Your performance appraisal system can weigh very heavily on your business if it is poorly structured or managed.

At their worst, performance appraisals can be demotivating, and cost you both time and money. They can also lead to bad managerial decision-making, which directly threatens you as the CEO.

As a new CEO, you are perfectly placed to improve the way appraisals work. There will be good aspects to keep in place, and there will be weaknesses to challenge. You have a clear-eyed view of the current approach and plenty of sway to make changes.

As the C-Suite cliché has it, you need to work on the machine, not in the machine. The greatest impact you can have is through the processes and structures that you put around others, something that is particularly true in performance management.

This article will take you through:

  • Why appraisal processes matter to CEOs
  • How to understand your company’s appraisal process
  • What makes appraisal processes more effective, and what makes them worthless or damaging
  • How to make beneficial changes to your appraisal process.

What does a good performance appraisal process look like?

At their best, performance appraisal processes can help you to identify your best performers, and raise timely flags where staff aren’t meeting expectations. They will help you and your team to create development and work plans. As a tool, a good appraisal also makes managing people easier, and can improve both motivation and engagement.

The best systems of appraisal share some characteristics. They will:

  • embed continuous feedback
  • look forward to what ought to be achieved next
  • look back to what has been done
  • address performance (what people achieve)
  • address behaviour (how they achieve it)
  • allow for clear communication between managers and team members.

A good performance appraisal is about more than measuring performance

There is a large, personal aspect to good appraisal systems. They are flexible enough to work for people in all kinds of roles up and down your company, more than they are one-size-fits-none checklist.

For example, imagine your staff members have a hand in describing the direction they’d like to take at work. Then, when your staff members’ performance assessments meet personal ambition, your managers can plan a positive way forward.

As Rebecca Knight writes in the Harvard Business Review (HBR), ‘understanding what your direct reports want from their careers will help you figure out ways to broaden their professional experiences’.

The obvious goal of accurately measuring current and past performance is actually secondary. Good appraisal processes have the much larger goal of causing improved performance.

What is a bad performance appraisal process?

Conversely, poorly-run appraisals can be harmful. They can lead to misallocated rewards; mismanaged underperformance; and poor data. Your staff development, employee engagement and work planning can all suffer.

Here are some hallmarks of a poor appraisal process.

  1. They are designed too broadly, meaning that they don’t differentiate between roles or people. It’s true that codified attempts at objective measurement are easy to run, but can you risk trading off your human element? In the HBR earlier this year, Mackenzie, Wehner and Correll suggested that it’s not a good idea. ‘While we may strive to be as meritocratic as possible,’ they wrote, ‘our assessments are imperfect and all too often biased’. It seems that women are those who are most affected, and that a majority of managers running checkbox-and-rank style systems do not trust them.
  2. They are infrequent, or backward-looking. Annual appraisal processes don’t reflect the reality of work: Events from 11 months ago are too historical for you to have a productive conversation. Similarly, a purely backward-looking system won’t motivate people, not least because they lack a developmental angle.
  3. Communication methods like the positive-negative-positive ‘feedback sandwich’ make messages unclear. ‘Because there’s no single, clear message this approach demoralizes your stars and falsely encourages your losers’, writes Rebecca Knight.
  4. They waste time. When Marcus Buckingham and Ashley Goodall looked at Reinventing Performance Management, they found that ‘leaders’ discussions behind closed doors about the outcomes of the process’ were a common example of inefficiency. If your team is locked in a room talking about ratings, rather than talking to your people, that’s a red flag for you.

How can a new CEO discover existing performance appraisal processes?

As a new CEO, you’re in a good position to improve how appraisals work in your company. You will likely learn about the good things to keep, and the weaknesses that can be challenged.

Look first at what people actually do. Their actions will fall into two parts: The formal process, and the cultural context that it sits within.

Secondly, pay attention to what the process is designed to achieve. Is it mainly about people’s performance or behaviour? Does it care more about the past or the future? Are your business’s priorities baked into the system?

And finally, ask what people actually get out of it (both team leaders and team members). Is the system helping to improve performance?

1. Discover the formal aspects of the process

How regular are the performance discussions between your managers and your team members? Annual systems are traditional, but coaching models have been shown to improve outcomes. The challenge is that even when they think they’re good coaches, most leaders over-rate their skills. Having monthly conversations allows your team members to form positive, development-focused relationships.

