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The world is currently witnessing a dramatic change in the practices of performance management.  The traditional annual performance appraisal process that has been deeply ingrained in organizations for decades is giving way to more frequent conversations between a manager and subordinate.  Ratings are being abandoned and replaced with discussions about performance; rather than a review of the past, the most progressive organizations are switching to discussions about the future.  In place of a manager writing a detailed performance analysis to be presented and discussed with a subordinate, the manager and subordinate are together setting stretch goals for the future.

Many organizations are leaping with great gusto onto these seemingly revolutionary new ideas.  They speak about it as if they had discovered the double helix that unlocks the human genetic code.

The annual performance review was a practice driven by two purposes.  The first was to justify salary actions; the second, to motivate employees to higher performance.  There were logical and seemingly compelling arguments for each of these purposes. However, one problem got in the way:  Those two purposes constantly butted heads with each other.

I am supportive of the need for a dramatic change in performance management, and believe the changes that many organizations are making of late are exactly the right ones.  The tragedy is that we are doing it 52 years later than we should have.

In 1965 an article, “Split Roles in Performance Appraisal,” was published in the Harvard Business Review by three highly respected psychologists who were employed by General Electric:  Herb Meyer, Emanuel Kay, and John R.P. French.   Not long before, the legendary Douglas McGregor (of theory X & Y fame) had written another HBR article, “An Uneasy Look at Performance Appraisal.”  Because of the interest this had stirred, the GE team decided to conduct research within GE on this topic.  Their findings were:

1. Criticism by a manager has a negative effect on the recipient. Although employees say they want more information about their performance, negative feedback does damage.  No one wants their year’s performance converted into a single Arabic digit.

2. Praise does little to change performance. (Later research suggests praise does improve the manager-subordinate relationship.)

3. Criticism generates defensiveness on the part of the subordinate, which in turn leads to poorer performance.

4. Coaching between a manager and a subordinate should occur day-to-day, and not be reserved for a once-a-year event.

5. Goal setting with clear targets and deadlines improves performance.

6. Participation by the subordinate in that goal setting process produces performance improvement.

Much has transpired in the 52 years between the publication of this well-conducted study and today.  A few findings that stand out to me are:

1. Repeated surveys of both employees and managers have shown that neither group liked the process of performance appraisal. In addition, the higher you moved in an organization, the less likely it was to occur.

2. Experts from the quality improvement discipline, amongst others, were constant critics of the negative impact of performance appraisals. Edwards Deming, James Juran, and Peter Drucker were consistent and vociferous critics of it.

3. The need to justify compensation decisions was allowed to eclipse the psychological pain inflicted by the appraisal process. Only lately have we had the courage to acknowledge that there is very little distinction between compensation changes for the large group in the middle of bell-curve.  In practice, the only people for whom there were real differences in compensation were those at the extreme ends of the curve.

My takeaways from these findings:

1. Pay attention to good research. Rather than embarking on an endless quest to conduct more surveys and perform more studies, find solid research and work to implement it.  Studies are doing little good if organizations don’t implement their findings.

2. Listen to the critics. For the past 60 years we’ve known that there were serious flaws in performance appraisals. There has been a large, respected, and diverse set of critics who were basically ignored. If everyone in the organization hates the performance appraisal process, perhaps something is wrong.

3. Question major assumptions. Performance appraisals being necessary for compensation decisions was, and remains to be, not true.  Performance appraisals motivating better performance was a myth that few people believed.  However, those were the two major justifications for the performance appraisal practice.

4. It only takes a few courageous, respected organizations to openly challenge a flawed concept. Many others will then follow.

If the medical profession ignored important advancements that had been discovered 50 years ago, such as penicillin or antibiotics, we would be aghast.  Keeping up with research is daunting; it is estimated that there are 2.5 million research studies published each year, and every discipline is inundated.  Ferreting out the practical and relevant studies is not easy, but there are nuggets of valuable information available if we read the respected journals that publish practical research. It is our duty to then apply this research within the leadership and management worlds.

Jack Zenger

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Feedback at Work pp 75–96 Cite as

Performance Appraisal Reactions: A Review and Research Agenda

  • Shaun Pichler 3  

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Employee reactions to performance appraisals are essential to appraisal effectiveness: They are correlated with subsequent job attitudes, motivation, and performance. Yet, many managers dread giving appraisal reviews and employee reactions are often negative. Although performance appraisal research has traditionally focused on psychometric properties of performance ratings, there is a burgeoning literature on appraisal reactions. In this chapter, this burgeoning literature is reviewed to identify key predictors of appraisal reactions, opportunities for future research, as well as implications for managers and organizations. A conceptual model is developed to guide future research; this model implies that more longitudinal and multilevel studies are needed to better understand the processes whereby predictors are related to appraisal reactions. This review suggests that managers and organizations should pay special attention to leader–member exchange quality, due process performance appraisal, and providing opportunities for voice in the appraisal review so as to improve performance appraisal effectiveness.

  • Performance Appraisal
  • Performance Appraisal Reactions
  • Employee Reactions
  • Performance Appraisal Fairness
  • Due Process

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Employee reactions to performance appraisals will be referred to as appraisal reactions throughout the rest of the document for purposes of clarity and parsimony.

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Pichler, S. (2019). Performance Appraisal Reactions: A Review and Research Agenda. In: Steelman, L.A., Williams, J.R. (eds) Feedback at Work. Springer, Cham. https://doi.org/10.1007/978-3-030-30915-2_5

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ORIGINAL RESEARCH article

An opportunity to grow or a label performance appraisal justice and performance appraisal satisfaction to increase teachers’ well-being.

\r\nLaura Dal Corso*

  • 1 Department of Philosophy, Sociology, Education and Applied Psychology, University of Padua, Padua, Italy
  • 2 Giustino Fortunato University, Benevento, Italy
  • 3 Department of Human Science (Communication, Training, Psychology), LUMSA University, Rome, Italy

Performance management is a key factor to enhance professional development and improve teaching quality. This process is successful only if teachers perceive it as fair, clear, and effective: namely, if it is satisfying. Carefully considering teachers’ attributions in the performance appraisal process is fundamental to better clarify the relations between performance management and positive individual outcomes. Therefore, this study aims to investigate the effects of perceived performance appraisal justice on teachers’ well-being, in terms of job performance, job satisfaction, and life satisfaction, hypothesizing the mediation role of performance appraisal satisfaction. Data from a sample of Italian teachers were analyzed through structural equation modeling. Results confirm the mediation role of performance appraisal satisfaction. In particular, perceived performance appraisal justice was positively associated to performance appraisal satisfaction, which, in turn, was positively associated with job performance, job satisfaction, life satisfaction. Consequently, performance appraisal satisfaction totally mediated the relations between performance appraisal justice and the outcomes considered. Findings are relevant for two reasons. First, they contribute to better understanding the performance management process in educational settings – an issue requiring further attention. Second, they contribute to highlighting the importance of performance management efficacy, which is essential not only to improve individual well-being but also to enhance teaching quality.

Introduction

Performance appraisal is one of the most important HR management tools and its efficient implementation is one of the greatest HR professionals’ challenges, particularly in terms of validity and reliability ( Gupta and Kumar, 2013 ; Ivaldi et al., 2015 ). Performance appraisal identifies the individual’s contribution to the organizational goals and establishes individual performance standards ( Ikramullah et al., 2012 ). It can become a real job resource ( Farndale, 2017 ). Performance appraisal is a formal assessment of what employees have performed ( Snape et al., 1998 ). Its ultimate purpose is to allow employees to continue to improve their job performance ( Selvarajan et al., 2018 ) and teaching innovation ( Benadusi and Giancola, 2016 ). Performance appraisal also has specific aims, such as accountability, professional development ( Delvaux et al., 2013 ), and organizational growth ( Rubel and Kee, 2015 ).

Many changes have influenced European educational systems since the ‘70s, in terms of greater school autonomy and human resources management responsibility ( Benadusi and Giancola, 2016 ). An efficient performance appraisal system has important positive effects on teachers’ professional development. Moreover, teachers are essential for better education and future workers’ growth ( Ripamonti et al., 2018 ; Tripathi et al., 2018 ). Teaching is a profession with a strong sense of meaning and charged with civic responsibility: the importance of its quality is evident. For example, it allows students to emancipate from their families, internalize norms and values, and be recognized for the goals achieved ( Freddano, 2016 ). Therefore, performance appraisal is a fundamental tool to improve not only teaching quality but also school quality. It identifies teacher’s development and training needs, while boosting various outcomes ( Obasi and Ohia, 2014 ). For example, Robinson et al. (2008) stated that teachers’ professional development indirectly affects students’ outcomes. Teachers’ performance appraisal is a delicate process. On the one hand, it greatly influences the well-being of teachers ( Borrelli et al., 2014 ; Benevene et al., 2018b ) who can experience anxiety and pressure due to the evaluation ( Benevene and Fiorilli, 2015 ; Girardi et al., 2015 , 2018 ; Falco et al., 2017 ; Cuevas et al., 2018 ). On the other, many difficulties may arise, such as lack of time, lack of confidence, or lack of training ( Donaldson and Mavrogordato, 2018 ). Since well-being is conceptualized as a self-realization, as a social integration and as positive orientation toward the task, job satisfaction, life satisfaction and job performance are often used as its indicators ( Alonso et al., 2019 ). Teachers’ performance appraisal aims to be an objective system evaluating teachers and teaching through a supervisors’ analysis. Principals can make use of other assessments – for example by considering colleagues and students’ opinions or the teachers’ self-evaluation ( Bradford and Braaten, 2018 ). Thus, the process will not be top-down, but accomodating and participatory, and will be free to make use of scientific methodologies (such as action-research), to establish an example of good practice for the whole school community ( Freddano, 2016 ).

This study focuses on individual perceptions of performance appraisal: although the entire process conveys contextual factors, considering its subjective elements is of utmost importance ( Kim, 2016 ). Reactions, perceptions, and attributions teachers make about the judgments received – in terms of fairness and satisfaction – influence their outcomes. The paper aims to bring the following contributions, based on the little evidence on performance appraisal justice ( Rubel and Kee, 2015 ). First, its mechanism of action – e.g., mediation effects ( Gupta and Kumar, 2013 ) – is not clear. Therefore, we aim to investigate potential mediations in the relations between performance appraisal justice and its outcomes. Second, performance management literature highlights a gap in both organizational and individual performance appraisal positive outcomes ( Van De Voorde et al., 2012 ). Finally, we aim to clarify the relations between performance appraisal perceptions – in terms of justice and satisfaction – and some well-being dimensions, namely job satisfaction, life satisfaction, and job performance.

This study considers positive dimensions and analyzes how to enhance well-being. We draw on positive psychology framework ( Seligman and Csikszentmihalyi, 2000 ). This movement aims to clarify and promote optimal functioning, by amplifying strengths and encouraging global well-being ( Shankland and Rosset, 2017 ). Traditionally, psychology has focused on disease. Positive psychology is not only a research topic; it looks to goodness, both in people and in contexts ( Ciarrochi et al., 2016 ). Emotions and positive feelings lead people to broaden and build themselves ( Fredrickson, 2001 ), whereas their lack – or the presence of negative states – leads to failures and unhappiness. Positive organizational interventions aim to take advantage of strengths and focus on the brighter side of situations ( Ghosh and Deb, 2017 ). Performance appraisal, if perceived as fair, allows teachers to be more flexible and efficient, and to experience the vitality promoted by positive psychology. This process is possible if the organizational interventions follow some values. Among them, Ciarrochi et al. (2016) identified self-challenge and continuous learning. We can connect the enhancement promoted by positive psychology with an important theoretical framework, the conservations of resources (COR) theory ( Hobfoll, 1989 , 1998 ). COR theory states that people are motivated to gain, maintain and nurture resources. This resource enrichment positively influences people’s well-being, whereas resource loss leads them to distress. Resources are all organizational aspects that can stimulate personal growth, learning and development ( Demerouti et al., 2001 ), so performance appraisal justice and performance appraisal satisfaction are part of them. Therefore, based on COR theory, we wonder whether fair and satisfying performance appraisal processes can originate and enhance positive outcomes.

Among performance appraisal attributions made by workers, fairness is very important, because it substantially directs several outcomes, such as psychological contract ( Barbieri et al., 2018 ) and efficiency ( Selvarajan et al., 2018 ). Clear, rational, and univocal criteria allow conclusion of an efficient performance appraisal ( Longenecker, 1997 ). Moreover, a performance appraisal perceived like a criticism – rather than an instrument for professional development – can determine teachers’ attitudes of closure ( Lucisano and Corsini, 2015 ). Fairness regarding performance appraisal is part of organizational justice, an overarching variable formed by various sub-dimensions: distributional justice, procedural justice, and interactional justice; with the latter having been split into interpersonal and informational justice ( Greenberg, 1993 ). According to Colquitt et al. (2001) , distributional justice depends on the comparison of efforts made, rewards received, and colleagues’ rewards. Procedural justice derives from the evaluation of the processes and policies used in performance appraisal. Interpersonal justice looks to perceived dignity and respect during the feedback. Informational justice regards the information obtained on process management. Performance management quality is positively associated with positive outcomes, such as commitment and intention to remain, and is negatively associated with negative outcomes, like job stress ( Su and Baird, 2017 ; Falco et al., 2018 ). In particular, a performance appraisal perceived as partial – e.g., made by biased appraisers – can originate negative consequences for the teacher. Thus, performance appraisal justice is fundamental, because it leads to various positive outcomes, such as engagement ( Gupta and Kumar, 2013 ; Farndale, 2017 ), motivation to improve job performance ( Selvarajan et al., 2018 ), pay-for-performance effectiveness ( Kim, 2016 ), organizational commitment ( Guchait and Cho, 2010 ), perceived organizational support ( Farndale, 2017 ), and decreased turnover intentions ( Rubel and Kee, 2015 ).

