Reasons for Appraising Employee Performance

Employers conduct performance appraisals for a number of reasons. Measuring the effectiveness of a performance management system involves assessing the ways in which the performance appraisal supports the system and organizational goals. In addition to supporting the overall performance management system, reasons for evaluating employee performance range from talent retention and compensation structure to organizational objectives and professional development. Harrisburg Area Community College spells out its performance appraisal purpose in the following statement: “Performance appraisals provide the opportunity to formally summarize performance and serve as the basis for professional development, staffing decisions and merit increases.”

  1. Retaining Talent

    • One appraisal method particularly designed to retain talent is differentiation, or the “20-70-10” formula endorsed by former chief executive officer for General Electric, Jack Welch. Differentiation – also referred to as “forced distribution” – requires managers to evaluate employees and place them in at least three categories: top-performing and average employees, and employees who aren’t meeting job expectations. Using forced distribution to retain talent puts employees with the highest performance in the top 20 percent of the workforce. Seventy percent of the workforce, however, is the reliable, dependable and average group of workers. The remaining workers are usually not retained. Other appraisal methods can accomplish talent management goals, but the forced distribution method facilitates talent retention.

    Determining Raises

    • Employees and managers alike may dread the performance appraisal process. Nevertheless, practically everyone wants to know how their performance appraisals translate into raises and bonuses. One of the common reasons employers evaluate performance is to determine who deserves what amount in an annual bonus, salary increase or both. Performance appraisal methods most likely to set raises and bonuses can be graphic rating scales whereby managers measure employee performance using quantitative methods.

    Attaining Company Goals

    • When an organization uses employee appraisals to achieve its objectives, it bases performance measurements on how much employees contribute to business growth. Aligning employee performance with organizational goals is best accomplished using an appraisal method referred to as “management by objectives” or, MBOs. MBOs require that the employee and manager identify goals that add value to the organization and the employee’s own professional development. This type of evaluation focuses less on employee-employee competition and motivates employees to achieve their own objectives. Consequently, when the employee achieves an individual goal, he is achieving a company goal as well.

    Clarifying Job Expectations

    • Employee appraisals assist the employer and employee in coming to a mutual understanding about job expectations. Even though the performance management system begins when an employee receives his job description, there often remains room for clarification. During one’s career, job duties and responsibilities may shift or change, resulting in confusion about what is expected. In its Performance Appraisal document, Pinellas County Government states: “The appraisal of employee performance is a process which is intended to be responsive to both the needs of the employee and the supervisor.” Therefore, reaching an agreement on expectations and the tools necessary to meet expectations is another function of the employee appraisal.

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