Sunday, 5 June 2011

Performance Appraisal V Performance Management

According to Gillian Hibberd (2011) (strategic director – resources and business transformation – at Buckinghamshire County Council) performance appraisal, after dismissing people, is the task managers do hate performing the most. Since appraisal meetings are essentially held to provide managers and their reports the occasion to plan for the incoming future, whenever the economic landscape is dominated by uncertainty and likely economic hardships this task is perceived by managers as even more unpleasant and trickier. Indeed, many managers consider it as a waste of time at best and as a process hampering performance, rather than improving it, at worst.

Hibberd (2011) also suggests that many managers, for a whole range of reasons, are to put it mildly ill at ease during appraisal meetings, even more so during those periods in which organisations are experiencing significant changes; insofar as all too often managers are prompted to cancel appraisals meetings on account of other more urgent commitments.

The reasons why managers habitually feel uncomfortable during appraisals reviews are linked to:

- The need for them to justify, during their unfolding, their feedback on their reports performance and support these with practical examples;

- Their lack of skills to effectively chair meetings;

- The insufficient time to properly prepare the meetings.

Furthermore, meetings are supposed to put managers under pressure by reason of the significant influence the results of these potentially have on the future career path of every employee.

An additional reason why managers may actually dislike holding appraisal meetings is associated with the circumstance that many organisations use to establish a direct link between these and reward; besides, many managers feel extremely uncomfortable when having to play the role of “assessors or judge”, as usually occurs in this circumstance (Torrington, 2008). But can organisations actually avoid carrying out appraisal meetings? Yet, can eventually appraisal be considered as a stand-alone process or should it rather be considered part of a more systematic and more comprehensive process?

In order to provide a consistent answer to this question, it is first and foremost necessary to define both performance appraisal and reward management and hence identify the differences, if any, existing between the two.
Albeit a remarkable difference between the two processes does indeed actually exist, some employers, misinterpreting the meaning and scope of each of them, design and introduce performance appraisal systems assuming to have introduced within their business performance management processes; mistake which is very unlikely to produce effective, valuable results. 
In general, performance appraisal can be considered as a process aiming at assessing and rating (Armstrong, 2006) or reviewing (Torrington et al, 2008) employee performance.

Appraisal is carried out by managers, usually annually, whereas the design of the system and the documentation habitually filled during the performance review meetings held by managers is prepared by the HR Function. Since PA is usually associated with pay, this is the occasion in which managers are supposed to play the role of judge, accounting for the process to be deemed as a top-down process.

Performance management, by contrast, is considered as a management process enabling managers to constantly stay in contact with individuals in order to clarify and eventually modify, according to the business and organisational development needs and requirements, their mutual expectations. As such PM is and has to be intended as a means enabling managers to play the role of their reports coach and guide, rather than of judge. PM hence essentially represents a forward-looking process, in contrast to PA which basically represents a retrospective-based system.

This definition of performance management is, in general, consistent with that formulated by Armstrong (2006), it is also coherent with the definition of performance management provided by Clark (2005), who suggests that PM aims at establishing “a framework in which performance by human resources can be directed, monitored, motivated and refined, and that the link in the cycle can be audited.”
The distinctive feature of performance management and performance appraisal emerged so far is hence represented by their different nature: PA is seen as a system, whereas PM is seen as a process. Moreover, whilst PA is episodic, usually carried out once a year in occasion of the annual performance review meeting, PM is intended to establish a constant link between managers and individuals. PM hence actually aims at building between manager and employees a relationship based on mutual respect, trust and understanding; whereas PA is based on a top-down relationship.
PM can be hence basically regarded as a forward-looking approach, since the aim of the constant relationship between managers and reports it fosters is essentially based on coaching and favouring the development and growth of individuals. In contrast, PA can be considered as a retrospective journey in the individual previous working year, where managers, very often perfunctorily, “judge” the performance of their reports. It clearly consequently emerges that PM is inspired by the concept of “management by agreement or contract”, whereas PA is based on the concept of “management by command” (Armstrong, 2006).
Whilst PM is indeed intended to establish and nurture a continuous relationship between manager and individuals, PA is based on forms, whose layout is designed and developed by the HR function, which more often than not are destined to be forgotten in some remote organisational archive.
Differently from PA, PM ultimately aims at combining individual and organisation wants and objectives and at finding a common point where these two different needs can meet and be met.
As maintained by Armstrong and Baron (2004), PM has to be intended as a means aiming at helping organisations to determine and settle the objectives individuals are expected to attain, give employees what it takes to achieve those objectives (that is opportunities for training and learning) and influence individuals to behave consistently with the organisational culture and values.
By reason of its direct involvement in the attainment of broader and long-run objectives, PM can clearly be considered strategic, in contrast to PA, which is indeed concerned only with short to mid-run goals (CIPD, 2011). Yet, whilst PM is embracing a whole range of activities aiming at improving the overall organisational performance, insofar as it can definitely be considered holistic, PA is only concerned with individual performance and as such it represents a distinct system, rather than an integrated process.
As warned by the CIPD (2011), organisations carrying out annual appraisal reviews cannot actually claim to have a PM process in place, in that PA is basically a component or rather one of the tools of PM. Carried out in isolation, PA is likely to produce no effects at all and to even be considered pointless and useless by both managers and staff, who may perceive it just as a mere “administrative exercise” at best (Torrington et al, 2008) or as a “dishonest annual ritual” at worst (Armstrong and Murlis, 1998).


To accrue employees’ negative perception of PA very often also contributes the lack of clarity as regards the purposes it actually aims at achieving (Torrington et al. 2008). PA can indeed potentially focus on: development, reward, motivation, identification of good potentials and poor performers, but more often than not it turns to be an ineffective tool just because it is expected to cover too many areas, making it difficult for the same managers to identify its final truly objective.