Satisfaction with performance appraisal is another key dimension to analyze subjective responses to performance appraisal. It is a global evaluation of the performance appraisal received, and it involves perceptions regarding one’s participation to the evaluation process, the feedback received, and its consequences on rewards distribution. Satisfaction with performance appraisal concerns various facets, such as appraiser’s trust and feedback utility ( Delvaux et al., 2013 ). It can influence attitudes and behaviors toward the organization ( Hong, 2018 ). When performance appraisal is congruous with individual efforts, the process is satisfying ( Gözükara et al., 2017 ). Performance appraisal satisfaction stimulates the acknowledgment and the use of the process itself; on the contrary, a lack of performance appraisal satisfaction causes negative consequences, such as intention to quit ( Guchait and Cho, 2010 ), work-family conflict ( Ismail and Gali, 2017 ), and strain ( Van Thielen et al., 2018 ). Fairness perceived on performance appraisal is fundamental to its satisfaction ( Naji et al., 2015 ): some evidence state that performance appraisal justice is an antecedent of performance appraisal satisfaction ( Lira et al., 2016 ; Hong, 2018 ). Therefore, we hypothesize that:

H1: performance appraisal justice is positively associated with performance appraisal satisfaction.

The relation between performance appraisal justice and its possible outcomes deserves an in-depth analysis. For example, the recognition of the individual contribution – also achievable through a fair performance appraisal – contributes to organizational productivity, while inadequate performance management practices lead to great productivity losses ( Bloom et al., 2014 ). The more the performance appraisal is unfair, the less the feedback will be useful to improve job performance ( Naji et al., 2015 ). On the contrary, fair performance appraisal improves job performance ( DeNisi and Pritchard, 2006 ; Gruman and Sacks, 2011 ). Job performance is considered as a behavior completely under the control of the individual, an act of doing a job and a means to reach a set of goals within a job ( Campbell, 1990 ). The lack of openness, legitimation and integrity, and the perception of favoritisms and biased evaluations lead to a gap between ideal job performance and real job performance ( Cunha et al., 2018 ): employees’ resources are depleted by these negative perceptions and are not allocated to job performance anymore ( Falco et al., 2013b ). It is important to shed light on the mechanism by which performance appraisal justice influences outcomes, with particular reference to mediated relations ( Gruman and Sacks, 2011 ; Gupta and Kumar, 2013 ; Van Thielen et al., 2018 ). Considering job performance, Malik and Aslam (2013) pointed out that great performance appraisal satisfaction activates a mechanism that increases job performance. Selvarajan et al. (2018) connected performance appraisal justice to job performance through the motivation to perform better. Drawing on this evidence and considering the positive relation between performance appraisal justice and job performance ( Kuvaas, 2006 ; Aly and El-Shanawany, 2016 ), we would like to clarify the role of performance appraisal satisfaction in the relation between performance appraisal justice and job performance. Therefore, we assume that:

H2a: performance appraisal justice is positively associated with job performance.

H2b: performance appraisal justice is positively associated with job performance through performance appraisal satisfaction.

Job satisfaction is a key-factor for organizational success ( Mufti et al., 2019 ). It is positively associated with goals achievement ( Malik et al., 2010 ). This pleasant emotional state derives from individual evaluations about the job. It corresponds to the pleasantness perceived on the job and motivates people to be committed to their job activities ( Karimi et al., 2011 ; Bélanger et al., 2015 ; Benevene et al., 2018a ). Evidence showed the association between performance appraisal justice and job satisfaction ( Salleh et al., 2013 ; Agyare et al., 2016 ; Van Thielen et al., 2018 ). Since job satisfaction is a global evaluation of various job features, it can be affected by the performance appraisal system. For example, in the literature abundant evidence have demonstrated the positive relation between performance appraisal satisfaction and job satisfaction ( Karimi et al., 2011 ; Decramer et al., 2015 ; Van Thielen et al., 2018 ). Therefore, we assume that:

H3a: performance appraisal justice is positively associated with job satisfaction.

H3b: performance appraisal justice is positively associated with job satisfaction through performance appraisal satisfaction.

Looking to vocational outcomes without considering personal well-being could be a low-value choice ( Van De Voorde et al., 2012 ). Work context and life domain are not distinct spheres: they are interdependent and could influence each other in many ways ( Chummar et al., 2019 ). Then, we would like to take a further step: to explore the relation between performance appraisal justice and life satisfaction, which is often used as an indicator of well-being ( Alonso et al., 2019 ). Life satisfaction is a cognitive evaluation regarding how satisfying our entire life is ( Hart, 1999 ). Essentially, how much our life quality pleases us. Many studies stated the association between life satisfaction and job satisfaction ( Aydintan and Koç, 2016 ; Goetz et al., 2019 ; Masdonati et al., 2019 ), that is associated with performance appraisal justice, as mentioned above. Moreover, organizational justice – the overarching dimension in which performance appraisal justice belongs – is associated with life satisfaction ( Tepper, 2000 ; Lambert et al., 2010 ). Performance management can influence personal domain, as well. Dissatisfaction with performance appraisal has negative effects on personal life: for example, it increases work-life conflict ( Falco et al., 2013a ; Ismail and Gali, 2017 ; De Carlo et al., 2019 ). However, to the best of our knowledge, the literature has not examined the relation between performance appraisal system and life satisfaction. We suppose it can follow the performance appraisal satisfaction – job satisfaction relation. Therefore, we would like to explore the role of performance appraisal satisfaction in the relation between performance appraisal justice and life satisfaction, assuming that:

H4a: performance appraisal justice is positively associated with life satisfaction.

H4b: performance appraisal justice is positively associated with life satisfaction through performance appraisal satisfaction.

Materials and Methods

Participants and procedure.

Participants were directly contacted and decided to take part in the research on voluntary basis. Consequently, we gathered a convenience sample. One hundred sixty-one Italian teachers filled out the paper-and-pencil self-administered questionnaire ( Table 1 ). The sample average age was 46.3 years (SD = 10.11) and gender distribution was 63.4% women and 36.6% men. With regards to educational levels, 89.4% of participants held a degree, 5.6% held a high school diploma, 0.6% completed only middle school, and 4.3% held a further kind. Most of the participants had been working for the same school for more than 4 years (74.5%), 22.4% had been working for a period ranging between 2 and 4 years, and 3.1% had been working for less than 1 year. The majority of the sample is full-time employed (88.2%), whereas 10.6% is part-time employed (1.2% missing). 90.7% had an open-ended contract (or apprenticeship) and 9.3% had a fixed-term contract (or replacement). All participants gave their written informed consent before the administration of the questionnaire, in accordance with the Declaration of Helsinki. The study was carried out in accordance the rules of AIP (Associazione Italiana di Psicologia – Italian Association of Psychology), according to which there was no need for previous ethics approval, since it would not deal with animals or vulnerable groups, or would involve risk for the well-being of participants, or use biomedical devices, or invasive investigation tools. Our study was conducted in accordance with the recommendations of the Ethic Committee of Psychology Research of the University of Padua, with the above-mentioned written informed consent from all participants.

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Table 1. Sample characteristics.

Performance appraisal justice was assessed with 17 items ( Gupta and Kumar, 2013 ) adapted from Colquitt et al. (2001) . The scale measured four dimensions: distributive justice (e.g., “The outcome of performance appraisal is appropriate for the work I completed”), procedural justice (e.g., “The procedures followed during performance appraisal process are free of bias”), interpersonal justice (e.g., “My supervisor treated me with dignity during the performance appraisal meeting”), and informational justice (e.g., “My supervisor explained the procedures of the performance appraisal process thoroughly”). The 5-point response scale ranged from 1 (strongly disagree) to 5 (strongly agree). The Cronbach’s alpha for the scale is 0.95.

Performance appraisal satisfaction was assessed with six items ( Kuvaas, 2006 ): global satisfaction with performance appraisal, satisfaction with the feedback received, and perceived organizational commitment to performance appraisal (e.g., “I am satisfied with the way my organization provides me with feedback,” “The feedback I receive on how I do my job is highly relevant,” “I think that my organization attempts to conduct performance appraisal the best possible way,” respectively). The items were on a 5 point-Likert scale (1 = strongly disagree; 5 = strongly agree). The Cronbach’s alpha for the scale is 0.92.

Job performance was assessed with two items rated on a 10-point Likert scale (from 10% to 100%): “We would kindly ask you to specify, using a percentage, how successful you were in reaching your work goals last year” and “How do you rate your job performance during the last year?” The Cronbach’s alpha for the scale is 0.85.

Job satisfaction was assessed by asking “How satisfied are you with your working life?” The item was taken from the Q u -Bo test ( De Carlo et al., 2008–2011 ) and was on a 6 point-Likert scale (1 = very dissatisfied; 6 = very satisfied).

Life satisfaction was assessed by asking “How satisfied are you with your overall life?” The item was taken from the Q u -Bo test ( De Carlo et al., 2008–2011 ) and was on a 6 point-Likert scale (1 = very dissatisfied; 6 = very satisfied).

Statistical Analyses

We tested the hypotheses by means of structural equation models (SEM) with latent variables, using the Lisrel 8.80 software ( Jöreksog and Sörbom, 2006 ). Consequently, we estimated another model, fixing all the non-significant paths to zero, to obtain a more parsimonious solution.

We assessed the model fit, starting with the chi-square test (χ 2 ). A model shows a good fit to the data if χ 2 is non-significant. Given that χ 2 is sensitive to sample size, we considered additional fit indices. In particular, we considered the non-normed fit index (NNFI), the standardized root mean residual (SRMR), and the root mean square error of approximation (RMSEA). Values close to or greater than 0.95 for NNFI, values close to or smaller than 0.10 for SRMR, and values close to or smaller than 0.08 for RMSEA indicate an acceptable fit ( Schermelleh-Engel et al., 2003 ).

We considered 95% asymmetric confidence intervals based on the distribution of the multiplication term, to verify the significance of the indirect effects. The purpose was to manage the non-normality derived from the path a × path b multiplication, as recommended by MacKinnon’s procedure (PRODCLIN; MacKinnon et al., 2007 ). If the confidence interval does not contain zero, the indirect effect is significant ( MacKinnon et al., 2012 ).

Before testing the model, we carried out two procedures. First, we excluded participants with missing values; therefore, the final sample consisted of 154 participants. Second, we tested if common method variance (CMV) was a threat to the study. In fact, as we collected data through self-report measures, the risk of CMV may exist. Therefore, we controlled for the effects of a latent method factor, by using a single-common-method-factor approach in a confirmatory factor analysis (CFA) ( Podsakoff et al., 2003 ). We added a new latent variable called “method” on which we loaded all indicators of the five theoretical factors. Consequently, we obtained a six-factor model. Then, we compared χ 2 of the six-factor model to the five-factor model’s one. If the p -value associated with Δχ 2 is significant, the effect of the latent method factor exists. To evaluate the impact of this effect, we partitioned the observed variance of the indicators into three component: variance attributable to the theoretical factors, to the method and to the causal error. In particular, Williams et al. (1989) identified the following average partitioning: 50% variance attributable to the theoretical factors, 27% variance attributable to the method, and 23% variance attributable to the causal error. If the variance attributable to the method is up to 27%, the CMV does not lead to inaccurate results.

Descriptive Results

Table 2 presents means, standard deviations, and correlations. The latter provide initial evidence that all variables could be positively associated to each other.

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Table 2. Means, SD, and correlations among study variables.

Common Method Variance

The comparison between the χ 2 of the two alternative models suggests the possible existence of a method effect (Δχ 2 = 88.45; Δdf = 14; p = 0.00). Even though the variance partitioning indicated that the variance attributable to the method exists, this is limited and accounts for 17% of the total observed variance. Therefore, these results suggest that CMV is not a concern in this study.

Model Testing

We estimated the hypothesized structural model that satisfied the acceptability criteria [χ 2 (69) = 150.83, p = 0.00; NNFI = 0.96; SRMR = 0.05; RMSEA = 0.08]. However, the direct relations between performance appraisal justice and the outcomes – namely job performance, job satisfaction, and life satisfaction – were non-significant ( H2a , H3a , H4a rejected). To obtain a more parsimonious solution, we then set all these paths to zero.

This second model tests the total mediation of performance appraisal satisfaction. The model ( Figure 1 ) shows an acceptable fit to the data, considering χ 2 (72) = 152.97 ( p = 0.00); RMSEA = 0.08; NNFI = 0.97; and SRMR = 0.05. In the model, performance appraisal justice is positively associated with performance appraisal satisfaction (γ = 0.82, p < 0.001). Therefore, H1 is confirmed. Furthermore, performance appraisal satisfaction is positively associated with job performance (β = 0.54, p < 0.001), job satisfaction (β = 0.30, p = 0.001), and life satisfaction (β = 0.32, p < 0.001).

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Figure 1. The final model.

At this point, we verified the significance of the indirect effects. The asymmetric confidence intervals for the relationships between performance appraisal justice and the outcomes, through performance appraisal satisfaction, do not contain zero. We can conclude that performance appraisal satisfaction totally mediates the relationship between performance appraisal justice and the outcomes ( H2b , H3b , H4b confirmed). In particular, the unconventional estimate is 0.65, 95% CI [0.41028,0.91924] for the relationship between performance appraisal justice and job performance. The unconventional estimate is 0.34, 95% CI [0.15612,0.55012] for the relationship between performance appraisal justice and job satisfaction. The unconventional estimate is 0.38, 95% CI [0.18804,0.58972] for the relationship between performance appraisal justice and life satisfaction. Consequently, we can conclude that performance appraisal satisfaction totally mediates the relationship between performance appraisal justice and the outcomes.

The study had the following aims. First, we intended to investigate the role of performance appraisal perceptions in a teachers’ sample – in terms of justice and satisfaction – in enhancing well-being outcomes. Second, we aimed to clarify its influence mechanisms on the outcomes, particularly mediation.

High-quality teaching allows schools to focus on students’ skills and knowledge, to educate future citizens, and promote social inclusion ( Barone, 2016 ). Performance appraisal systems permit not only to regulate educational system, but also to create continuous innovation and improvement ( Freddano, 2016 ). Performance appraisal is a process critical to teaching quality: if perceived as inadequate, it has negative consequences. The performance appraisal should not be a mere red-tape fulfilment: it should be carried out in depth, to actually influence school functioning ( Barone, 2016 ). According to Cunha et al. (2018) some believe that it would be better to eliminate this appraisal system, because of its weaknesses, such as the excessive focus on the dyadic and unbalanced relation between appraiser and appraisee, and the thorny reference to meritocracy. Furthermore, performance management system is inefficient if openness is lacking and integrity is not perceived. For this reason, perceiving justice in performance appraisal is a key factor to enhance positive outcomes.

