Why the Performance Appraisal Is Broken

Recognize This! – The traditional performance review process tries to accomplish too much.

Have you ever wanted to rip your performance appraisal (or the entire appraisal process) in half? The only thing people can seem to agree on about the performance appraisal process is that it is broken. What, precisely, is broken and how to fix it – now that sparks up endless arguments.

Can we all agree one major problem with the way performance appraisals are conducted today is the tight link between feedback and compensation? Knowledge@Wharton put it this way: 

“Reviews tend to have competing goals: Employees, for their part, are looking for frank, honest and helpful feedback, but know that if they don’t use the review time to pump up their performance, they might not get the top bonus or best raise. Meanwhile, organizations want to allocate rewards according to performance and merit, and they want to provide developmental feedback so that employees can improve. But organizations also have to make tough decisions about who ranks higher and what kinds of bonuses people get. If the organization — in trying to make everybody feel good — doesn’t allocate rewards according to performance, then it will be seen as an unfair process.”

Okay, maybe that’s three problems in one:

Feedback – All sources I’ve read lately (and conversations I’ve had) agree employees want and need more feedback, more frequently – both constructive and appreciative. I’ll discuss this angle in more depth in my next two posts.

Pay for Performance – But are employees even in the right state of mind to accept the value of constructive feedback – no matter how well communicated – if their focus is on showing themselves in as positive a light as possible to get the greatest raise? Of course not. This is why merit-based pay for performance structures have outlived their usefulness.

Fairness – Even the best of managers struggle with the question of what is fair within traditional pay for performance structures. My Compensation Café colleague, Laura Schroeder, summarized the challenge well in a post last week:  “He isn’t sure whether to pay for performance, potential or expertise with his meager 3% budget.”

The rest of this week, I’ll be tackling these issues in more depth. This is a controversial subject. I believe the only way we’ll arrive at a good solution is through conversation. Please chime in with your thoughts or approaches.

Derek Irvine

About Derek Irvine

The VP of Client Strategy and Consulting at Globoforce, Derek Irvine is one of the world’s foremost experts on employee recognition and engagement, helping business leaders set a higher vision and ambition for their organizations. As a renowned speaker and co-author of "The Power of Thanks" and "Winning with a Culture of Recognition," he teaches companies how to use recognition to proactively manage company culture. Derek holds a B.Comm and Masters of Business Studies from the Smurfit Graduate Business School at University College Dublin.

11 Responses

  1. Robert Bacal says:

    Good take. I wrote a wee book in 1992 called Why performance appraisal fails (something like that) and a major part of it had to do with just what you talk about here – that you have a system that tries to achieve goals that are in conflict.

    I think I put it this way.

    It’s like trying to design and use a sportcar that gets 100 mph and can pull a 50 ton trainer, while doing zero to 100 in under 3 seconds.

  2. Derek Irvine Derek Irvine says:

    Excellent analogy, Robert. That’s exactly the challenge — all good things, yes, but not necessarily possible from one “thing.”

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