In terms of the relationships and links potentially existing between PM, PA and pay, the picture appears to be rather unclear and uncertain, too. Whereas a clearer connection with pay can be invariably ascertained in the case of PA systems, slightly more controversial the matter appears to be, at least in theory, in the PM case.

As discussed earlier, PA systems are habitually used by managers to make decisions about salary increases, payment of bonuses and to grant individuals other forms of financial incentives. Although it might be negatively perceived by managers, it is indeed in this occasion that they are put in what they consider the awkward position of judge. Notwithstanding, there are indeed cases in which this practice actually, no pun intended, pays. Findings of a study carried out by the Australian Workplace Industrial Relations (Brown and Heywood, 2005) revealed that for non-manual workers AP was more likely and effectively used when individuals were expected to have a shorter tenure. The Authors who conducted the investigation consider and to some extent justify, the employers’ move to have recourse to this practice in those cases in that deem that PA may better fit the situations in which deferred rewards, such as promotions, are very unlikely to occur. Enabling employers to promptly pay performance–related additions, in the case of brief spells of time PA can indeed help businesses to influence individual tenure and contribute to its prolongation.

Albeit many organisations directly link PA to pay, things should work differently in the case of PM. It is in fact widespread the belief that PM data should not be used in the pay decision-making process; insofar as in the US someone has also raised some concern over the possible legal action which could arise from such a practice.

With particular reference to those cases in which PM is extended to an organisation entire staff, the merit element of pay has been deemed as exceedingly irrelevant to motivate staff and in some cases even counterproductive in that perceived as “insulting” by employees (Torrington et al, 2008).

Similar results have been produced by a study carried out by the Institute for Employment Studies (IRS, 2001), which revealed that individuals were more satisfied when systems were fostering development and promotion, rather than when these were aiming at establishing a more direct link with reward.

In order to more accurately inform contribution pay decisions, some PM systems require the inclusion of a rating scale (Armstrong, 2006); 23 percent of the respondents to the e-reward survey 2005 that have linked reward to PM actually said to not include any rating scale. Notwithstanding, the use of such a scale can as often as not cause some serious problems to emerge in relation to the correct and consistent interpretation of the rating from the different managers within a business.

In this case, ad hoc training sessions provided in favour of all of the managers taking the role of appraisers, that is to say consistency workshops, can definitely turn to be very helpful to enable these to use the ratings in a consistent and coherent way and build a “level of common understanding about rating levels” (Armstrong, 2006).

A growing number of businesses wanting to focus more on the development aspect and purpose of PM are indeed sensibly reducing, and even completely eliminating, in their PM processes the link with pay.

Even in those cases in which the PM system implies the existence of a direct link with reward, differently from PA where this type of link can just be limited to financial/tangible rewards, PM can be linked to reward in its total reward concept, albeit not completely without risks.

With reference to financial reward, it can be said that it is by means of PM that employers can actually review the variable or contingent element of pay related to merit or performance, that is to say the “pay at risk” (Lucas et al, 2006). PM is thus adopted as the process on the basis of which employers make eventually decisions on the allocation and review of this element of pay. These decisions are clearly made on the basis of the attainment or otherwise of the previously identified and agreed objectives.

In this instance, however, comes once again to play the rating issue, which is typically and broadly deemed as: “highly problematic” (Campbell et al. 1998), cause of problems by reason of the questionable validity and accuracy of the rating system used (London et al, 2004) and, since basically representing a form of control carried out by the employer, as something risking hampering, rather than leveraging performance (Henry et al, 2000).
Notwithstanding, the problems emerging in the bid of establishing a direct link between financial reward and PM are not just limited to the measurement aspect. Hendry et al (2000), for instance, claim that achieving the pre-set objectives in a rapidly changing environment is revealing to be increasingly difficult in that the direct control exercised by individuals to the attainment of their own objectives is often sorely limited. Yet, it is simultaneously growing the significance of the impact of the interdependency of the efforts made by different employees, not necessarily working in the same team or group, for the attainment of their or of their colleagues objectives.


Albeit the number of businesses still connecting pay with PM is sensibly declining, there still is in the UK a considerable number of organisations linking PM to pay (Armstrong and Baron, 2005).

As we have discussed earlier, PM has indeed a relevant role to play also when considering the intangible, non-financial component of reward, with specific reference to coaching, development, career guidance, quality of working life and growth; all aspects to which the continuous process of PM is openly devoted (Lucas et al, 2006).

Some serious doubts have actually been raised as regards the possibility that a PM process might be effectually used at once at the two different levels of tangible and intangible rewards. Williams (2002), argues that a PM focusing on both aspects of reward might result weakened on its development, intangible side. More directly, Baron and Armstrong (2005) suggest that PM should be exclusively concerned with development and that the reward aspect should be addressed by means of a different, specific means.

It can be argued that PA, whether properly designed and executed, could turn to be an effective tool of PM. In order to improve the effectiveness of the overall PM process, having crystal clear ideas about what each tool of PM is intended to achieve will clearly help both managers and employees to welcome and appreciate a PM process. As suggested by Armstrong and Baron, having recourse to an additional specific tool and component of PM to deal with pay would surely be beneficial to make the dialog between manager and individuals about development and growth more compelling and constructive. It is easy to imagine on which aspect individual mind would focus the more during a blended discussion: managers could be speaking of growth, whereas individuals would be thinking about pay, circumstance which should be absolutely averted.

Longo, R., (2011), Performance Appraisal V Performance Management, HR Professionals, [online].

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