Our findings confirm the importance of positive perceptions in performance appraisal. Indeed, performance appraisal justice enhances well-being outcomes, namely job performance, job satisfaction, and life satisfaction. However, this improvement is possible only through satisfaction with performance appraisal, because our findings show that the direct relationships between performance appraisal justice and the outcomes are non-significant. Satisfaction with performance appraisal is needed, because it totally mediates the relations between performance appraisal justice and the outcomes. Finally, our study confirms that performance appraisal justice and performance appraisal satisfaction affect job performance ( Gruman and Sacks, 2011 ; Malik and Aslam, 2013 ) and job satisfaction ( Decramer et al., 2015 ; Agyare et al., 2016 ). Moreover, we argue that performance appraisal justice and performance appraisal satisfaction have non-vocational outcomes, namely life satisfaction.

Therefore, performance appraisal appropriateness, unbiased procedures, dignity during performance appraisal meetings, and adequate explanation of the procedures used – namely, performance appraisal justice ( Gupta and Kumar, 2013 ) – is not sufficient to increase the positive outcomes. Performance appraisal satisfaction is fundamental to reach this goal. For this reason, performance appraisal has to be perceived as a global, positive process: its perceived justice is important together with its other facets, such as the relevance of the feedback received, the right recognition of the individual performance, and the organizational engagement in providing a constructive feedback – aspects constituting performance appraisal satisfaction ( Kuvaas, 2006 ). Thus, according to our results, all the aspects of performance appraisal satisfaction convey performance appraisal justice.

The study has some limitations. First, its cross-sectional nature does not allow us to determine the direction and the causality of the relations. Even if strong reasons support our results, future research may choose to conduct longitudinal studies. Since we used only one data gathering method, future research could take into account different kinds of evaluations ( Falco et al., 2013c ; Girardi et al., 2019 ); for example, they can consider students’ and colleagues’ perspectives. Drawing on the importance of subjectivity, future research could consider the moderation of some individual characteristics, such as optimism or self-efficacy, or some personality traits (e.g., perfectionism, need for cognitive closure; Falco et al., 2014 ; Bélanger et al., 2016 ). Moreover, since contextual variables could explain the results trend, future research could take into account the school level as an independent variable. Finally, in the future it is worth examining how to promote performance appraisal justice, to make it an integral part of the educational system. It is also essential to reflect on the real purposes of the appraisal system ( Maccarini, 2016 ), that is to adjust to match those of the educational system, and the overall quality-equity binomial ( Benadusi and Giancola, 2016 ).

The study underlines the relationships between performance appraisal justice and some positive individual outcomes (e.g., performance, job satisfaction, life satisfaction). These relationships are totally mediated by performance appraisal satisfaction. The study gives the following contributions. First, in examining the performance appraisal system, it considers its perceptions and its subjective facets, rather than the organizational ones. In doing so, it sheds light on the relationships between these perceptions and the positive outcomes considered. Second, it clarifies the mechanisms of action of performance appraisal justice, which was not clear ( Rubel and Kee, 2015 ). Third, it identifies a possible antecedent of performance appraisal satisfaction ( Ismail and Gali, 2017 ). Fourth, it represents – to the best of our knowledge – a first step in the study of the effects of the performance appraisal system perception on life satisfaction.

Practical Implications

Based on our results, justice and satisfaction are basic facets of the performance appraisal system. Therefore, planning training activities would be advisable to strengthen the skills that principals use during these performance appraisal meetings. The interventions could concern communication, soft, and positive, managerial skills, and psychological counseling ( Dal Corso et al., 2013 ; Scaratti and Ivaldi, 2015 ; De Carlo et al., 2016 ; Farnese et al., 2017 ). These competences could help teachers to perceive performance appraisal as a constructive, encouraging process.

Data Availability Statement

The datasets generated for this study are available on request to the corresponding author.

Ethics Statement

Ethical review and approval was not required for the study on human participants in accordance with the local legislation and institutional requirements. The patients/participants provided their written informed consent to participate in this study.

Author Contributions

LD developed the research project, with the contribution of AD, AF, and DG. LD reviewed the literature, with the contribution of AD and AF. FC prepared the data set. DG and FC carried out the data analysis.

This study was supported by the University of Padua Research Funds.

Conflict of Interest

The authors declare that the research was conducted in the absence of any commercial or financial relationships that could be construed as a potential conflict of interest.

The handling Editor declared a shared affiliation, though no other collaboration, with one of the authors FC at the time of review.

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Keywords : performance appraisal satisfaction, performance appraisal justice, teacher performance, teacher job satisfaction, teacher life satisfaction

Citation: Dal Corso L, De Carlo A, Carluccio F, Girardi D and Falco A (2019) An Opportunity to Grow or a Label? Performance Appraisal Justice and Performance Appraisal Satisfaction to Increase Teachers’ Well-Being. Front. Psychol. 10:2361. doi: 10.3389/fpsyg.2019.02361

Received: 07 June 2019; Accepted: 03 October 2019; Published: 26 November 2019.

Reviewed by:

Copyright © 2019 Dal Corso, De Carlo, Carluccio, Girardi and Falco. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) . The use, distribution or reproduction in other forums is permitted, provided the original author(s) and the copyright owner(s) are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

*Correspondence: Laura Dal Corso, [email protected]

Disclaimer: All claims expressed in this article are solely those of the authors and do not necessarily represent those of their affiliated organizations, or those of the publisher, the editors and the reviewers. Any product that may be evaluated in this article or claim that may be made by its manufacturer is not guaranteed or endorsed by the publisher.

National Academies Press: OpenBook

Pay for Performance: Evaluating Performance Appraisal and Merit Pay (1991)

Chapter: 8 findings and conclusions, 8 findings and conclusions.

The Office of Personnel Management (OPM) requested this study in preparation for reauthorization hearings, scheduled for 1991, on the troubled Performance Management and Recognition System (PMRS). Our charge was to review the research on performance appraisal and on its use in linking compensation to performance. To supplement the research findings, we were asked to look at private-sector practice as well, to see if there are successful compensation systems based on performance appraisal that might provide guidance for policy makers in reforming PMRS. We construed this charge as requiring an investigation of whether and under what conditions performance appraisal in the context of merit pay systems could assist the federal government in managing performance, fostering employee equity, improving individual and organizational effectiveness, providing consistent and predictable personnel costs, and—not least—enhancing the legitimacy of public service.

The Civil Service Reform Act (CSRA) of 1978 provides the backdrop for this study. That act required the development of job-related and objective performance appraisal systems, the results of which were to be used as a basis for training, promotion, reduction in grade, removal, and other personnel decisions. The act also created performance-based compensation systems for middle and senior managers. Designed to revitalize the civil service, in part by bringing private-sector management strategies to the federal bureaucracy, the reforms have by most measures fallen short of expectations, despite fairly substantial midcourse corrections. Yet the belief in merit principles remains strong, as does the expectation that performance appraisal and linking compensation to performance can provide incentives for excellence.

Policy makers already have extensive documentation of the problems and employee dissatisfactions with the Merit Pay System (MPS) and the successor PMRS: consistent underfunding of the merit pool, the lag of merit salaries behind the salaries of employees still under the General Schedule, the widely held and annually reinforced belief that federal salaries have fallen far behind their private-sector equivalents, and the perceived politicization of the civil service and the merit pay system that seemed to be an outgrowth of the Civil Service Reform Act. This study is intended to supplement that knowledge and experience with information drawn from the private sector, beginning with a systematic investigation of the research on performance appraisal and pay for performance systems and including an assessment of private-sector practices in the years since the passage of the Civil Service Reform Act.

We began the report with a cautionary note about the difficulties inherent in trying to measure social phenomena in general, and about the particular evidentiary obstacles presented by the subject at hand ( Chapter 3 ). Our research has taken us into the literature of a variety of disciplines as we tried to piece together from fragmentary evidence the best possible scientific understanding of the adequacy of performance appraisal as a basis for making personnel decisions and of the effectiveness of using pay to improve performance. Investigation of the effects of linking compensation to performance led us from the question of individual effectiveness to organizational effectiveness and required an examination of both merit and variable pay plans. Recent research trends also broadened the scope of the study beyond measurement instruments and appraisal processes to an examination of context and the attempt to identify conditions under which performance appraisal and merit plans operate best.

In the course of our investigations it became clear that the theoretical and empirical literatures have posited at least four different types of benefits in discussing performance-based pay systems: (1) positive effects on the work behaviors of individual employees (including decisions to join an organization, attend, perform, and remain); (2) increased organization-level effectiveness; (3) facilitating socialization and communication; and (4) enhancing the perceived legitimacy of an organization to important internal and external constituencies.

We have been ecumenical in pulling together evidence and information that speak to these criteria for gauging the effectiveness of an organization's performance appraisal and pay systems. The preceding pages have taken account of theory, empirical research, and clinical studies not only from many disciplines, but also from any research topics that seemed relevant. The formal evidence has been supplemented with information about current practices in private-sector firms.

The study's findings and conclusions are presented in this chapter as follows. The first section deals with the science and practice of performance appraisal, focusing first on measurement research, then on applied research, and ending with overall findings and conclusions. The second section covers

performance-based pay systems, focusing first on evidence from research, then on findings from practice, and again ending with overall findings and conclusions. The third section deals with the influence of context on performance appraisal and merit pay systems. The fourth section deals with the implications of the study's findings and conclusions for federal policy making.

I. THE SCIENCE AND PRACTICE OF PERFORMANCE APPRAISAL

The evaluation of workers' performance is directed toward two fundamental goals. The first of these is to create a measure that accurately assesses the level of an individual's performance on something called the job . The second is to create a performance measurement system that will advance one or more operational functions in an organization: personnel decisions, compensation policy, communication of organizational objectives, and facilitation of employee performance.

Although all performance appraisal systems encompass both goals, the two are represented in the literature by two distinct, albeit overlapping, lines of development in theory and research. In part the difference in approach to performance appraisal reflects disciplinary orientation, in part historical development. One approach grows out of psychometrics and the measurement tradition, with its emphasis on standardization, objective measurement, psychometric properties (validity, reliability, bias, etc.). The other comes from the more applied fields—human resource management, industrial and organizational psychology, organization science, sociology—and focuses on the organizational context and the usefulness of performance appraisal for such things as promoting communication between managers and employees; clarifying organizational goals and performance expectations; providing information for managers to guide retention, dismissal, and promotion decisions; informing performance-based pay decisions; and motivating employees.

Both research fields are interested in the use of rating scales to evaluate job performance, although they have tended to focus on different questions and have different expectations of performance appraisal. At the risk of overemphasizing the distinctions, we have presented our discussion in this report in two parts, one focused on the measurement research, the second on the applied research. It is, however, a matter of general orientation, not unrelated polarities.

Of the two goals, accuracy and organizational utility, most of the research in the measurement tradition has concentrated on aspects of accuracy, the implicit assumption being that if the measures are accurate, the functional goals will be met. Research in the more applied fields tends to focus not on the measurement instrument and the accuracy of inferences drawn from the measurement, but on the whole operational system of which it is a part. The applied or management perspective tends to evaluate the performance measurement component by how well the whole operates, e.g., whether the system distributes pay as it was

designed to, whether the system is accepted by all players. Accuracy of performance measurement tends to be ignored, not because it is considered unimportant, but because it is assumed, at least implicitly, that if the system-level criteria are met, then the measurement component must be sufficiently accurate.

Apart from our own convenience in presenting findings from the measurement and applied traditions separately, it is important that federal policy makers, managers' groups, and employees understand these differences and tailor their language and expectations appropriately. Current federal policy is couched in the language of the measurement tradition. In the manner of the 1978 Uniform Guidelines on Employee Selection Procedures , which elaborates the requirements of Title VII of the Civil Rights Act of 1964, Office of Personnel Management regulations implementing the Civil Service Reform Act of 1978 called on federal agencies to develop job-related and objective performance appraisal systems. The regulations required that performance standards and critical job elements be specified consistent with the duties and responsibilities outlined in an employee's position description. OPM suggested that performance standards be based on a job analysis to identify the critical elements of a job, and that each agency develop a method for evaluating its system to ensure its validity. Although courts have not demanded of performance appraisal systems the degree of rigor required of tests and other selection instruments, the terms validity, objectivity , and job-relatedness are all drawn from the context of psychological testing and performance measurement.

The Measurement Tradition

Psychometrics grows out of the theory of individual differences, namely, that humans possess characteristics and traits (e.g., height, verbal ability, upperbody strength); that each possesses these characteristics in some amount; and that the amounts can be measured. Drawing on findings in the biological sciences about the distribution of characteristics in a given plant or animal population, the founders of psychological measurement developed statistical techniques for expressing human mental characteristics and for relating the standing of one individual to that of a population of individuals. From the beginning, these theories and measurement techniques were thought to hold great promise for matching people to jobs and for measuring job performance. They were also particularly compatible with the concept of meritocracy and the particularly American idea that jobs ought to be allocated on the basis of talent or ability and not as a function of family connection, social class, religious persuasion, or other criteria that are irrelevant to job performance.

In the realm of psychometrics, the scientific imperative is accuracy of measurement. Standardized multiple-choice tests, the most familiar type of instrument in this mode, are a product of that drive for precise measurement.

Just as test administration can be controlled to provide a high degree of consistency and uniformity in the conditions of testing, so does the format of the tests constrain response possibilities to allow direct comparison of the performance of all test takers. Over the years a variety of sophisticated statistical analytics have been developed to evaluate the consistency of measurement (reliability analyses) and the accuracy and relevance of inferences drawn from the measurement results (validity analyses).

Prior to 1980, most research on performance appraisal was generated from within the psychometric tradition. Performance appraisals were viewed in much the same way as tests: they were evaluated against criteria for validity and reliability and freedom from bias, and a primary goal of the research was to reduce rating errors.

Our findings on how closely performance appraisal has been found to conform to these aspirations of measurement science follow.

Research on Job Analysis

Findings: job analysis.

Applied psychologists have used job analysis as a primary means for understanding and describing job performance. There have been a number of approaches to job analysis over the years, including the job element method, the critical incident method, the Air Force task inventory approach, and methods that rely on structured questionnaires to describe managerial-level jobs in large organizations. All of these methods share certain assumptions about good job analysis practices, and all are based on a variety of empirical sources of information.