Think about what gets documented? Who by? Who for? And ask when people read their written records. Accountability and clarity are absent if pieces of paper just get filed away forever. Bear in mind that if your staff members don’t trust the appraisal process, they may not commit everything to paper.

Look next at the overall focus. Some systems are weighted towards future goals, others towards things already done. Some prioritise the person’s performance, others their behaviour. Which one is best for your company, if it’s going to be supported into the future?

How clear is the communication? Important or key messages can get buried in boilerplate scorecards, or given as personalised feedback. Discover which one is common in your workplace.

Find out if the process is clear to others. Managers need to know what to do and when, and staff members need to know what to expect. If you start getting conflicting messages from your team, it’s a great indication that the process needs work.

2. Look at the cultural context

The way that people discuss performance outside of your formal process sets the context for that process. Peter Cappelli and Anna Tavis stress the importance of ‘a culture that will keep the continuous feedback going’.

The way your company sets day-to-day expectations is cultural. So are on-the-spot rewards for success, and managerial attention to failure.

Too much silence between appraisal seasons leaves your formal process unanchored. And when that happens, the system will feel insincere. It’s almost guaranteed to deliver surprises, and to occur much too late to be useful. It’s another reason to consider moving away from an annual appraisal and into a continuous cycle of conversation.

Another indicator of the cultural context is how your staff approaches the process. In many workplaces, people go through appraisals only because they have to. ‘In one project, only 15% of women and 24% of men managers had confidence in the performance evaluation process,’ wrote Buckingham and Goodall for the HBR, ‘while most viewed it as subjective and highly ambiguous’.

In workplaces that get performance appraisal right, it benefits both the team’s dynamics and everyone’s performance. People trust what happens, and therefore see good results.

How can I make my appraisal process more effective?

By now you know what a good performance appraisal system does. You understand how the system works within your business, and what it is designed to achieve.

It’s time to appraise your appraisal system.

Include the right aims

There are two different ways that your performance appraisal process can fail: Shortcomings are a result of the design, or good intentions get lost in the delivery. You need to set the right aims for your business.

Consider:

  • The balance between recognising past success (or failure) and setting goals for the future
  • The comparative emphasis on performance or behaviour
  • How rewards like changes in pay are linked to the appraisal process
  • The input that comes from each staff member, and from managers.

Focus on outcomes that make your people better at what they do

Investigate the gains that do (or do not) follow your performance appraisal process. Is there a difference in employee engagement or motivation? Do personal development plans change? What about staff performance and behaviour?

According to Jack Zenger, ‘The program must be more than a “box checking” process or a flurry of paperwork. Bottom line, it should improve the way that people perform.’

Expect change to be hard

‘To succeed, the remodelling should preserve the positive elements of past systems, eliminate the major problems of current processes, and meet the objectives of a more modern and effective approach for achieving performance management goals.’

Forbes

Here’s where the best CEOs stand out.

Most CEOs can gather a good understanding of how their employees are assessed. Most CEOs can articulate what ought to be achieved by this appraisal process. Most can see what actually is achieved and spot the gaps.

But change is what separates the wheat from the chaff. Every employee is affected, so even small tweaks have a big impact. Most change will have a procedural side and a cultural side. Cultural change is usually more important, and nearly always more difficult.

There is an evidence-based trend for less formal appraisal and more ongoing feedback. Research favours discussions about current and future performance much more than discussions about past performance. This means that goal-setting and professional development must be part of the process. How you link performance assessment and financial (or other) rewards needs to be carefully considered. Perhaps your managers ought to focus less on paperwork and rankings, and more on individuals’ output and abilities.

Whatever changes you make, they will remodel the way that your expectations are conveyed to your staff. They will also change the way your team members compare performance and expectations, and how you address the gaps.

If you don’t have a clear link between appraisals and performance, that ought to be your greatest concern.

In summary

Performance appraisals affect everything in your business, from performance to culture. When the process has clear goals, aims that fit your company, and a framework that focuses on development, your system can start to deliver.

PS. Automating the structure of your appraisal process allows you to focus on the conversations that make the process valuable.

The software you use for your appraisals should make the process easier, not harder.

You need a system that will give you a solid foundation on which to track people performance, without getting bogged down in process and IT issues.

For a free, confidential discussion about what system might be suitable for your organisation, contact our experts today: