Performance appraisal has formed an integral part of the corporate landscape for most of this century. Yet, despite constant advances in business knowledge and technology, performance appraisal practices in most companies have changed little since the days of manual typewriters and carbon paper. Companies that want to compete in the 21st century, say Vistage speakers and performance appraisal experts Bill Scherer and Judith Segal, must discard their outdated performance appraisal notions and embrace a very different approach -- one in which performance appraisal becomes a strategic tool to outdistance competitors and drive organizational results.

Fear and Loathing in the Corporate World
Recipe for Failure
A Formula for Success

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Performance Appraisal: A New Paradigm

Scherer, who has worked with dozens of companies to revamp and revitalize their performance appraisal systems, defines performance appraisal as the process of supervisors:

Interacting with and forming associate relationships with employees
Developing open communications with the people who report directly to them
Knowing at all times where people and the organization stand in relation to their goals
Creating a partnership with employees in order to get the job done

"Performance planning and review and performance appraisal are not the same," asserts Segal. "Performance appraisal is one-way, something that one person does to another. Performance planning and review involves a series of discussions with a purpose. It encompasses a wide range of issues, from laying out performance expectations to defining the corporate culture (by identifying which behaviors are acceptable and which are not) to establishing rewards and consequences for behavior."

In companies that practice world-class performance appraisal, say our experts:

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Performance Appraisal Best Practices

Vistage speakers Judith Segal and Bill Scherer have worked with companies of all sizes and in all industries to design and implement effective performance appraisal/management systems. In their experience, the companies getting superior results from their performance management systems generally use the following best practices.

Make performance appraisal part of the culture. Never try to overlay a performance management system on what you already do. To have any chance at success, it must become part of the organizational culture.
"Performance planning and review sets the framework for everything you do," argues Segal, "from following through on the strategic plan to hiring and orienting new employees to defining and reinforcing the norms, values and expected behaviors within the company. It is an ongoing, long-term process that becomes part of the way you run your business. If employees perceive it as just another 'flavor of the month' program, it will go nowhere in a hurry."
Walk the talk. CEOs often think, "I shouldn't have to do performance appraisal with my direct reports. I pay them a lot of money -- they should know what to do and just do it!" That attitude, however, kills any chance you have at effective performance appraisal, not just with your direct reports, but at all levels of the organization.
"Unless and until you become willing to model the right performance appraisal behaviors with the people who report directly to you," says Scherer, "the chances of it happening throughout the rest of the organization are slim to none."

According to Scherer, walking the talk for CEOs includes:

Modeling the company's performance appraisal system with your direct reports, including regular and ongoing interim review sessions
Participating in training to develop your own coaching, feedback and performance assessment skills
Holding your direct reports accountable for conducting regular performance reviews with their direct reports
Making sure people get recognized and rewarded for using the performance appraisal system appropriately
Regularly communicating the importance of your performance appraisal system in meetings, memos, newsletters, etc.

"This is where the cultural change really begins," adds Scherer. "You can't just say, 'Okay, we're now going to have a performance management culture' and expect people to change overnight. You have to model, demonstrate, teach and coach the process with your direct reports and hold them accountable for doing the same with theirs. When people see that you really mean it, they will give performance appraisal the same level of attention and commitment that you do."

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Implementing a Performance Management System

Performance management requires a significant amount of time and resources. Do the returns justify the investment? The answer, according to Scherer and Segal, is an unqualified "yes!"

The Benefits of a Performance Management System
Implementing a Performance Management System
Additional Resources

The Benefits of a Performance Management System

Segal credits performance management -- which she terms "performance planning and review" -- with a host of positive outcomes. These include:

Increasing productivity
Measuring performance versus expectations
Documenting a person's strengths for their own motivation
Communicating weaknesses that need improvement
Maximizing team performance
Reinforcing corporate values
Supporting organizational clarity and alignment
Increasing personal responsibility and accountability for growth and career management

"Above all," says Segal, "performance planning and review aligns individual goals with organizational goals and tracks performance on a consistent basis to make sure those goals get achieved. It ensures that people do what they need to do and do it in a manner that leads to the desired outcomes. Performance planning and review can't guarantee you will reach your goals, because there are always factors beyond your control. But if you don't achieve them, you will know exactly why and what you need to do to improve performance."

Scherer considers performance management an essential ingredient for maintaining organizational health.
"Organizational health depends on four critical factors," he says. "One, everyone understands the mission and purpose of the organization. Two, everyone understands the strategic goals -- the four to seven key result areas that, if accomplished, will lead to organizational success. Three, every employee knows their individual roles and responsibilities and how those fit with organizational objectives. And four, the company has consistent, effective communication at all levels of the organization.

"Performance management makes these things happen. It causes people to feel they're an integral part of what is happening. It gets them to start thinking of themselves as associates working with management rather than employees working for management to get things done. When that happens, you get a very different organizational dynamic. When employees feel like they work for someone else, their interests and concerns tend to be entirely self-focused. When they see themselves as associates working with someone, their interests and concerns tend to line up with those of the organization. When that happens, your chances of achieving your organizational goals and objectives improve dramatically."

Implementing a Performance Management System

Implementing an effective performance management system requires four basic steps:

The planning session
. Regular performance reviews
Ongoing coaching for improvement
A formal, year-end performance review

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Preparing for the Year-End Performance Review Session

Year-end performance review discussions should revolve around the pre-determined performance criteria that you and the employee established in the first planning session (see: Implementing a Performance Management System). That does not mean, however, that you can coast into the session with little or no planning or forethought.

Instead, say Vistage performance appraisal experts Judith Segal and Bill Scherer, a little preparation will go a long way toward facilitating a positive review session where both supervisor and employee walk away with feelings of mutual respect and accomplishment.