There is an enormous body of job analysis research, the preponderance of which has been conducted for relatively simple, concrete jobs—military enlisted jobs, auto mechanics, sales, and other jobs characterized by observable behaviors or tangible products. The literature on complex, interactive, cognitively loaded jobs, and specifically on managerial jobs, is comparatively sparse and less conclusive.

With few exceptions, the analysis of managerial performance is cast at a high level of abstraction; far less attention has been given to the sort of detailed, task-centered definition typical of simpler, more concrete jobs. This global focus is reflected in managerial appraisal instruments, which typically present very broad performance dimensions for evaluation.

A job may be more or less routinized, structured, and constrained by the requirements of machinery or defined by training, but the evaluation of job performance will always depend in the final analysis on external judgments about what is most important (number of units produced or quality of the

units produced; everyday performance or response to the infrequent emergency; single-minded pursuit of profits or avoidance of environmental damage).

As a consequence, describing job performance is not a straightforward or obvious process. Even for simple jobs, it involves judgment and inference combined with careful study of the job by such means as interviews, observation, and collection of data on tasks performed and skills required. For managerial jobs, the task of adequate description becomes even more difficult, because much of what a manager does is fragmented, amorphous, and involves unobservable cognitive activities.

Job descriptions and the appraisal systems based on them reflect organizational values and judgments as well as some independent constellation of job tasks and performance requirements. To speak of objectivity with regard to job analysis and performance appraisal does not imply the absence of human judgment, but rather the absence of irrelevant or inappropriate judgments.

Conclusions: Job Analysis

The commonly made dichotomy between objective and subjective measurement is more misleading than useful in the field of performance appraisal.

Organizations cannot use job analyses or other methods of specifying critical elements and performance standards as replacements for managerial judgment; at best such procedures can inform the manager and help focus the appraisal process.

The abstract character of the behaviors (e.g., leadership, oral communications, overall performance) that typifies much of the research on managerial job performance conveys a message from the research community about the nature of managerial performance and about the infeasibility of capturing its essence through lists of tasks, duties, and standards that can be objectively counted or quantified. Reliance on global measures guarantees that evaluation of a manager's performance is of necessity based on a substantial degree of judgment. An overly literal interpretation of the requirements of the Civil Service Reform Act—taking job-related to mean job-specific, or treating objective as the opposite of judgment, would be particularly destructive for managerial appraisal.

Research on Psychometric Properties

Reliability.

Reliability analysis provides an index of the consistency of measurement, from occasion to occasion, from form to form (if there are several versions of a test or measure that are all intended to measure the same thing), or from rater to rater. The first- and last-mentioned types of reliability analysis are particularly pertinent to performance appraisal. If the measurements are to

have any meaning, one would expect the rater to reach the same judgment from one week to the next (assuming the employee's performance did not change significantly), just as one would hope that several raters would reach substantially the same decision about a single individual's performance. Data on reliability derive in part from operational settings and in part from laboratory experiments or from research projects undertaken in field settings, using special rating instruments developed for the purpose and administered with the proviso that no operational decisions will be based on the results.

Findings: Reliability

There is substantial evidence in the research literature to support the premise that supervisors are capable of forming reasonably reliable estimates of their employees' overall performance levels. For the mostly nonmanagerial jobs studied over the years, raters show substantial agreement in rating workers' performance. There is also some data showing interrater agreement on managerial performance.

It is important to remember, however, that consistency among raters cannot be taken simply at face value as proof of the accuracy of performance appraisal procedures; it can also cloak systematic bias or systematic error in valuing performance. Systematic bias is difficult to detect, the more so if it is the product of unexamined views and conventional assumptions. There is evidence of such bias, fragmentary but suggestive, in a small number of studies showing that white supervisors tend to rate white employees as a group somewhat higher than black employees and, conversely, that black supervisors rate black employees higher on average. The studies have not been able to distinguish between real performance differences and rater bias but suggest the presence of both, although the variance accounted for by bias appears to be quite small.

From the psychometric perspective, the central question posed by any measurement system is whether it produces an accurate assessment of relevant performance. Validity is the technical term used to refer to the degree of accuracy and relevance that characterizes a measurement procedure. It is not meant to imply a static characteristic of a test or rating scale; rather, the term has to do with the structure of meaning that can be built up to support the assessment results. Validity, therefore, is an accretion of evidence from many sources; it describes a research process that gradually lends confidence to the interpretations or judgments made on the basis of the measure.

In the realm of job performance, validation begins in an important sense with an analysis of the job or category of jobs for which performance measures are to be developed. If an employment test or appraisal system can be linked to important aspects of the job—say typing accuracy and speed or a sonar

technician's skill at recognizing patterns—then one building block is in place. The evidence of interrater reliabilities described above can provide another sort of clue to the accuracy of measurement systems like performance ratings, hands-on job sample tests, and other procedures that depend on an observer to judge the performance. Statisticians and psychometricians have developed an array of sophisticated statistical methods to explore the relationships between the test or measure under study and other relevant variables (correlational and regression analysis, multivariate analysis and ANOVA techniques).

Findings: Validity

Performance appraisal does not lend itself to the full complement of validation strategies that have been found useful for standardized tests. Criterion-related validity, for example, is rarely as useful for evaluating performance appraisals as it is with selection tests. The strength of the approach lies in showing that a healthy relationship exists between, say, test results and some independent, operational performance measure (e.g., college admissions test and grade-point average). When the measure being validated is itself a behavioral measure, it is difficult to find relevant operational measures for comparison that have the essential independence. As a consequence, what is frequently considered a compelling type of evidence in validation research is usually not possible for performance appraisals. Furthermore, in those limited conditions in which independent criteria do exist, the jobs themselves tend to be much more simple and straightforward than those for which appraisals are typically used.

It is, however, possible to compare performance appraisals to other measures of job performance using the conventional statistical methods of psychometric analysis. Recent military job performance measurement research, for example, demonstrated moderate correlations between supervisor ratings and each of the other types of criterion measures developed (hands-on test scores, training grades, written job knowledge tests), which lends credibility to the claim that carefully developed performance appraisals can bear a meaningful degree of relationship to actual job performance.

Supervisor ratings have been used in thousands of studies designed to examine the power of cognitive and other ability tests to predict job performance—in other words, they have been used to validate employment tests. These studies consistently show a low to moderate observed correlation between employment tests and supervisor ratings; job incumbents who score well on the test tend also to receive good ratings and those with low test scores tend to be rated as mediocre performers. While admittedly circular, this relationship provides further indirect evidence that supervisors can rate their employees with some degree of (but by no means perfect) accuracy; whether they will do so in an operational setting is another matter.

Scale Characteristics

A wide variety of rating scale formats, defining performance dimensions at varying levels of specificity, exist. Commonly used rating dimensions include personal traits (e.g., initiative, leadership, perseverance), job behaviors (e.g., follows safety procedures in engine room, financial management, interpersonal relations), and performance results (e.g., quality of work, quantity of work). The number of scale points has ranged as high as 11, but most appraisal scales have between 3 and 5.

In terms of scale format, a general distinction can be made between scales that include specific behavioral examples of good, average, and inadequate performance and those that do not. The latter, called graphic scales, simply list the dimension of interest and present a number of scale points along a continuum. The scale points, or anchors, can be numerical or adjectival (e.g., consistently superior, average, consistently unsatisfactory).

Behaviorally anchored rating scales (BARS) were developed to reduce some of the rating error typical of graphic scales. Proponents thought that BARS would help to clarify the meaning of the performance dimensions used and would help calibrate various raters' definition of what constitutes superior, average, and unsatisfactory performance on the dimension. It was also felt that the behavioral descriptions would discourage the tendency to rate on broad, general traits by focusing attention on specific work behaviors. Mixed standard scales, also behaviorally based, went one step further in trying to control rater error, particularly bias and leniency. These scales present the behavioral descriptions in random order and not in conjunction with a particular performance dimension. The rater's responses are computed by someone else into a performance score for each dimension measured.

Findings: Rating Format

Reviews of the relevant research suggest that behaviorally based scales have not met early expectations. Although the research findings are not entirely consistent, the consensus seems to be that scale formats have relatively little impact on psychometric quality, when impact is indexed by interrater agreement, rater errors, and convergent and discriminant validity of ratings. In other words, the use of behavioral versus nonbehavioral language and the physical arrangement of the scale do not appear to be critical in terms of the validity of the overall judgments about performance. 1

This proposition is given support by the research on the cognitive processes involved in performance appraisal done in the 1980s. This body of research suggests that the distinction between behaviors and traits is not as salient as once thought. Raters appear to rely less on specific behaviors than on their general evaluation of each employee when they make ratings, regardless of the focus of the rating scale. These general evaluations substantially affect raters' memory for and evaluation of actual work behaviors.

Finding: Job-Specific Versus Global Ratings

In litigation dealing with performance appraisal, the courts have shown a clear preference for job-specific dimensions. There is little research that directly addresses the validity of ratings obtained on job-specific, general, or global dimensions. Indirect evidence suggests that raters may work at the global level in any case. First, there is the evidence from the research on cognitive processes mentioned in finding number 2 above. In addition, there is a substantial body of research on halo error in ratings that shows that raters do not, for the most part, distinguish between conceptually distinct aspects of performance in rating their workers. This suggests that similar outcomes can be expected from rating scales that use global or job-specific performance dimensions.

Finding: Number of Scale Points or Anchors

The weight of the evidence suggests that the reliability of ratings drops if there are fewer than 3 or more than 9 rating categories. Recent work indicates that there is little to be gained from having more than 5 response categories. Within that range (3 to 5), there is no evidence that there is one best number of scale points in terms of scale quality.

Conclusion: Psychometric Properties

The combination of research on job analysis, research on the reliability of appraisal results, and the direct and indirect evidence of a modest relationship between performance ratings and other sorts of measures (employment tests, other measures of job performance) leads us to conclude that the performance appraisal process, while by no means high-precision measurement, can achieve moderate levels of accuracy within the assumptions of the measurement tradition.

The Applied Tradition

The focus of psychometric theory and research tends to be on the rating instrument, its measurement properties, and standardization of raters to reduce error. Researchers in the organizational sciences and human resource management tradition, which is more attuned to applied settings and operational systems, concentrate more on the appraisal system and how it functions to serve organizational ends. From this point of view, performance ratings are not the equivalent of testing technology, and the concentration of research energies on questions of job analysis, scale development, scale format, and measurement precision is misguided.

There are others closer to the measurement tradition who also have begun to feel that the psychometric lines of inquiry have become arid and are unlikely to bring about large additional improvements in the way performance appraisals are used in organizations (Banks and Murphy, 1985; Ilgen et al., 1989). A number of industrial psychologists in the last decade have begun to move away from the traditional view of performance appraisal as a measurement problem; rather than treating it as a measurement tool, they have begun to look on performance appraisal as a social and communication process (Murphy and Cleveland, 1991). Although such scholars do not reject the idea of accuracy, they tend to take a more commonsense approach, talking of the ''relevance" of the appraisal to job performance, and to concentrate much more on the contextual factors that support or distort appraisal systems.

From this perspective, the interesting research questions about performance appraisal systems are whether they enrich managerial judgment and improve employee understanding of organizational goals and standards of performance; encourage more communication between managers and employees; communicate a sense of equity and fair play in the distribution of rewards and penalties by making visible the grounds of these decisions; and enhance employee trust and acceptance. While none of these questions can be divorced from the accuracy-validity issues, the answers tend to be sought in evidence of system-level outcomes. Research on the effectiveness of performance appraisal looks at such questions as employee attitudes toward the system, the degree to which it serves individual needs (feedback, employee development) or organizational needs (communication of mission, meritocratic principles), and the degree to which it enhances (or destroys) cohesion in the work unit or organization. And, as many of these points of emphasis indicate, there is a great deal of emergent interest in the organizational context in which appraisals occur.

Although this reorientation is quite recent among applied psychologists, our review of the literature included several bodies of research in organizational psychology and management science that contribute to an understanding of how appraisal systems function as part of an organization's performance management system. These include: (1) performance appraisal and motivation, (2)

approaches to assisting supervisors in making high-quality ratings, and (3) the types and sources of rating distortion that can be anticipated in an organizational context, particularly when the results of the performance appraisal are linked to decisions about employees' pay increases.

Performance Appraisal and Motivation

Information about performance is believed to influence work motivation in three ways. First, in expectancy theory, performance information is thought to provide the basis for the employee to form beliefs about the causal connection between performance and pay. Second, performance information is believed to affect motivation by creating a sense of accomplishment; this sense of accomplishment provides an incentive to maintain high performance. Third, it is proposed that performance information provides cues to the employee about which behaviors should be continued and which should be dropped or modified.

Findings: Performance Appraisal and Motivation

The empirical research needed to support these motivational models is ambiguous as well as spotty. There is some survey data, including data on the federal Performance Management and Recognition System, that indicates that the feedback from performance appraisal helps some employees understand the job and performance expectations better. Whether that translates into better performance is unclear. At the same time, there is survey evidence indicating that appraisal information is less likely to be an accurate source of information than informal interactions with the supervisor, talking with coworkers, specific indicators provided by the job itself, and personal feelings.

The performance feedback literature, which also draws heavily on survey data, indicates that the credibility of the supervisor is crucial to acceptance of appraisal information. That credibility appears to depend heavily on the supervisor's perceived degree of knowledge about the employee's job and degree of interest in the employee's welfare.

A frequent research finding is that employees rate their own performance higher than do their supervisors. This is supported by evidence that people are likely to accept positive information about themselves and to reject negative information. Both of these inclinations would tend to dilute the motivational influence of any critical performance appraisals.

Approaches to Increasing Rating Quality

Several approaches have been used to increase the quality of performance ratings. These have included developing training programs for supervisors responsible for providing performance appraisals and developing appraisal scales

that explicitly guide the rater through both performance observation and performance assessment.

Finding: Increasing Rating Quality

The research results on rater training are mixed. A number of recent research reviews have concluded that rater training has not been highly effective in increasing the accuracy of ratings. However, there is some contrary evidence suggesting that training can lead to more accurate ratings—particularly training that focuses on the rating process and on the use of specific rating tools. Thus training seems indicated if the performance appraisal system involves scales that require complicated procedures or calculations.

