so little being done about it?

The reason it is such a pain is because the appraisal process often causes conflict, and that conflict stems from a couple of things. One is the fact that we, as humans, really don't take feedback that is less than positive very well. So unless one is being praised completely, it isn't a very happy conversation. Another is the fact that the supervisor and subordinate seem to have very different ideas on how good the subordinate's performance might be. Much of this relates to the underlying overconfidence bias that humans have: Especially for events that are kind of scary, we persuade ourselves that we are doing better than in fact we are. So subordinates are often disappointed by accurate feedback.

So, giving feedback to people -- and especially accompanying that feedback with consequences -- is a tricky business. The reason we haven't done much to address the problems with appraisals comes from the fact that neither the supervisors nor the subordinates want to do it.

We know that performance appraisals are crucial for aligning individual performance to organizational goals and for improving job performance. And we also know how it should be done. For years experts have offered similar advice: Make the process less mechanical, make it frequent and make it more of a conversation. Yet the popular innovations in recent years have probably moved us away from the direction. Forced rankings, which were all the rage a few years ago, tend to ramp up the consequences from the appraisal process. Online appraisal systems, which in part are designed to make the process easier, can easily push supervisors further toward a "check-the-box" approach.

It probably makes sense that professional-service firms would be the ones breaking the mold to try a different approach. Terri McClements, vice chair and U.S. human capital leader and global talent leader at PricewaterhouseCoopers, describes the goal of PwC's program to change fundamentally the way performance appraisals operate for their employees: "The goal idea is to make it more of a conversation and more about development." To do that, though, requires changes in attitudes and culture, which, in turn, have to be driven by different practices.

A change in practice that starts such a shift in the culture includes signaling what not to do anymore. The end-of-the-year appraisal process in the PwC program gets simplified and cut back. Much less is written down at this time, so as a consequence more has to be talked about. Another is to get rid of the statement of future goals that employees typically have to create for the next year. "People created them but rarely talked about them after," which made them more or less a waste of time.

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What is encouraged is constant feedback, not just after every client engagement, which is common in many consulting companies, but every day, indeed, after every significant interaction. How do you make that happen? McClements says it gets built into the agenda. In every meeting, e.g., the last agenda item would be to provide feedback on how the meeting went, how individuals interacted and what they might be able to do better next time. The model PwC has in mind here is athletes who get real-time, constant feedback from coaches on how they did.

PwC is not mandating a schedule of required conversations. That defeats the goal of constant feedback. What they are doing to support the new approach is to train associates how to "manage up" -- how to participate in these conversations with their supervisors to make them "feedback-ready."

One of the most important aspects of that is being able to take criticism, and to understand that this new approach can help improve the associate's performance and build his or her own value in the market. The company will be using employee surveys to check on how this new approach is going. It will be interesting to watch.

Peter Cappelli is the George W. Taylor Professor of Management and director of the Center for Human Resources at The Wharton School. His latest book is Why Good People Can't Get Jobs: The Skills Gap and What Companies Can Do About It.

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