Our experts recommend five preparation steps for a world-class performance review session:

1. Review the objectives of the session. A performance review session has three primary objectives:

Review performance over the previous period.
Discuss any "leftover" issues with the employee.
Plan the future.

Preparation for the year-end review should focus on gathering information, identifying issues and preparing questions to deal with specific performance areas.

2. Dual preparation. Because effective performance appraisal requires a dialogue, not a monologue, both the supervisor and employee must prepare for the session. Segal recommends that each person prepare a rough draft performance evaluation (using the performance appraisal form) prior to the meeting. During the session, supervisor and employee compare their drafts and use them as the basis for discussion.

"Keep in mind that your primary goal is to discover where and how actual performance varied from the goals identified in the initial planning session," suggests Segal. "Then use that information to coach and counsel the employee for improved performance, not to beat them up for missing the target."

In addition to the rough draft appraisal, Scherer also recommends that employees come prepared with the following:

Uncertainties (if any) they have about the supervisor's expectations for the job
Suggestions for improving their own performance
What help they need from the supervisor to improve and/or get the job done
Where they see themselves headed in their career and what experience/job assignments will be needed to get there

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Giving Critical Feedback

For supervisors and managers, a large and often uncomfortable part of the performance review session involves giving critical feedback to employees. Certain techniques, say Vistage performance appraisal experts Judith Segal and Bill Scherer, allow you to deliver that feedback in a manner that doesn't bruise egos and makes it easier to receive.

Gap Analysis
Defusing Conflict
Setting Goals
Changing Behavior

Gap Analysis

Gap analysis works well when the employee's performance falls significantly short of expectations. Begin by dividing a blank sheet of paper into two columns. The left-hand column indicates what you (the supervisor) want, need and expect from the employee. Ideally, this represents the goals and action steps the employee agreed he or she would accomplish in the first performance planning conversation. List these things -- specifically -- in a non-judgmental manner.
In the right-hand column, list the behavior and results you actually got from the employee. Then say to the employee, "This is what you said you would do and this is what you did. The difference between the two is a problem you and I need to talk about."

This exact phrase, says Segal, opens the door to exploring a number of issues, including why the employee failed to meet expectations and what they will do differently to improve performance.

"Always use the phrase you and I and not we," she explains, "because there is no we in a disagreement. By saying we, you automatically make it your problem too, when in reality it is the employee's performance or behavior that constitutes the problem.

"Gap analysis provides a very effective tool for confronting people about performance problems, but only if you have identified the performance expectations in the planning stage and made sure the employee understands and agrees with them. If you don't build in the performance expectations up front, you can't come back later and chastise the employee for not performing up to standards they didn't know about."

The 10 Commandments of Giving Criticism

For managers and supervisors, criticism comes with the territory. Like it or not, your job involves giving feedback to employees, even when that feedback carries a critical and unwanted message. Although few enjoy giving or receiving criticism, Vistage speaker Bill Scherer believes that certain principles can make the process easier and more rewarding for both the giver and receiver.

Before giving criticism, suggests Scherer, first ask yourself the million-dollar question: How can I give the information (criticism) to the other person in such a way that he or she accepts and acts on it so that it benefits the other person and my relationship with them?

Asking this question provides three immediate benefits. It forces you to:

Take a closer look at your real motives for offering the criticism.
Focus on the possibilities for change and improved behavior.
Acknowledge a commitment between you and the person you are criticizing and recognize that you have a shared responsibility for resolving the behavior issue.

With this foundation in place, says Scherer, you can faithfully go forth and practice the 10 commandments of giving criticism:

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The 360-Degree Performance Appraisal

No exploration of current performance appraisal practices would be complete without taking a look at perhaps the hottest subject to come down the appraisal pike in the last 10 years -- 360-degree appraisals.

Surprisingly (given the popularity of 360-degree performance appraisals in today's corporate world) our Vistage best practices experts -- Bill Scherer and Judith Segal -- do not endorse this increasingly common practice.

Pros and Cons
Additional Resources

Pros and Cons

Stated briefly, a 360-degree performance appraisal involves having a person's immediate supervisor, customers, peers and subordinates all give performance feedback. In theory, the broader spectrum of perspectives should provide a more accurate, well-rounded view of the person's actual performance. In actual practice, however, our experts have found that companies attempting this unique form of appraisal often end up with very different results.
Proponents argue that the 360-degree approach:

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Creating a Customized Performance Appraisal Form

Appraisal forms have gotten a bad rap in our culture, and deservedly so say Segal and Scherer. Too often, they pigeonhole, categorize and compartmentalize people into someone else's ill-defined notions of performance ratings. They rarely describe the actual performance being evaluated, and often force supervisors into making choices they don't want to make. Managers hate them, and employees on the receiving end feel dehumanized and demotivated by the whole appraisal process.

However, despite their flaws, appraisal forms do have a rightful place in the performance appraisal system. The key is to design and use them properly.

Problems with Standardized Forms
Effective Appraisal Form Criteria
Customizing Your Own Performance Appraisal Form
Additional Resources

Problems with Standardized Forms

When properly designed, performance appraisal forms enhance rather than inhibit the appraisal process. They provide many benefits, including:

A common reference point between supervisor and employee
A record of mutual understandings and agreements
A tool to help the employee keep developments on course
A reference for others in the organization when considering the employee for transfer, promotion, etc.
Documented proof that critical job-based communication is taking place on a regular basis

According to our experts, however, the vast majority of off-the-shelf appraisal forms (whether paper or software) generally have a number of design flaws that preclude them from accomplishing these important goals. These flaws include:

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