Sources of Rating Distortion

Performance ratings are subject to distortion from many quarters, no matter how carefully designed the appraisal instrument. The measurement research has concentrated on statistical analysis to detect rater bias and rater errors such as halo and leniency. The organizational context adds greatly to our understanding of likely sources of distortion. It is widely assumed, for example, that the uses of the rating data in an organization will influence the appraisal process and outcomes. There are also strains in the motivational literature suggesting that supervisors distort ratings, among other reasons, to achieve outcomes they value, to bolster feelings of fairness in the work group, or to avoid demotivating employees with brutal ratings.

Findings: Sources of Rating Distortion

There is evidence from both laboratory and field studies to support the assumption that the intended use of performance ratings influences results. The most consistent finding is that ratings used to make operational decisions (e.g., pay, promotion) are more lenient than ratings used for research purposes or for feedback.

While the predictions from the motivational literature seem reasonable, empirical research on motivational factors in rating distortion is understandably rare. Little is known about the factors actually considered by raters when they decide how to fill out their rating forms. There is some revealing clinical evidence, however. A number of researchers have reported, based on interview data, that supervisors consciously manipulate appraisals to achieve desired outcomes, such as maximizing the chances that deserving employees get promoted.

Whatever the exact nature of the environmental sources of rating distortion, organizations have adopted a number of devices to deal with it. Some

private-sector firms deal with rating inflation by requiring a forced distribution in which the majority of ratings are allocated to the middle two or three categories—this provides for only a few outstanding ratings and encourages a few less-than-satisfactory ratings. Some companies decouple the performance rating from pay decisions by interposing a negotiation among relevant supervisors to rank all employees with similar jobs, thereby hoping to combat inflation and lessen the negative consequences of disappointing pay outcomes on the relationship of supervisor and employee.

Findings From Practice

Our review of performance appraisal practices in the private sector suggests that most organizations focus on the process, rather than the design aspects, of performance appraisal. For example, few organizations conduct regular updates to job analyses and job descriptions or fund validation studies. Indeed validity and reliability do not seem to enter the vocabulary of private-sector human resource managers as a rule, a finding of no great surprise since only a few of the larger companies (Sears, AT&T) have an in-house personnel testing and measurement research capability. In contrast, there is nearly universal use of objective-based formats for managers and professionals; this format allows for joint manager-employee participation in defining performance objectives and, in some organizations, interim changes to objectives according to organization or individual needs.

In addition, some organizations use joint management meetings for ranking employees after initial performance ratings are completed; these meetings provide a forum for negotiating the basic norms of "acceptable" individual performance for similar jobs or job areas. Such meetings recognize the process aspects of performance appraisal—that norms change, that raters change, that context is important, that individual judgments need to be calibrated against group norms. Our interviews with personnel managers suggested that their process emphasis also includes communications to managers and other employees about the role of performance appraisal in the context of the organization's other meritocratic practices and culture, and the insistence that performance appraisal is an important, ongoing part of a manager's job. These companies tend to assess the effectiveness of performance appraisal via its influence on employee perceptions of equity and job satisfaction, rather than with measures of performance improvements or cost reductions.

All of this emphasis on process and the use of performance appraisal systems to reinforce the idea of a meritocratic personnel context is consistent with the current research interest in performance appraisal as a social and communication process rather than a measurement tool. However, it does not address the question of the accuracy of the rating decisions or the effects of using an appraisal system on individual or corporate performance.

PERFORMANCE APPRAISAL: OVERALL FINDINGS

We have to some extent caricatured two different approaches to performance appraisal—the one preoccupied with psychometrics and precision measurement, the other focused on the utility and acceptance of performance appraisal. Clearly, both sets of considerations are important. The appropriate balance in devoting resources to measurement issues versus process issues will obviously depend on the specifics of the situation.

However, we wish to call attention to two sets of findings that suggest that there may be diminishing returns to focusing on the measurement properties of appraisal scales in the federal context.

Findings: Quality of the Instrument

There is no compelling evidence that one appraisal format is significantly better than another. The improvements in accuracy and precision that were at one time anticipated from the use of behaviorally anchored rating scales have not been convincingly demonstrated as yet—not in a way that would justify the very expensive and labor-intensive development of such scales for federal jobs generally. Although there is far less evidence on the subject, global ratings do not appear to produce very different results from job-specific ratings.

Assuming that reasonable care has been taken in the development of scales and the training of raters, the reliability and validity of performance appraisal systems does not appear to be improved by fine-tuning the format of the appraisal instrument or the number of rating anchors used.

The reliability and validity of performance appraisal systems established in the context of research or laboratory settings cannot necessarily be expected to translate directly into operational settings. We know, for example, that when performance ratings are used in the context of merit pay allocations, managers tend to inflate ratings. We know too that specifying behaviors of interest in the appraisal format (e.g., BARS or management-by-objective systems) can lead managers to ignore other aspects of job performance, particularly those that are difficult to reduce to concrete terms, that may be equally important to successful performance.

There is virtually no research establishing the predictive validity of performance appraisal measures, tools, and approaches for measures of organizational effectiveness aggregated to the level of the office, division, or firm. (This statement says more about the state of the analytical tools available to social scientists than perhaps about performance appraisal.)

Findings: Costs of Psychometric Sophistication

Psychometrically sound performance measures based on job analysis and supported by a substantial empirical research base are both difficult and costly to generate and to maintain.

One could infer from current practice that the payoffs of trying to maximize and demonstrate the scientific validity of measures of job performance are not perceived to justify the costs—or that there is simply little felt need to do so. Few organizations attempt to establish the scientific validity of performance appraisal using typical psychometric procedures. The focus in applied settings appears to be on performance appraisal as a means of supporting an ethos of meritocratic personnel decisions, and on the development and administration of performance appraisal in ways that foster employee perceptions of equity and fairness—using goal setting formats, using joint management negotiations to define job performance norms, and measuring employee perceptions of performance appraisal fairness. There is virtually no measurement of the effects of performance appraisal on ongoing organization-level performance or cost reduction measures.

PERFORMANCE APPRAISAL: OVERALL CONCLUSION

Given the expense and difficulty of developing appraisal systems that conform to the exacting requirements of the measurement tradition; given the very modest returns to that investment that have been documented empirically; given the widespread lack of concern with this level of precision among firms using performance appraisal; given the absence of convincing evidence linking performance appraisal to organization-level outcomes—we find it impossible to conclude that federal policy makers should commit vast new human and financial resources to job analyses and the development of performance appraisal instruments and systems that can meet the strict constructionist challenge of measurement science.

Many applied psychologists and management experts feel that the search for such a high degree of precision in measurement is not economically viable in most applied settings—some believe that there is little to be gained from this level of precision over currently accepted sound practices.

Policy makers need to consider carefully where on the spectrum, between psychometric measurement and impressionistic measurement, performance appraisal for the civil service should be aimed. The purposes of the appraisal system should enter into the decision. There seems little doubt that for purposes of communication and feedback, the demands for scientific precision will not overwhelm cost considerations. For controversial decisions such as dismissal or pay, the question becomes more difficult.

However, it is important to remember that line supervisors are usually

in a position to know their employees well and to have far more information available to them than the consumers of standardized test results—say, a college admissions committee.

These considerations lead us to conclude that for most personnel management decisions, including annual pay decisions, the goal of a performance appraisal system should be to support and encourage informed managerial judgment and not to aspire to a degree of standardization, precision, and empirical support that would be required of, for example, selection tests.

In this context, informed judgment means that there are demonstrable and credible links between the performance of the individuals being rated and the supervisor's evaluation of that performance.

II. Performance-Based Pay Systems

The label pay for performance covers a broad spectrum of compensation systems that can be clustered under two general categories: merit pay plans and variable pay plans. The latter category can be further divided in two, namely, individual incentive plans and the currently popular group incentive plans. Although the charge to the committee was couched in terms of merit pay plans, we extended the scope of our review to include pay for performance and compensation research more generally. This was in part for the sake of experience—we found virtually no research on the effects of merit pay systems on the performance of individuals or organizations, and so were forced to turn elsewhere to explore the question. But we also rapidly realized that the effects of performance-based pay plans on individual and organizational performance cannot be easily disentangled from the broader context of an organization's structures, management strategies, and personnel systems.

We have distinguished performance-based pay plans along two dimensions. The first represents design variation in the level of performance measurement—individual or group—to which payouts are tied. The second represents design variation in the plan's contribution to base pay—some are added into base pay, some are not.

In merit pay plans, the locus of attention is individual performance. As an important element in a meritocratic personnel system, merit pay plans link annual pay increases, at least in part, to how well the incumbent has performed on the job. As a consequence, performance appraisal is at the heart of most merit plans. Payouts allocated under merit plans are commonly added into the individual's base salary. The payouts are typically not large (on average 5 percent, with a range of 2 to 12 percent), but their addition to base pay offers the potential for significant long-term salary growth.

In the most common individual incentive plans—piece rate plans and sales

on commission—payouts are not added to base salary. Although the payouts can be large, they also carry the risk to the individual of no payout if performance thresholds are not met.

Group incentive plans differ from the two preceding types in basing compensation decisions on unit or system performance rather than individual performance. Thus profit-sharing plans or equity plans link employees' payouts to the overall fortunes of the firm as measured by some indicator of its financial health. Although payouts can be large in good times, they are not usually added to base pay—hence the designation variable pay plan.

All pay for performance plans are designed to deliver pay increases to employees based, at least in part, on some measure of performance. In theory, such plans offer several potential benefits:

They can support the organization's personnel philosophy by helping to communicate the organization's goals to its employees. For example, if financial goals are paramount, then a pay for performance plan tied to the achievement of financial goals (e.g., a profit-sharing plan) helps reinforce their importance for employees.

Goal theory also suggests that performance-based pay plans can support a certain level of performance that is consistent with the organization's mission. For example, a plan that pays out when financial goals are almost met (80 percent) sends a different message to employees than one that pays out only when goals are completely met (100 percent). Likewise, if employees receive no pay increase when their performance appraisal is below some work force norm, then they are more likely to attend to that norm.

They can help ensure consistency in the distribution of pay increases. For example, under a plan that ties pay increases to a specific financial goal, payouts are distributed only when that goal is met. Under a merit plan, pay increases are distributed consistently to employees who are in the same pay grade, who are in the same position in grade, and who have the same performance appraisal ratings. This helps the organization predict and regulate the price tag for merit increases.

Motivation theory suggests that pay for performance can positively influence individuals to achieve goals that are rewarded. To the extent that these goals contribute to organizational effectiveness, we can infer that pay for performance can influence individual and organizational effectiveness.

Before turning to the research findings, it is important to note that performance-based pay is only one dimension of employee compensation; other dimensions include competitiveness of salaries with the marketplace, benefits packages, cost-of-living considerations, and others. The effects of merit or variable pay plans will depend in good measure on this larger compensation context.

EVIDENCE FROM RESEARCH

Organizations design pay systems to accomplish three objectives: attracting, retaining, and motivating employees to perform; advancing the fair and equitable treatment of employees; and regulating labor costs. We have reviewed the research literature to see how pay for performance plans, and particularly merit pay plans, influence an organization's ability to meet these objectives.

Employee Motivation

The research most directly related to questions about the impact of performance-based pay plans on individual and organizational performance comes from theory and empirical study of work motivation. Motivation theories that have been well tested empirically predict that employee motivation is enhanced, and the likelihood of desired performance increased, under pay for performance plans when: (1) employees understand performance goals and view them as "doable" given their own abilities and skills and the restrictions posed by organization context; (2) there is a clear link between performance and pay increases, consistently communicated and followed; and (3) the pay increase is viewed as meaningful.

Findings: Employee Motivation

Most of the research examining the relationship between pay for performance plans and performance is focused on individual incentive plans such as piece rates. By design, these plans most closely approximate the ideal motivational conditions prescribed by expectancy and goal-setting theory.

Empirical research indicates that individual incentive plans can motivate employees and improve individual performance.

Individual incentive plans are most likely to improve performance in (a) simple, structured jobs in which employees are relatively autonomous; (b) work settings in which employees trust management to set fair performance goals; and (c) a stable economic environment.

Merit pay plans do not conform as closely as individual incentive plans to the theoretical conditions thought to be conducive to improved performance. Although merit plans also focus on individual performance, the link between performance and pay increase is less concrete; pay increase guidelines typically consider position and time in grade as well as performance rating; and pay increases tend to be small and therefore do not clearly differentiate outstanding from average or even poor performance. These characteristics may dilute their potential to motivate employees.

There is very little empirical research on merit pay plans. What exists is mixed and defies firm conclusions about the relationship between such plans and either individual or group performance. There are a number of field

studies suggesting that managers and professionals under a merit pay system (as opposed to a straight seniority system or no formal system) express more job satisfaction and perceive a stronger tie between pay and performance. Other studies suggest that these effects may be tenuous.

Some group incentive plans retain many of the motivational features of individual incentive plans (quantitative performance goals, relatively large and frequent payouts), but it is not easy for individuals to see how their performance contributes to group- or organizational-level measures, so the motivational link is weakened. More to the point, payouts may occur only in good times and are dependent on larger environmental and economic forces beyond the control of the individual employee.

There is a modest body of research evidence drawn from private-sector experience that suggests that gainsharing and profit-sharing plans are associated with improved group- or organizational-level productivity and financial performance. This research does not, however, allow us to disentangle the effects of the pay plans on performance from many other contextual conditions. We cannot say that group plans cause performance changes or specify how they do.

Finding: Attraction and Retention

The empirical research examining the relationship of pay to an employer's ability to attract and retain high-performing employees is limited, and there is almost no research on the impact of pay for performance plans on these objectives. We have found but one experimental study (involving white-collar workers in Navy labs) that relates retention to the adoption of a merit pay system. The study reported considerable reduction in turnover among superior performers. One study, however, is not sufficient to support a general finding.

Fairness and Equity

Organizations want their pay systems to be viewed as fair by multiple stakeholders: employees, managers, owners, and top managers; those at one remove, such as unions, associations, and regulatory agencies; and the public. Theories of organizational justice distinguish between distributive and procedural justice. The former predicts that the employee judges the fairness of pay level or pay raises in comparison with other people or groups considered similar in terms of contribution. Theories of procedural justice link employees' job satisfaction to their perceptions about the fairness of procedures used to design or administer pay, for example, the fairness of performance appraisals or the availability of mechanisms for appealing pay decisions.

