Once a year you wake up with what can only be described as butterflies or a ball of knots in your stomach depending on what you ate for breakfast mind racing, reminiscing over your accomplishments while simultaneously regretting all of the things you could have done better this year. Do you know what I am referring to? Today is the day of your annual performance appraisal. An annual appraisal highlights an employee's work as it relates to the overall contribution to the company. In contrast to performance evaluations, performance appraisals usually determine pay raises and bonuses, and have a fixed date on the calendar. Intended to serve as a motivator and guide for employees by clearly defining goals, identifying challenges, and implementing development solutions, appraisals sound great in theory; however, there is still much debate over their effectiveness in terms of accuracy and objectiveness. What remains constant is that employers and employees alike seem to be questioning its value more and more. As an expert in behavioral and cognitive psychology, I have done an ample amount of research on work-place biases. While the debate may often focus on whether or not to conduct annual performance appraisals, I think the focus should be on avoiding common pitfalls. By eliminating these, appraisals can be mutually beneficial for both employer and employee.
The Psychology behind Performance Appraisals
In an annual appraisal, both the employer and employee perceive the exchange as a two-way conversation in which the employer explains decisions regarding rating, raises, promotions and future projects while the employee openly receives and comments on the feedback. This exchange of dialogue is meant to maintain or improve employee performance. On the contrary, if performance appraisals are not accurate, then employee's performance suffers. Although there are various methods for the performance appraisal, I will expand on two of the most commonly used within the workplace. The Critical Incident Method involves a manager documenting specific situations in which the employee demonstrated a particular strength or a need for improvement. Employees like this method because the feedback they receive is specific. A significant problem associated with this method is that negative incidents are more noticeable and thus documented more often. This is due to what psychologists call the negativity bias. Neurologically, our brain is built with a heightened sensitivity to negative news. This heightened sensitivity makes us take notice of the bad, and more heavily influences our attitudes towards others. To avoid negativity bias, managers should document positive strengths demonstrated by the employee right away, and review them a few times. This primes the brain to focus more on the positive rather than only the negative. Although this method can be demanding on management, done right, this method can be a key to success. Employees appreciate the attention and coaching as it demonstrates a commitment from their employer to their overall development. It is also perceived as a more accurate documentation of their performance, as the incidents tracked relate to the progress throughout the entire year. The Rating Scale Method is also commonly used for annual performance appraisals. This method is useful because it allows for quantitative comparison; however, many managers accidentally fall into two common mistakes psychologists like to call the halo effect and the recency effect. Oftentimes, a manager's overall perception of an employee effects their evaluation of them across multiple assessment categories. Therefore, someone who receives a high rating in one particular area may also receive high ratings in subsequent areas. The opposite is also true: if an employee receives a low rating in a particular area they are more likely to receive lower ratings across multiple areas. This is due to the halo effect, the most common bias in performance appraisals. The recency effect is when the employee's most recent behavior becomes the primary focus prior to their annual performance appraisal. This of course can be a good thing, if the employee demonstrated his or her highest performance level near the time of their appraisal, but it can also skew an employee's rating. For instance, an employee may have performed well throughout the entire year, except for the last month preceding their annual appraisal for circumstantial reasons.This employee may then be rated lower than a coworker who throughout the year had lower productivity, but performed very well for the last month. If the manager falls victim to the recency effect while rating these employees, then these employees will not have been accurately rated in terms of overall performance. Again, when the rating scale method is utilized properly, it can be a highly effective means of tracking where an employee stands in multiple categories. These scales are easy to use, less demanding on managers, and easy for employee's to understand.
Whichever performance appraisal method a company uses, they must focus on evolving a system that encourages development by providing consistent, objective feedback. It is important to remain cognizant of the type of method used, and how it may impact retention of top performers. For instance, if a company has lots of high performers and uses a forced ranking method, this may eliminate high potential employees who ultimately get weaned out, or lose motivation and seek employment elsewhere. It is important to note that in any method, the most effective feedback immediately follows a great or poor performance. According to Forbes, regular coaching is the key to alignment and performance. Annual appraisals may need to be reevaluated and possibly replaced by coaching, professional development, quarterly reviews, or weekly check-ins.