The annual performance review, which in many companies is more a tick-the-box exercise than a critical assessment, has lost its effectiveness as a tool to gather information about talent.
A study by psychologists at Rice University in the US shows that companies do need to evaluate and obtain accurate information on staff but annual reviews have problems.
“The key really is accuracy in the ratings managers give their employees,” says Jisoo Ock, lead author.
Supervisors are concerned about demotivating or disengaging employees by providing appraisal ratings that are accurate yet on the low end of a rating scale.
The result is that it’s common to see everyone in a company getting a good score with ratings clustered at the high end of the scale.
“Organisations by nature are large social environments, and we cannot forget that context when making use of performance-rating data,” Ock says.
“We think that the critical factors of interpersonal relationships and interpersonal politics in an organisational environment may have a profound influence on a company’s review process. But these factors are typically under-researched.”
The researchers say it’s sensible for peers not to provide negative feedback because they ultimately have to work together.
“Likewise, supervisors and co-workers may have a difficult time transitioning from being inspirers, motivators or even friends to being judicial evaluators of employees,” Ock says.
“Regardless of the nature of the organization, it is no surprise that raters will often tread carefully in ways that avoid negatively affecting their long-term relationships with those people whose performance they have to rate. Anecdotal evidence has shown that interpersonal political considerations are nearly always a part of the employee review process.”
A better system could be a more informal, continuous appraisal and performance feedback.
“Certainly no organisation is going to be without politics, but the more that an organisation has a non-threatening social environment or culture that facilitates ongoing communication and feedback among employees, the more productive and beneficial the performance appraisal process will be,” Ock says.
“Continuous feedback that occurs on a day-to-day basis in such an environment is much more likely to create real-time alterations in employees’ job performance behaviours than are infrequent or annual formal feedback sessions.”
Not all of the burden of appraisal should be on management. Employees, according to the research, should always be thinking about their own interpersonal skills for their own career advancement and development.
The research, Managing the Interpersonal Aspect of Performance Management, is published in the journal Industrial and Organizational Psychology: Perspectives on Science and Practice.