Findings: Fairness and Equity

Research examining distributive and procedural fairness theories in real-world pay contexts is scarce; there are no studies that can directly answer questions about the perceived fairness of different types of pay for performance plans.

The existing research does suggest that employee perceptions of fairness with regard to pay distributions and the design and administration of pay systems does affect their job satisfaction, their trust of management, and their commitment to the organization. The research suggests at least three groups against which employees may assess the fairness of their pay: people in a similar job outside the organization; people in similar jobs inside the organization; and others in the same job or work group.

The research shows that there are different beliefs about how pay increases should be allocated (performance, seniority, equal percentage of base, etc.). Several studies suggest that private-sector managers believe that pay increases should be tied to performance. Surveys of federal managers have shown support of the concept of performance-based pay increases in principle, but there is also a tradition, stemming from the concern to protect the bureaucracy from political manipulation, that equates equity with equal pay for all people in the same grade and step.

Regulating Labor Costs

All organizations have to regulate labor costs. An organization's choice of pay system by definition involves trade-offs among performance, equity, and costs. The various performance-based pay systems studied in this report approach these trade-offs differently. The design of merit pay plans appears to emphasize predictability and stability over time. Pay increases are administered via a merit grid that uses performance rating and position in the pay grade to determine a prespecified percentage increase. The increases are typically modest, but since they are added to base pay, the gradual accumulation over years becomes significant.

Variable pay plans are intended to be more immediately market sensitive. Many of the group incentive plans, for example, are tied to clearly defined measures of organizational productivity or financial performance. Generally, improvements in these performance measures generate the bulk of the pay increase pool. Since the increases are not added to base pay, employee pay is tied closely to the fortunes of the firm. In good times, the payouts are relatively large; in bad times, the employee has more at risk than under a merit system.

Findings: Regulating Labor Costs

Although economic models provide a conceptual basis for understanding the potential trade-offs between cost and performance and some of the contextual factors that might be presumed to favor one pay policy over another, the research on cost regulation and the cost-benefit trade-offs associated with pay for performance plans is sparse and limited to production jobs and manufacturing settings.

We have no evidence that any particular pay for performance plan is superior to another in regulating labor costs.

FINDINGS FROM PRACTICE

Our review of private sector practices revealed that pay for performance is an important part of compensation philosophy and the overwhelming choice of U.S. private-sector firms. Merit plans are almost universally used for managerial and professional employees (95 percent); variable pay plans are much less frequently used (between 16 and 40 percent, depending on the type of plan), but increased competition worldwide appears to be kindling interest in them.

Our interviews with personnel managers of five Fortune 100 companies indicated that merit plans are viewed primarily as a means of guiding managers' decisions about pay increases in a way that is consistent with a meritocratic personnel philosophy—that is, it ensures that pay increases are, at least in part, tied to individual contributions, and that the increases are consistently distributed to employees in a way that is fair and predictable.

This strong attachment to a meritocratic ethos explains the predominance of merit pay plans in the private sector. Merit plans are the only pay for performance plans currently used that base pay increase decisions on the combination of individual contributions (skills, experience, and performance) that are the foundation of a meritocratic philosophy.

The personnel managers interviewed noted that a major benefit of performance appraisal and merit pay was the identification of top and bottom performers. They emphasized the flexibility of private-sector managers to bring top performers into a job at any position in the pay range, and the comparative ease of dismissing those who cannot meet company performance standards.

Surveys indicate that organizations do not evaluate the effect of merit plans on performance, but rather focus on employee perceptions of plan fairness and workability and of the link between pay and performance.

The personnel managers interviewed also emphasized the importance of communicating merit pay increases as part of an overall pay system and a meritocratic personnel philosophy. For example, most of these managers emphasized the competitiveness of base pay and benefits and the general excellence

of the company and work force in their pay communications to employees. Notable, also, is that most of these managers said that their organizations did not share specific pay information—such as average annual increase percentages, market competitors and wage survey methods, the organization spectrum of pay ranges—with employees. This is in contrast to the federal meritocracy in which employees appear to have information about their pay from many different (and conflicting) sources.

In contrast to the nearly universal presence of merit pay plans, our survey reviews revealed that less than 40 percent of private-sector firms have bonus plans for middle managers; less than 20 percent have gainsharing or profit-sharing plans in place. Baseline data for the frequency and distribution of specific plans is difficult to obtain, but there appears to be some increase in interest in these plans and in their application to groups of employees not traditionally covered.

There are a limited number of surveys on the use of group incentive plans. They report that most organizations adopt these plans to improve productivity and financial outcomes and, more generally, to ''revitalize the organization consistent with business strategy." These same surveys report that organizations that have adopted these plans believe that they have achieved the desired effects, but also acknowledge the importance of contextual factors such as employee involvement, information sharing, and ongoing marketing and communication to the employees covered. One survey acknowledged that design and implementation costs were high. None of these surveys reported employee perceptions about the equity or efficacy of variable pay plans.

PERFORMANCE-BASED PAY SYSTEMS: OVERALL FINDINGS AND CONCLUSIONS

Taken together, the evidence from research and practice suggests the following findings and conclusions about the effects on individual and organizational performance of pay for performance plans.

Findings: Individual Performance

The evidence on the effects of pay for performance, pieced together from research, theory, clinical studies, and surveys of practice, suggests that, in certain circumstances, variable pay plans produce positive effects on individual job performance.

There is insufficient research to determine conclusively whether merit pay can enhance individual performance or to allow us to make comparative statements about merit and variable pay plans.

Conclusion: Individual Performance

We nevertheless infer that merit pay can have positive effects on individual job performance, on the basis of analogy from the research and theory on variable pay plans. These effects might be attenuated by the facts that, in many merit plans, increases are not always clearly linked to employee performance, agreement on the evaluation of performance does not always exist, and increases are not always viewed as meaningful. However, we believe the direction of effects is nonetheless toward enhanced performance.

Finding: Organizational Performance

There is some evidence from the private sector suggesting that gainsharing plans are associated with improved organizational performance. However, it is not possible from existing research to conclude that these plans cause performance changes, to specify how they do so, or to understand how the behavior of individuals under these plans aggregates to the organization level.

III: THE IMPORTANCE OF CONTEXT

Our reviews of performance appraisal and merit pay research and practice indicate that their success or failure will be substantially influenced by the broader features of the context in which they are embedded. Research on performance appraisal has recently turned to organizational factors that might support or hinder the appraisal system from functioning as intended. Research on pay plans stresses the context of the organization's personnel system, technological systems, and strategic goals.

Overall Findings

There is a broad consensus among practitioners—as well as some research evidence—that personnel systems in general and performance appraisal and pay systems in particular must exhibit "fit" or congruence to be effective.

Three categories of contextual factors of particular relevance to performance appraisal and pay for performance emerged from our reviews of research and practice: (a) the nature of the organization's work, or what might be called technological fit ; (b) the broad features of the organization's structure and culture; and (c) external factors such as economic climate, the presence of unions, and legal or political forces exerted by external constituents.

Technological Fit

The strongest evidence on congruence has to do with the fit between appraisal and pay systems and the nature of work. The literature on the

links between pay and individual motivation, for example, demonstrates the importance of job independence, concrete and easily measured products, and production standards that are perceived as fair (doable) to effective individual incentive pay plans. Only a limited number of jobs, mainly in some executive, sales, and manufacturing work, have proved to be amenable to this sort of performance measurement and incentive pay. Conversely, it has been shown that using highly specific individual performance appraisals and incentives with jobs that are complex, interdependent, and have multiple and amorphous goals can result in employees' ignoring important aspects of their jobs or distorting performance in order to meet the appraisal goals. This sort of gaming is a particular danger with objectives-based appraisal systems. Group incentives avoid some of the problem. They recognize the interdependent nature of work and focus on organization-level performance. However, they suffer from unclear links between individual actions and organization-level results.

Organizational Structure and Culture

Although there is little systematic evidence to suggest precisely what the congruence of pay system and organizational culture looks like, there is a growing body of case studies that look at organizational structure and culture, particularly studies of high-commitment organizations and of organizational innovation. The business policy literature, for example, describes two archetypal strategic postures—the dynamic firm and the steady-state firm—and the performance appraisal and pay systems that appear to go along with each. Firms pursuing innovation and growth tend to offer their employees a higher proportion of their pay in the form of incentives than do firms in steady state. The more entrepreneurial firms tend to evaluate their managers and professionals on quantitative, organization-level performance goals and to offer high payouts if strategic goals are met. Studies of organizational structure confirm this pattern. They describe the entrepreneurial firm as emphasizing general skill, higher investment in recruiting than training, and performance measures tied to market outcomes. Retention is not a primary management goal.

Firms pursuing a maintenance strategy tend to evaluate managers on more qualitative, individual behaviors. Their personnel practices emphasize internal skill development, the importance of work force norms, and the employee's long-term contribution. Such firms would seem to be well served by traditional performance appraisal and merit pay plans.

There are also theoretical literatures that suggest that organizations in highly institutionalized sectors or that rely greatly on public trust may be more likely to adopt very formal, precise performance appraisal systems. In such organizations, personnel and pay systems can have an important legitimizing function.

There is a considerable literature that supports these general patterns of

association between performance appraisal and pay systems on the one hand and organizational strategy and structure on the other. However, all of this work is theoretical or descriptive and should be viewed as suggestive, but not necessarily generalizable.

External Forces

The final dimension of congruence has to do with external factors that constrain an organization's choice of evaluation and pay systems. One of the most relevant to federal policy makers is the widespread resistance of unions in the private sector to performance appraisal and pay for performance systems. Most surveys show that unionized employees are far less likely than nonunionized employees to be covered by incentive systems (including merit plans). To the extent that this changed in the 1980s, the incentive pay arrangements accepted by unions (e.g., profit-sharing) were not ones that differentiate among individual employees.

Also of particular salience to the issue of pay for performance is the role of external laws and regulations. Fair labor standards, occupational health and safety, and equal employment opportunity are a few of the areas of law that prescribe internal structures, policies, and procedures that may be more or less compatible with an organization's chosen evaluation and pay systems. Federal equal employment opportunity policy has had an enormous impact on personnel management in every organization of any size in the nation.

In addition to these requirements, the federal government as an employer faces a set of constraints imposed by the laws and regulations surrounding its merit system. The desire to shield civil servants from the exigencies of politics has placed serious constraints on the managerial flexibility needed to make pay for performance work.

IV. IMPLICATIONS FOR FEDERAL POLICY

Since its formal adoption by the federal government, performance appraisal for merit pay has been a matter of continuing controversy and periodic amendment. One view of this experience is an explicit criticism of the federal government and its inability to "get right" what is now widely used in the private sector with (at least) less criticism. While there are many features of the merit pay system that could be improved, we do not attribute these failings to mismanagement or stupidity in implementation. Instead, we would emphasize the constraints, many of which derive from features unique to the federal sector.

The federal government faces special, if not entirely intractable, problems that work against any easy transferability of private-sector experience. The very term merit pay carries far more meaning in the context of a public civil service than in the private sector—above all, the absence of partisan political considerations in the determination of pay levels of career employees. Where

private-sector practice relatively easily accepts manager-employee exchanges about performance objectives, both individual and organizational, such a practice in the public sector could be perceived as opening the civil service to partisan manipulation.

Hence, one of the most difficult questions facing federal policy makers is whether and how the experience of private-sector organizations with performance appraisal and pay for performance plans is applicable to civil service organizations. The portrait of high-commitment organizations that emerges from case studies highlights some fundamental differences between private firms in which performance-based pay seems to work well and the typical government agency. In high-commitment organizations, the following conditions appear to obtain:

Pay for performance would be one part of a total management system, which provides full financial and organizational support for effective administration of the plan;

The organization would be characterized by an emphasis on managerial discretion and flexibility and by the recognition that individual managerial authority is critical to effective performance appraisal;

The climate would be characterized by shared values and high levels of trust throughout the organization;

On the basis of those values, the ability to link individual performance and activities to organizational goals and objectives would be strong;

There would be widespread agreement about individual and organizational standards of success; and

There would be low turnover at the managerial levels.

Most of these conditions pose a problem for public-sector organizations because of the division of leadership between the political and career employees; the lack of managerial control over personnel and resource systems; the ambiguity of goals and performance criteria; and multiple authority centers for employee accountability. The very publicness of government creates organizations that are at once more open to external influences and less able to respond to them. These conditions have led to a working environment in which managers are frustrated in their ability to make personnel decisions and employees are distrustful of the performance appraisal and pay allocation systems—most do not see a link between their performance and their pay.

The issue of divided leadership provides a particularly salient example of the inherent difficulties of creating a successful merit pay system in the federal context. A continuing theme in modern government has been the need to make the bureaucracy more responsive to the chief executive. One tool available to presidents is appointing employees to positions outside the career civil service. But if the presence of political executives in leadership positions in federal agencies institutionalizes the continuing mandate for change, the authority and

communication structures within those agencies often create obstacles to change (Ingraham, 1987). For example, the "dual executive" characteristic of many public agencies tends to create a system in which decisions are made according to short-term policy goals at the upper levels of the organization and according to longer-term program goals elsewhere.

In many ways federal agencies function as two loosely coupled organizations with authority, control, and communication between them much more tenuous than prescribed by the classic paradigm. Even if the policy goals were not so often diffuse, unclear, and contradictory (Heclo, 1978; Ingraham, 1987), the ability to communicate them to the career bureaucracy is attenuated by the lack of experience and short tenure of many political executives (Heclo, 1978). All too often, in the judgment of experts in federal management, organization-wide goals are either not articulated or are not communicated down through the organization to the career employees responsible for their implementation. Functioning with two sets of managers makes congruence and coherence hard to achieve. In most models of organizational fit, there is a single leadership that creates a coherent culture and shared values that are necessary conditions to enable a successful performance appraisal system.

The issue of organizational boundary (at which the controlling influences shift from internal to external actors), particularly as it relates to the ability to control or direct organizational resources, is also a central concern. Many have observed that public organizations are notable for the porosity of their boundary (Waldo, 1971; Kaufman, 1978; Gawthrop, 1984). The federal government has been structured deliberately to disburse authority among competing institutions (Allison, 1983); members of Congress, administration officials, interest groups, concerned citizens, and others can, and do, influence bureaucratic actors. This further obfuscates goals and objectives within the organization. Of equal significance is the fact that many of these external influences, but most notably the Congress, have a controlling influence on the resources available to the organization, thus further complicating the authority issue.

