In 2002, the Corporate Leadership Council conducted a survey to rank the effectiveness of over one hundred performance drivers. The project surveyed 19,000 employees from 34 different companies in 29 countries. The biggest driver of performance, not surprisingly, was fair and accurate feedback. Yet interestingly, recognizing and rewarding achievement through formal performance appraisals actually reduced performance by one percent.
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Why are performance appraisals not having the intended effect? Here are 3 reasons:
1. Feedback Is Necessary
To be effective, managers must establish feedback loops between themselves and their direct reports, both individually and at the team level. Feedback, even informally, helps both managers and their subordinates understand how work is progressing and more importantly, how changes can improve overall performance. This feedback has to happen more regularly and immediately than most performance management systems require.
Feedback Must Be Accurate And Timely
A key aspect about feedback is that to be effective, it has to be fair and delivered in a timely fashion. Managers must provide feedback to their direct reports in an ongoing way, but it must be reasonable, timely and it must be the truth. In our test research, we discovered that only 46% of managers today feel that they are receiving feedback in a timely way. Timeliness is undeniably important and perhaps that is why the annual or even semi-annual performance appraisal system reduces performance. This timeliness is as important as the truthfulness of feedback, and semi-annual reviews are simply not making the grade.
Formal Performance Management Systems Seek Objectivity
Because of the search for the holy grail of objectivity, performance management systems actually detract from the manager-direct report relationship. Subordinates appreciate the informal nature of feedback. When a manager casually engages someone at the water cooler in a conversation about the work they are doing and what can be improved, it’s appreciated. It’s an informal feeling grounded in fairness that drives performance improvement. The weekly touch-base meeting is a way of keeping in touch about ongoing projects, and provides a means for giving and receiving feedback that subordinates not only appreciate, but need to be effective themselves. Test research shows that more than 75% of managers don’t feel that the performance management system in their organization is effective. Formalized assessments tend to have a negative impact. Rather than improving organizational performance, the objectivity of the performance review actually diminishes the manager-direct report relationship that is so critical for success.
To be effective, performance appraisal systems need to be a catalyst, helping managers focus in on the right things and create a strong link between themselves and their direct report managers through ongoing, fair and accurate feedback. The problem is, while most systems are created with good intention, the outcome is often arbitrary and random, and therefore disconnected from the real work of the organization.