Final Exam – Question #2 (Tyrone)
What are the potential organizational consequences of an ineffective performance appraisal system? Explain. What are the keys to an effective appraisal system? Explain.
(A) An ineffective appraisal system can be a huge organizational liability. The organizational consequences of an ineffective performance appraisal are costly to employees, managers, HR managers, and the organization as a whole.
When appraisals are ineffective, they create a number of serious problems that have a direct, negative impact on performance at a variety of levels. When done poorly, performance appraisals can demotivate an employee; waste people’ critical time and resources; damage the manager –subordinate working relationship; stifle employee growth and development; frustrate managers; and breed added cynicism and negative attitudes among employees and managers alike.

Performance appraisals can actually reduce employee and managerial performance when not conducted effectively. The costs of ineffective appraisals at the organizational level are equally high.

Ineffective performance appraisals can create inaccurate documentation of an employee’s actual contribution to the organization; damage the link between an individuals performance and his/her corresponding merit pay increase; open the door for potential employee appeals or challenges to the review process and lead to expensive and time consuming litigation; and damage the overall credibility of an organization’s human resources management function.

Ineffective appraisals go a long way in having a negative impact on the effectiveness of the organization and credibility of the organization’s overall HR function.

The keys to having an effective performance appraisal system are: (1) effective system design, (2) effective managerial system practices, and (3) effective appraisal system support.
Effective system design – includes having a clearly defined and value-added purpose for conducting performance appraisals which is understood by everyone; it requires extensive input by employees and managers on how the appraisal system should function; procedures should be easy to follow and rating should be job-related and performance based; managers and employees should be educated on how the appraisal system operates.

Effective managerial system practices – includes having managers at all levels conducting effective performance planning; managers should provide their direct reports with ongoing informal performance reviews and feedback on how to improve their performance; and managers should conduct effective written and face-to-face performance reviews in an honest and forthright fashion.

Effective appraisal system support – includes having top management support of the appraisal process in both word and deed, including effective executive and managerial appraisal; appraisal outcomes such as pay increases, promotions, development and training opportunities should be linked to performance ratings; and there should be a monitoring component to ensure user satisfaction and compliance with the rating system, and corrective action when desired results are not forthcoming.

"The key to effective appraisals are the rating practices of individual managers....You need to build your rating system around the needs of the manager and the employees that he or she is trying to evaluate ... The appraisal system is the foundation on which the manager operates and the support he/she receives goes a long way to determine his/her effectiveness.... Ultimately, only effective rating improves performance."

The above comment cuts to the core as to why organizations ought to do appraisals effectively: to improve performance. To achieve this lofty goal, a “systems approach" must be followed according to the executives in this study. If individual managers are to increase the effectiveness of their rating behavior, they need to operate using an effective appraisal system as a foundation, demonstrate and practice effective rating behaviors, and finally receive ongoing motivation and support to conduct effective appraisals.