Other institutional influences that profoundly shape federal agencies and their activities include civil service laws and regulations that impose great complexity and rigidity on the system. Recruiting, testing, hiring, firing and rewarding are all constrained in the federal government (National Academy of Public Administration, 1983). As a result of these externally imposed constraints, managerial discretion has traditionally been limited and has, in fact, been discouraged by the provisions of the merit system (Ingraham and Rosen-bloom 1990). Although there is emerging evidence that some federal managers do use whatever flexibilities that are available, including those provided by existing performance appraisal systems, there is also strong evidence that procedural constraints deter all but the strongest of heart (unpublished document, U.S. General Accounting Office, 1990).

A frequently cited example of the boundary problem is demonstrated by

the fact that Congress retained statutory control over development of the federal government's performance appraisal system, rather than delegating both the development and implementation components to the Office of Personnel Management. The rationale was to balance managerial discretion with employee rights in the context of a system that made it easier for agencies to fire incompetent employees; the result was to hobble the decision making of managers. On one hand, Civil Service Reform Act legislation provided the requirement for detailed performance appraisal standards that could be used by managers as proof of unsatisfactory performance. On the other hand, the managers' ability to act regarding unsatisfactory performance was limited in the statute by providing employees with strong substantive rights, such as the opportunity to improve before an unacceptable performance action can be taken and the ability to appeal performance appraisal ratings both within the agency and externally to the Merit Systems Protection Board. This has led to situations in which, at best, a number of years are required to release an inadequate employee, and the costs borne by managers serve as a strong disincentive against appraising mediocre performance accurately.

Another feature of the federal context that warrants consideration is whether the dominant motivations among employees are comparable to those of private-sector workers who work where pay for performance has been implemented. Although there has been a long tradition of simply applying private-sector motivation theory and techniques to the public sector, some recent studies are finding different sources for motivation and different motivational patterns among public employees. Perry and Wise (1990) explore the role of public service as a motivator; Rainey (1990) documents a fairly consistent pattern of differences in public and private managers in relation to money, job satisfaction and security, and organizational commitment. In a 1982 review article, Perry and Porter noted that public-sector employees had higher achievement needs and tend to value economic wealth less than do entrants into the private sector.

Furthermore, there is some evidence that public managers, particularly those at the highest levels of the organization, are keenly attuned to public perceptions of their effectiveness and the overall usefulness of the policies and programs they administer (Ingraham and Barrilleaux, 1983). Federal Employee Attitude Surveys in 1979 and 1980 demonstrated that upper-level managers perceived generalized "bureaucrat bashing" as a personalized attack. More recent studies by the Merit Systems Protection Board (1989) and the U.S. General Accounting Office (1987) indicate that managers continue to tie their overall job satisfaction to their perceptions of "appreciation" by the public. These findings suggest that policy makers would do well to give their attention to nonmonetary motivators in concert with their plan to strengthen the ties of pay to performance.

Finally, one of the most important contextual factors that governs how any new performance appraisal or pay for performance system is likely to function

is the less than satisfactory experience of federal employees with the merit pay systems implemented during the last 12 years.

CONCLUSIONS

We have conducted a wide-ranging study of performance appraisal and pay for performance in the private sector to help the director of the Office of Personnel Management and other federal policy makers as they rethink the Personnel Management and Recognition System. What we have learned does not provide a blueprint for linking pay to performance in the federal sector or even any specific remedy for what ails PMRS. Instead, we conclude with some general suggestions about priorities.

Performance appraisal ratings can influence many personnel decisions, and thus care in the development and use of performance appraisal systems is warranted. There is, however, no obvious technical (psychometric) solution to the performance management issues facing the federal government. Further refinements in the technology of performance appraisal (e.g., extensive new job analysis, modifications of existing rating scales or rater training programs) are unlikely to provide substantially more valid and accurate appraisals than those currently in force, particularly for managerial and professional jobs. There is also no evidence that one particular appraisal format is clearly superior to all others. For example, we do not know that the objective-based format for managerial appraisal, so popular in the private sector, yields more (or less) valid appraisals than the supervisory ratings used in the government.

There appears to be at least as much effort expended on performance appraisal in the federal government as elsewhere. More generally, the pursuit of further psychometric sophistication in the performance appraisal system used in the federal government is unlikely to contribute to enhanced individual or organizational performance.

Where performance appraisal is viewed as most successful in the private sector, it is firmly embedded in the context of management and personnel systems that provide incentives for managers to use performance appraisal ratings as the organization intends. These incentives include managerial flexibility or discretion in rewarding top performers and in dismissing those who continually perform below standards. When performance appraisal ratings are used to distribute pay (as in a merit plan) the size of the merit pay offered allows managers to differentiate outstanding performers from good and poor performers, and thus provides them with incentives to differentiate. For example, top performers may receive 10 percent of their base salary in merit pay, good performers, 5 percent, and poor performers, no merit increase. Finally, managers are themselves assessed on the results of their performance appraisal activities.

We have been struck by the apparent contrast between incentives for private and federal managers to use performance appraisal and merit plans effectively. Whatever incentives there are for federal managers seem currently dwarfed by the disincentives.

In order to motivate employees and provide them incentives to perform, a merit plan or any pay for performance plan must theoretically (a) define and communicate performance goals that employees understand and view as doable; (b) consistently link pay and performance; and (c) provide payouts that employees see as meaningful. These conditions seem straightforward, and the notion of pay for performance thus becomes deceptively simple. Our reviews of research and practice indicate, however, that selecting the best pay for performance plan and implementing it in an organizational context so that these conditions are met is currently as much an art as a science. We cannot generalize about which pay for performance plans work best—especially for the federal government, with its considerable organizational and work force diversity.

We can suggest that, given this diversity and the importance of matching pay for performance plans to organization context, federal policy makers consider:

Decentralizing the design and implementation of many personnel programs, including appraisal and merit pay programs, within the framework of central policy guidelines and to the extent possible given the government's legitimate concerns about facilitating interagency mobility, standardization and comparability, and equity.

Supporting careful, controlled pilot studies of a variety of pay for performance systems in a variety of agencies. These studies would serve to identify important design, implementation, and evaluation issues for users, policy makers, and the research community, along with incentives to investigate these issues. They could take a variety of forms, but to be useful must provide careful measures of preand postintervention conditions.

Ensuring fair and equitable treatment for all employees is an important objective of any personnel system. Yet the heavily legalistic environment surrounding the federal civil service has led to dependence on formal procedures and an elaboration of protections, requirements, and procedures that ultimately provide powerful disincentives for managers to use personnel systems as the organization intends. Although these protections are meant to ensure employee equity, it is not clear that their proliferation provides federal employees with a greater sense of equity than seen in many private-sector organizations. Effective reform of personnel management and pay systems in the federal government may well need to be part of a more fundamental rethinking of past notions of political neutrality, merit, and their protection in the civil service.

Our entire review has stressed the importance of viewing performance appraisal and merit pay as embedded in broader pay, personnel, management, and organizational contexts. For example, while by no means the only relevant

contextual factor, the issue of comparability of federal base salaries with pay for equivalent private-sector jobs may pose severe problems for the acceptance of merit pay or any other pay for performance system if the promise of recently enacted legislation proves illusory. We realize that the broader changes suggested by an analysis of context can be costly, but we suggest that making programmatic changes to the Performance Management and Recognition System in isolation is unlikely to enhance employee acceptance of the system or improve individual and organizational effectiveness significantly and, in the long run, may prove no less costly.

"Pay for performance" has become a buzzword for the 1990s, as U.S. organizations seek ways to boost employee productivity. The new emphasis on performance appraisal and merit pay calls for a thorough examination of their effectiveness. Pay for Performance is the best resource to date on the issues of whether these concepts work and how they can be applied most effectively in the workplace.

This important book looks at performance appraisal and pay practices in the private sector and describes whether—and how—private industry experience is relevant to federal pay reform. It focuses on the needs of the federal government, exploring how the federal pay system evolved; available evidence on federal employee attitudes toward their work, their pay, and their reputation with the public; and the complicating and pervasive factor of politics.

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  • J Oncol Pract
  • v.7(2); 2011 Mar

Performance Appraisal: A Tool for Practice Improvement

Dean h. gesme.

Minnesota Oncology, Minneapolis, MN; Wiseman Communications, Washington, DC

Marian Wiseman

Yours may be among the many oncology practices without an appropriate performance review system in place. Lack of an effective evaluation system increases the risk of inefficiency, poor office morale, and high turnover rates.

Do these statements describe your practice?

  • Within 30 days, physicians we recruit know specific changes they should make to succeed with our practice.
  • Employees have specific performance improvement plans.
  • Accountability for job performance is clear to each employee and is consistently applied.
  • The partners in the practice regularly identify their own strengths and areas to improve.

If not, you may be among the many oncology practices that do not have appropriate performance review systems in place. Data do not exist, as far as we know, about the percentage of oncology practices that systematically review performance of employees or physicians. But we do know that some practices have no evaluation system at all, and many have a system that is cumbersome, ineffective, or both. Regarding physician appraisals, one consultant reported, “In my experience most groups either don't do it or don't do it well.”

Why Bother?

“The payoff is improved job performance—it's as simple as that,” says Robert J. Solomon, PhD, a professor in organizational behavior at William & Mary's Mason School of Business (Williamsburg, VA) and author of The Physician Manager's Handbook. “The performance appraisal is the mediator between what you want done and motivating the employee to do it. The extent to which you can tie performance to compensation makes the appraisal much more powerful. It gives you the basis to say ‘your job performance just doesn't merit an increase.’”

Not having an effective evaluation system increases the risk of inefficiency, poor office morale, and high turnover rates. Employees may not receive training that can help them improve, and they are likely to distrust the fairness of workload distribution, salaries, and bonuses. High-performing employees can be demoralized by feeling that their work goes unnoticed or by seeing lower performers receive the same treatment and compensation that they receive.

A good appraisal system also aids management, giving practice leaders the information needed for management decisions such as staff development, job structuring and promotions, workload distribution, and compensation. Well-documented performance appraisals also provide a sound basis for disciplinary actions and termination decisions and provide back-up if such actions are challenged. Consistently applied appraisals are also important if an employee alleges wrongful discharge or violation of Equal Employment Opportunity laws.

Elements of an Effective Performance Appraisal System

To be effective—and by that we mean contributing to improved performance, achieving practice goals, and supporting individual development—the performance appraisal should be a systematic, year-round approach that links performance to objectives and to consequences. Although the appraisal process for physicians will differ from that of staff, the essential characteristics of effective evaluation listed here apply to both groups:

Job-Specific Criteria

Create an appraisal tool on the basis of an individual's job description (Data Supplement 1). If your practice does not have position descriptions, or they are out of date, start there. Written job duties are essential for hiring the right people and establishing expectations. Evaluate the nurse practitioner on the specific responsibilities he or she has, and do the same for the receptionist and the insurance reimbursement specialist. Conversely, do not include activities unrelated to an individual's job responsibilities.

Schedule and Schedule Adherence

Set a schedule for written evaluations and review to be performed at least annually. Some practices do all appraisal reviews at the same time each year; others schedule them to occur within 30 days of the anniversary of hire or follow another approach. No single way is best; use a schedule that works well for your practice. Managers often procrastinate in conducting reviews, so create an oversight system to ensure that the deadline is met. Ignoring overdue evaluations makes the employee feel devalued and can contribute to poor morale. Meeting appraisal deadlines should be a criterion in each supervisor's job description.

Alignment With Strategic Practice Objectives

This element may seem like a “no-brainer,” but take time to review evaluation criteria for all staff physicians, in light of your group's strategic objectives. Given your marketing objectives, should physicians have a responsibility to participate in a hospital committee or to meet personally with referring physicians? What is an achievable improvement goal for the collection rate or for receivables that are more than 120 days old?

Use of Both Quantitative and Qualitative Criteria

Include measurable factors in evaluation. For the receptionist, examples of quantitative criteria are collecting the patient's copayment 90% of the time and registering patients with an error rate of less than 2%. Examples of physician quantitative criteria are making two patient education presentations a year, achieving a certain patient satisfaction rate (if patient surveys are conducted), and dictating 90% of patient records within 48 hours. Examples of qualitative criteria for evaluating the receptionist are “seeks innovative solutions” and “maintains composure and performs well in stressful situations.” For physicians, “stays abreast of clinical advances” and “maintains good relationships with referring physicians” are examples.

Ongoing and Immediate Feedback

“Immediate feedback is the most critical element and the most effective performance appraisal procedure” says Solomon. “If the performance is good, it's more motivational to comment right then and there. On the other hand, if a problem occurs or performance needs improvement, you will immediately begin to modify the substandard behavior.” If you do not give employees immediate feedback when there is a performance lapse, they can fairly assume their performance is satisfactory, leading to unmet practice goals and a missed coaching moment. Solomon clarifies that “immediate” does not mean commenting in front of others, nor does it mean commenting two weeks later. Talking to the employee privately, in the next few hours or within a day or two, is appropriate. If you are not the direct supervisor, it may be appropriate to comment to the employee's manager rather than directly to the individual, so as not to circumvent the manager's authority. Finally, providing immediate feedback throughout the year ensures that the regularly scheduled review contains no surprises—a tenet of effective performance appraisal.

Self-Evaluation

“The process of writing a self-evaluation causes the employee to consider his or her job performance as a supervisor would, and to begin thinking about changes for the future,” Solomon says. Kenneth T. Hertz, FACMPA, principal with the Medical Group Management Association Health Care Consulting Group (Englewood, CO), agrees, and outlines the following process: A week or more ahead of their review, give employees a copy of their own evaluation instrument and job description (Data Supplement 2). Ask them to identify aspects of the job that warrant changes in the job description; evaluate themselves; and come prepared to talk about their performance, strengths and weaknesses, and the goals they would like to set for professional and personal development.

Written Evaluation Report and In-Person Meeting

Your evaluation should always be put in writing. Evaluate the employee separately on each factor in the job description. Be specific and direct, using concise and unambiguous language. Include examples to explain and support your report. Evaluate behavior, performance, and output, not the employee's personality. At an appointed meeting with the employee, give the employee a copy of your written analysis and outline the ways you reached your assessment, such as direct observation, review of the employee's work, and observations by others. Solicit the employee's comments on every factor in the evaluation. Discuss whether the job description should be changed. At the end of the discussion of performance, identify goals for improvement.

Performance Plan

The performance appraisal should not be simply a report card. As Hertz states, “If you miss setting goals for development, it becomes a hollow process.” Using the results of the performance appraisal, identify, with the employee, very specific goals and timelines for achieving them. The goals might address improvement areas or development in an aspect of the job that the person finds interesting. Discuss with the employee possible reasons for poor performance and ways to improve. For instance, if the evaluation shows that the employee is not meeting expectations for data entry, is training needed on software updates that have been issued? Is attendance or punctuality poor? Have other assignments kept him or her from the task? After agreeing on the reason(s), set a goal for improvement and create a specific plan, including a timeline, to achieve it. In some cases, assign creation of the initial plan to the employee, but make certain to review it and revise if necessary. In the example about data entry, if the employee needs training, offer suggestions he or she might want to consider as first steps in the performance plan, such as setting aside time to use the software tutorial or user manual, identifying training available from the vendor, setting up training sessions with a senior colleague, or paying a consultant or staff member from another practice to work with the employee after hours.

Physician Performance Evaluations

If your practice has never engaged in a formal physician evaluation process, now would be a great time to start. As consultant Hertz puts it, “Unless you've been off the planet for the last year or two, you've heard about accountable care. The savvy practice will begin to do its own internal evaluation and performance appraisal of physicians and outcomes, using protocols or clinical pathways to measure physician performance again standards.” That said, Hertz acknowledges that the group must have a culture that supports evaluation of individuals. Solomon echoes this perspective. “Physicians are not used to this. But the demand for demonstrating outcomes is increasing. Physicians aren't going to be able to do what they want however they want.”

How to begin? Always keep in mind, and stress to others, that performance evaluation is about achieving strategic practice goals, improving care, and improving patient satisfaction—it is not about being intrusive or criticizing anyone's practice. People typically resist change, so start slowly. Engage the group in a discussion about achieving goals and improving performance, both clinical and behavioral. If your practice has done strategic planning, use those goals.

An effective performance appraisal system for physicians will have the same elements as those listed above. Physicians typically do not have job descriptions, so start with listing the responsibilities of each physician, both clinically and behaviorally, in achieving the practice goals (Data Supplements 3 and 4). Performance in areas of timeliness for appointments, efficient use of the electronic medical record system, marketing, participation in tumor boards, community outreach, clinical care, and effective interaction with other providers are all areas of performance that might be considered important by the group.

Feedback to Newly Hired Individuals

Whether or not your group has a performance appraisal system in place for all physicians, Hertz emphasizes that feedback to new physicians is absolutely critical for recruitment and retention. “The process should be structured, with assignments and a schedule for providing feedback,” he advises. “In the first three months the administrator and the president of the group or an assigned physician should meet with the new doctor every month, maybe every two weeks. Someone needs to take time to review charts and obtain feedback from the other clinical staff. Talk to the physician about how he or she is doing in patient care, documentation, coding, interactions with nurses and patients. Be specific about whether expectations are being met.”

If improvement is needed, jointly develop a performance plan. Hertz cautions that a new recruit who doesn't know how he is doing is likely to leave. “The group just paid maybe $15,000 to move the family. Maybe a sign-on bonus was paid. The time and effort needed to provide feedback is worth the investment.”

Similarly, with new administrative or clinical staff, help them start off right by providing frequent feedback, using the job description as a guide to cover each area of accountability. Assign a mentor to orient the individual and answer day-to-day questions. A 90-day probationary period is common, but don't wait that long to discuss performance. A 30-day initial review coupled with performance planning to build on strengths and address areas for improvement can be valuable at this stage.

Multisource Feedback: The 360 Review

Tools that give credible assessments from others can be beneficial in performance appraisal. The 360 review, also referred to as multisource feedback, is such a tool. In a 360 review, performance evaluation is solicited from people who interact with the individual being appraised, including peers, subordinates, and managers (Data Supplement 5). Ideally, information from patients would also be used.

Both Solomon and Hertz say that a 360 review can be a valuable tool but can easily be misused or used incompetently. Solomon notes, “It should focus on problem identification and resolution—how did that person's performance affect me and my performance?” Hertz advises using professional consultation, “A 360 review needs to be professionally administered, with appropriate development of survey instruments, assurance of anonymity, and protection of individuals from retribution. It should be done in a culture that embraces change.” Corroborating this perspective, Dubinsky et al 1 report that implementing multisource feedback as part of the performance appraisal process involves a culture change and should be approached as a change management project, with extensive communication and training for all involved.

Performance appraisal is a process, not a form. Accordingly, beware of adopting a template or using a form from another practice. To be meaningful to both the individual and the practice, the appraisal must be correlated with specific responsibilities and must be used to develop performance improvement goals.

Solomon comments that the best way to think about performance appraisal is as one of a number of tools to make a practice more effective. “The appraisal is the sum total of what has already occurred, including hiring and managing. You can't take these processes in isolation. If you're doing a bad job in the selection process, then performance appraisal becomes more difficult, because now you're trying to clean up a mess that should never have been there to begin with. You can't say ‘we're going to fix all of our front-office problems by putting in a performance appraisal system.’ You need a selection process that works effectively, a performance appraisal system that works effectively, and managers who understand how to lead and motivate people.”

Further Information

Leading Physicians Through Change: How to Achieve and Sustain Results , by Jack Silversin and Mary Jane Kornacki. Tampa, FL: American College of Physician Executives, 2000 (available at www.acpe.org/publications )

Partner Performance Counseling, Chapter 22 in Managing the Professional Service Firm , by David Maister. New York: The Free Press, 1993 (available at www.davidmaister.com )

Performance Appraisal Source Book , by Mike Deblieux. Alexandria, VA: Society for Human Resource Management, 2003 (available at www.shrm.org )

The Physician Manager's Handbook: Essential Business Skills for Succeeding in Health Care , 2nd ed., by Robert J. Solomon. Sudbury, MA: Jones and Bartlett Publishers, 2008 (available at www.jblearning.com )

Authors' Disclosures of Potential Conflicts of Interest

The authors indicated no potential conflicts of interest.

Author Contributions

Conception and design: Dean H. Gesme, Marian Wiseman

Administrative support: Dean H. Gesme, Marian Wiseman

Collection and assembly of data: Marian Wiseman

Data analysis and interpretation: Dean H. Gesme, Marian Wiseman

Manuscript writing: Dean H. Gesme, Marian Wiseman

Final approval of manuscript: Dean H. Gesme, Marian Wiseman

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How Organizations Can Encourage Productive Allyship

  • Hannah J. Birnbaum,
  • Desman Wilson,

research on performance appraisal suggests

New research suggests that people from underrepresented groups appreciate acts of allyship more than people from majority groups might think.

Many leaders want to be allies for underrepresented groups, but fear their attempts will be awkward or offensive. New research suggests these fears are often unfounded, with acts of allyship generally being appreciated more than anticipated. Organizations can help by educating potential allies on how their efforts are received and by creating a culture where open communication and support are encouraged.

Acts of allyship — whereby historically advantaged group members (e.g., white people, men) support relatively disadvantaged group members (e.g., racial minorities, women) — are critical for generating inclusion in the workplace. However, many well-intentioned managers and executives feel paralyzed by the fear of getting it wrong. It’s not hard to see why: Some high-profile attempts by companies and business leaders to promote diversity, equity, and inclusion have backfired spectacularly in recent years.

research on performance appraisal suggests

  • HB Hannah J. Birnbaum is an assistant professor of Organizational Behavior at Washington University’s Olin Business School in St. Louis. Her research investigates strategies to facilitate successful diversity, equity, and inclusion initiatives in organizations.
  • DW Desman Wilson is a researcher who has been published in the Journal of Experimental Psychology: General as well as Organizational Behavior and Human Decision Processes. He is currently a research coordinator at Greener by Default.
  • Adam Waytz is the Morris and Alice Kaplan Chair in Ethics and Decision Management and a professor of management and organizations at Northwestern University’s Kellogg School of Management. He is the author of The Power of Human: How Our Shared Humanity Can Help Us Create a Better World (W.W. Norton & Company, 2019).

Partner Center

COMMENTS

  1. The Performance of Performance Appraisal Systems: A Theoretical

    Performance appraisal (PA) plays a strategic role in public sector human resource management (HRM), acting as a driver for better performance. ... Bretz R. D., Milkovich G. T., Read W. (1992). The current state of performance appraisal research and practice: Concerns, directions, and implications. Journal of Management, 18(2), 321-352 ...

  2. Purposes of Performance Appraisal: A Systematic Review and Agenda for

    Abstract. Purpose: This study expands the knowledge on theoretical and practical performance appraisal purposes (PAPs) explanations. Theoretical framework: Performance Appraisal (PA) has already ...

  3. What Solid Research Actually Says About Performance Appraisals

    (Later research suggests praise does improve the manager-subordinate relationship.) 3. Criticism generates defensiveness on the part of the subordinate, which in turn leads to poorer performance.

  4. Performance Appraisal and Innovative Behavior in the Digital Era

    Theoretical Framework. In order to investigate whether and how performance appraisal may enhance IWB, we built on the HRM studies which adopt a process-based approach (Bowen and Ostroff, 2004; Sanders and Yang, 2016).This approach suggests interpreting HRM practices as messages that organizations send to their leaders and employees to inform about which results and behavior (e.g., IWB) are ...

  5. Performance Appraisal Reactions: A Review and Research Agenda

    With that said, research has shown that employees are often dissatisfied with the appraisal process (e.g., Taylor, Tracy, Renard, Harrison, & Carroll, 1995).Managers generally dislike giving negative feedback, and employees generally react negatively to such feedback (Brett & Atwater, 2001), which could reduce their subsequent performance.This is a key problem in that the primary purpose of ...

  6. The Current State of Performance Appraisal Research and Practice

    This review examines the performance appraisal literature published in both academic and practitioner outlets between 1985 and 1990, briefly discusses the current state of performance appraisal ...

  7. Performance Appraisal on Employees' Motivation: A Comprehensive

    The system of performance appraisal has manifested to be among the famous paradoxes in the effectiveness of human resource management in any of the world's organizations [1, 2].The performance appraisal aims to enhance the efficacy and efficiency in employees' performance [3, 4].The process involves evaluation of employees' performance in their respective departments based on the ...

  8. PDF What Do Performance Appraisals Do?

    part of a contractual relationship. Performance appraisals seem instead to support relational contracts between the employees and the firm. The performance appraisal has been traced back to the early 1800s and the UK cotton mills owned by Robert Owen. They became popular in the US after WWII (see Murphy and Cleveland 1995 for a survey).

  9. PDF Performance Appraisal Reactions: A Review and Research Agenda

    2013; Tziner, Murphy, & Cleveland, 2005). Performance appraisal research has tra - ditionally not focused on ways by which to improve appraisal reactions. Historically, most performance appraisal research focused on the so-called psychometric 1 Employee reactions to performance appraisals will be referred to as appraisal reactions through-

  10. What Do Performance Appraisals Do?

    Despite this, remarkably little is known about how performance appraisals operate, especially their consequences. Indeed, much of what is written from a practitioner perspective typically suggests that they do little. By contrast, we document empirical evidence of the importance of performance appraisals using data from a large US corporation.

  11. The Effect of Strengths-Based Performance Appraisal on Perceived

    Strengths-Based Performance Appraisal. Most performance feedback in organizations is based on a deficit approach in which person's weaknesses are seen as their greatest opportunity for development (van Woerkom et al., 2016).However, developments in the field of positive psychology (Seligman and Csikszentmihalyi, 2000) have inspired practitioners and scholars to promote the benefits of ...

  12. Frontiers

    Introduction. Performance appraisal is one of the most important HR management tools and its efficient implementation is one of the greatest HR professionals' challenges, particularly in terms of validity and reliability (Gupta and Kumar, 2013; Ivaldi et al., 2015).Performance appraisal identifies the individual's contribution to the organizational goals and establishes individual ...

  13. The Current State of Performance Appraisal Research and Practice

    This review examines the performance appraisal literature published in both academic and practitioner outlets between 1985 and 1990, briefly discusses the current state of performance appraisal ...

  14. Full article: Continuous Performance Feedback: Investigating the

    Performance feedback is one of the most studied practices in the performance management literature, and organizational behavior management (OBM) has significantly contributed to this topic, as performance feedback is among its most researched interventions (Alvero et al., Citation 2001; Balcazar et al., Citation 1985; Sleiman et al., Citation 2020; Tagliabue et al., Citation 2020).

  15. 8 Findings and Conclusions

    The research suggests at least three groups against which employees may assess the fairness of their pay: people in a similar job outside the organization; people in similar jobs inside the organization; and others in the same job or work group. ... Research on performance appraisal has recently turned to organizational factors that might ...

  16. (PDF) Best practices in performance appraisal

    This review examines the performance appraisal literature published in both academic and practitioner outlets between 1985 and 1990, briefly discusses the current state of performance appraisal ...

  17. Performance Appraisal: A Tool for Practice Improvement

    Summary. Performance appraisal is a process, not a form. Accordingly, beware of adopting a template or using a form from another practice. To be meaningful to both the individual and the practice, the appraisal must be correlated with specific responsibilities and must be used to develop performance improvement goals.

  18. BA302 Organizational Behavior

    Research on performance appraisal suggests performance appraisal ratings are usually used only for feedback purposes. employees are always well aware of the basis for their evaluations. as organizations become flatter, there is less need for multiple appraisal perspectives like those of peers, customers and subordinates. feedback is most effective if it immediately follows high or low performance.

  19. What Makes Performance Appraisals Effective?

    Performance appraisals are often criticized and poorly done. However, they are not going away and should not go away. They are needed to effectively manage an organization's talent. Our research suggests that performance management systems can be effective if they are designed and executed correctly.

  20. How Organizations Can Encourage Productive Allyship

    New research suggests these fears are often unfounded, with acts of allyship generally being appreciated more than anticipated. Organizations can help by educating potential allies on how their ...